Money Map Report
September 1, 2011 VOL. 6 • ISSUE 9

This Commodity Is About
to Hit "Precious" Status

Buy it now, before it's priced accordingly…

Dear Money Map Report Reader,

The S&P 500 is getting taken to the cleaners, having lost nearly 15% in just the first week of August. Gold and metals are on a tear, Japan is coming unglued, Europe has a bad case of denial, and Washington has completely lost its mind.

You know what that means…

It's time to go shopping.

So that's exactly what we're going to do.

Keith Fitz-Gerald
Chief Investment Strategist
Shah Gilani
Event Trading Specialist
Martin Hutchinson
Global Investing Specialist
Peter Krauth
Resource Specialist

Mike Ward
Alex Williams
Editorial Director
Ruth Lyons
Marketing Director
Laura Cadden
Marketing Manager
William Patalon III
Executive Editor
Valerie Dowdle
Managing Editor
Jason Simpkins
Assistant Editor

• The stock-market sell-off on Monday, August 8, sunk 94% of NYSE-listed stocks. Every single stock in the S&P 500 fell, and the DJIA's 635-point freefall was its sixth-largest point drop ever.

• Over the past two months, South Korea spent more than $1 billion on its first gold purchases in more than a decade, doubling its national holdings.

• Apple Inc. just passed Exxon Mobil Corp. in market capitalization (with more than $337 billion), making it just the 11th company in history to hold the title of "World's Most Valuable Company."

Reporting by our staff at

Of course, we'll want to adjust our tactics to reflect the short-term uncertainty that's got everybody rattled. And we'll only concentrate on investments we know to be worth our time and our money.

I say that because we may not have hit a bottom yet – much less the bottom.

But after the smoke clears, I see a brand-new "golden age" of investing ahead. One that will be based on real earnings, responsible fiscal policy, and actual adult supervision in our capital (and in central banks around the world).

That's why we want to invest in a handful of companies that will lead the way. The best-positioned ones are joined at the hip with global trends backed by "must haves," rather than "nice to haves" – Wonder Bread and Band-Aids, not caviar and Kindles.

And the company I'm recommending this month provides the most necessary "product" of all…

Clean Water Is Big Money

Everyone knows the long-term fundamentals for water-related investments are compelling.

But water isn't so "long-term" anymore.

Here's why…

More than 71% of the globe is covered by water, yet only 3% of it is suitable for humans, animals, or crops.

According to the World Health Organization (WHO), fewer than 12.5% of the 6.77 billion people alive today have access to clean drinking water.

To call this a "shortage" would be an understatement.

This lack of clean water (and proper sanitation) poses a problem to humanity that dwarfs the unraveling of the European Union, the U.S. debt ceiling, peak oil, or any of those "sexy" topics fighting for headlines.

If you don't have clean water, you die. Simple as that.

If this seems sensationalist… good. We don't hear about it very often in the States, but this is scary stuff. Just check out the numbers.

According to the United Nations, UNICEF, and the WHO:

  • Every year, 3.575 million people die from water-related diseases.
  • Diarrhea is the world's second-leading cause of death among children under the age five.
  • 2.5 billion people lack access to improved sanitation, and 1.2 billion people have no facilities at all.
  • At any moment, half of the world's hospital beds are occupied by patients suffering from diseases associated with lack of access to safe drinking water, inadequate sanitation, and poor hygiene.
  • Of the 60 million people added to the world's towns and cities every year, most occupy impoverished slums and shantytowns with no sanitation facilities.

Then there's the link to food. Water is not, after all, just for drinking.

As the world grows – in both population and prosperity – there are going to be enormous demand pressures on water to nourish the world's food supply. That's hardly inconsequential. Irrigation represents 66% of total withdrawals from aquatic systems worldwide.

The figure is even higher in arid regions, with up to 90% going to irrigation rather than into people's bellies.

No wonder, then…

It's Better Than Investing in Oil… or Even Gold

I've been on the hunt for a suitable water play for several years now. But we have been stymied by the overvalued nature of our markets. So now that they've cracked, it's finally time to come along for the ride toward clean, fresh water for everyone.

We won't be alone.

Citigroup Chief Economist Willem Buiter expects to see "a globally integrated market for fresh water within 25 to 30 years."

Buiter also believes water will eventually become the single most important physical-commodity based asset class – more so than agricultural commodities or even precious metals.

That may sound outlandish. After all, we can walk into the next room and turn on a tap to get all the clean, fresh, nourishing water we want.

But I think Buiter's right.

Not long ago, I was part of a closed-door meeting between various international government agencies. One of the findings we issued was that there would likely be open warfare over water in the near future – possibly as early as 2015.

This makes water like oil… a precious commodity. And I expect it to be priced accordingly in the near future.

Therefore, we want to begin assembling positions now to capitalize on the world's next (and to this point almost completely off-the-radar) great commodity boom.

It's hard to buy water rights directly unless you have a local presence. But as investors, there's one company that can get us pretty darn close…

These Water Solutions Are Worth Billions

Founded in 1966 and based in Golden Valley, Minnesota, Pentair Inc. (NYSE:PNR) is a diversified industrial manufacturing company that delivers water solutions and technical services to customers around the world.

Pentair Water (the water solutions segment) generated $2 billion of revenue in 2010. That represents 67% of total sales for the year.

The company has five global business units whose products help with the movement, treatment, storage, and enjoyment of water:

  1. Residential Flow Technologies makes residential water pumps, irrigation and crop spray equipment, and marine pumps and accessories. 
  2. Residential Filtration focuses on bringing clean, safe, refreshing water to families around the world. It uses innovative, environmentally focused, and energy-saving technologies in its filtration, softener, and deionization products and systems.
  3. Filtration Solutions makes equipment for treating air, gas, water and other fluids.  Products include pressure vessels, filtration systems, various filtration media, and separation technologies.
  4. Engineered Flow Technologies creates mid-to-large fluid management products and applications. This unit delivers a range of products, from the world's largest flood control pumps to sophisticated fire and HVAC pumps.
  5. Pool and Spa makes high-performance, reliable, and energy-efficient filters, controls, sanitizers, pumps, heaters, cleaners, and accessories for swimming pools and spas.

Pentair's customers run the gamut from residential to municipal, commercial to industrial, and hospitality to agricultural and even healthcare facilities in the United States and, more importantly, abroad.

Overseas is, naturally, where I see the real potential...

Quenching Thirst in the Fastest-Growing Countries

In 2010, Pentair doubled its water manufacturing capacity in Suzhou, China, and opened more than 100 stores around the country.

Revenue in China increased by 26% in 2010, but I think (as does management) that's merely the tip of the iceberg related to the opportunity there.

Much of China's water is unsuitable for drinking, due mainly to excessive industrial and residential pollution.

In the years ahead, Beijing will continue to work feverishly to design and implement a plan to supply clean water to its exploding urban areas, as well as its farmland. And they'll need all the help they can get.

According to Pentair, 35% of China's total water supply is polluted and undrinkable. But I've talked with sources inside China who put that number much closer to 97% (when using Western standards of potable water).

Companies that can begin to bring solutions to China could literally have decades of Chinese backlog supporting top-line growth.

Pentair is also expanding its operations and capabilities in high-growth Latin America, where 2010 sales grew 18%, and India, where 2010 sales nearly doubled. Indeed, it has already moved 40% of its engineers to these two regions, where urban migration is exploding (and where approximately 34% of the world's population lives).

I think this is a great move by management. It demonstrates the kind of focus on future growth that lines Pentair up nicely with our Money Map Report outlook.

And it's already paying off.

Solid Growth in a Dividend King

Pentair recently announced 2Q/2011 sales of $910 million and adjusted earnings of $0.75 per share, representing increases of 14% and 23%, respectively, over the same time period a year ago.

So it's got solid growth. But it's still quite cheap.

The company is trading at 15.39x trailing 12-months earnings, sports a modest PEG of 1.29, and has a price-to-sales ratio of just 1.09. Moreover, its PE is just 13.99. This suggests that the company isn't particularly expensive. (By comparison, the popular exchange-traded fund PowerShares Water Resources Portfolio (NYSEArca:PHO) trades with a PE of 17.)

And here's the capper…

Pentair pays out a 2.40% yield, giving us a cold hard cash incentive to ride out market volatility. The company's payout ratio is only 35%, which leads me to believe it won't have any trouble continuing to pay investors.

Better still, Pentair has consistently increased dividend payments every year since 1995, and that makes them dividend royalty in my book.

Action to Take: Buy Pentair Inc. (NYSE:PNR) at market and use a 25% trailing stop. I recommend splitting your capital into five equal chunks and averaging in once a month for five months. There is no sense in rushing when the markets are in a foul mood. But there is every incentive to use further drops to our advantage, because it lowers our cost basis and increases our upside. MMR

Keith Fitz-Gerald is the Chief Investment Strategist for Money Map Press. At just 15, he started his first business and used the proceeds to make his first investment. He cut his teeth working for one of the world's leading investment powerhouses before becoming a licensed CTA. Keith is a founding member of the Kenos Circle, a Vienna-based think tank that works with governments and institutions around the world to predict future economic and financial events. He is a regular on FOX Business, CBS MarketWatch, and Reuters, and his observations have been featured in a variety of publications, including Barron's, AOL Finance, and Bloomberg. His own book, "Fiscal Hangover," is a bestseller and continues to receive praise. Keith is also the editor of The Geiger Index, New China Trader, and the MicroQuake Alert, where he identifies little-known, microcap stocks with explosive profit potential before they hit the big time. For more information, call our VIP Services group at 888.570.9830 or 410.454.0498.

Natural Gas Is Finally Ready to Double

And its special "delivery" shares could do even better...

You've heard the natural gas story before – that unthinkably vast expanses of it lie right underneath North America… that it's enough to power America for at least 100 years. And that demand is increasing, too.

And so it is…

According to the Energy Information Agency, natural gas consumption will grow 44% by 2035.

But what you haven't heard – not yet, anyway – is that this could be your last chance to act on this story. (For the biggest gains.)

You see, the EIA is overlooking an important factor in its forecast – one that could push demand much higher… and much faster:


At around $4 per million Btu, natural gas is cheap – dirt-cheap. And energy consumers can be expected to gravitate toward this fuel source over all others to get a much greater bang for their buck.

Plus, it's cleaner than both oil and coal.

Couple the affordability factor with stricter pollution regulations sure to come, and it's clear we're set to see a groundswell in natural gas usage.

What's more, production is forecast to drop this year, by more than 7%. That's because (for now) the majority of drilling rigs will be focusing on more-profitable oil.

Increasing demand… less supply… This is going to be the pivotal year for natural gas.

Pick up shares of the company I'm recommending this month, and you'll be ready for the pop.

NatGas Could Double… Even If Nothing Else Changes

Based on the price ratio of oil to natural gas, you can see that we're near the extreme highs of the past 20 years (see chart on the right). Natural gas – relative to oil – is at its second-cheapest level since 1991.

When you compare oil and natural gas prices on the basis of energy equivalence, natural gas costs only 25% what oil does.

Assuming oil prices stay put, reversion to the mean would see American natural gas prices at least double from current levels.

Now, that's not going to happen overnight. But I do expect this development to readily play out over the next few years. I also think that the shift will be so monumental that "early adopters" stand to earn colossal gains in natural gas investments.

There's no need to wait to benefit from this trend. You can start profiting from it now.

That's the beauty of this company's business strategy…

Shipping "High Margin" Gas to 2.3 Million Customers

Based in Atlanta, Georgia, AGL Resources Inc. (NYSE:AGL) is the largest natural gas distributor in the U.S. Southeast and the Mid-Atlantic.

It delivers gas to clients in Georgia, Florida, Maryland, New Jersey, Tennessee, Illinois, and Virginia. Along with those 46,000 miles of pipeline comes a huge customer base of 2.3 million. And AGL knows how to leverage that vast base into vast profits.

You see, most of AGL's clients are signed up for a fixed-rate program, which removes their concerns about volatile natgas prices. That's good for customers, of course… but it's great for AGL.

That's because the company's profits also become detached from market prices, allowing them to lock in higher margins in a low natgas price environment. And still, as demand and prices rise, AGL will renew contract pricing accordingly, ensuring that the benefits keep accruing to their bottom line.

The company's stock is a bargain, too. Its trailing P/E is just 13.5. And it boasts a striking forward P/E of only 11.8, easily beating out its competitors.

Better yet, AGL's high margins allow it to pay a rich dividend of 4.70% – this despite a lower-than-average payout ratio.

Not only does that translate into a safe dividend; it also bodes well for potential increases going forward.

All this makes the company stand out from its competition. But with what's around the corner, AGL's about to leave them in the dust…

A Roaring Growth Strategy

AGL Resources is in the process of taking over Nicor Inc. (NYSE:GAS). The merger should be complete by the end of the year.

Nicor is a $2 billion natural gas distributor based in Illinois. It operates natgas distribution to its 2.3 million clients from the residential, commercial, and industrial sectors.

The company also runs major natgas storage facilities with eight underground fields.

Nationwide, these include a total of 150 billion cubic feet (Bcf) of natural gas storage capacity, plus an additional 36 Bcf of storage in development in California and Louisiana, creating one of the world's largest underground gas storage systems.

By combining its operations with those of Nicor, AGL will double in size, establishing a massive base of natgas customers – about 4.5 million. That will make it the largest natgas utility in America… by a country mile.

Plus, synergies accruing from this amalgamation will make AGL one of the lowest-cost and most diversified utilities, operating in a host of unregulated business. This improves the potential for growing the company, while also boosting earnings per share… great for new investors.

Action to Take: Buy AGL Resources Inc. (NYSE:AGL) at market and use a 25% trailing stop to protect your principal and your profits. MMR

Peter Krauth is a 20-year veteran of the gold and resource market. He travels throughout the world to research opportunities in commodities. He is also the editor of the Global Resource Alert. For more information, call our VIP services group at 888.570.9830 or 410.454.0498.

"Leveraged Crude"

How to make the most money when oil blows past $100… again

I've got some very good news for you this month.

Low U.S. growth – revised down to 0.8% for the first half of 2011 – and a bumpy stock market have now prompted the Fed to pledge to keep interest rates at record lows through mid-2013. (It could even bring about a new spurt of "quantitative easing" purchases of government bonds.)

That's not the good news, of course.

This decision will cause money to flow out of the United States and into all the emerging market economies that are already enjoying growth rates far above ours (and have few of our problems).

That's not it, either. Here's the good news… Since emerging markets consumers don't have the goods we enjoy in the U.S., this burst of growth in those countries will force up the price of the one commodity essential to the good life: oil.

There's been a lot of chatter lately about "peak oil." In fact, there's plenty of the stuff left… it's just harder and costlier to get to, and it takes a lot more processing before we can use it.

As consumers, we may hate the $5 or even $6 gasoline that is around the corner… yet as investors, we know high oil prices means someone's making money – a lot of it.

With my recommendation this month, we can position ourselves to profit from lofty oil prices ahead.

With the same move, we can also profit from the rising inflation that's surely down the road and the sub-par growth we can expect for the near future.

The timing's perfect here…

A New Dynamic for Oil Prices

With the market shakeout, the price of oil has now dropped to the low $80s. That's only temporary, of course. It will return to unprecedently high levels, and soon.

Before the drop, prices had been hovering around $90 or $100 a barrel since mid-February. But that didn't seem discourage anybody from using it.

Peter just made the case for mounting demand for natural gas in the years and decades ahead. It's true for oil, too. Global oil consumption is projected to grow by 1.4 million barrels/day in 2011 and 1.6 million barrels/day in 2012.

You already know why…

Chinese vehicle sales rose by 32% in 2010, to 18.1 million units, far ahead of the United States' 12.3 million units. India, too, saw a surge in automobile demand.

Gasoline consumption in those big emerging countries has not yet caught up with vehicle sales. But in a newly automotive society, it's really only a question of time.

Whatever expensive and dangerous fuel economy regulations are imposed on U.S. consumers through Corporate Average Fuel Economy (CAFE), therefore, global oil consumption is fated to increase for at least the next decade.

And if you think that high oil prices might cause consumption to fall off a cliff as it did in 2008, you're mistaken.

While 2008's spike in oil prices caused the market to react, today's oil market has got used to these high prices. There is no longer "sticker shock" from $100 oil or $4 gasoline.

The market has adjusted, and – contrary to environmentalist hopes – that "adjustment" has consisted of reducing consumption a little in other areas. Giving up the driving habits to which the world has become increasingly addicted is simply not in the cards.

We're all just going to have to dig deeper every time we pull up to the pump.

Here's your chance to offset that.

The Oil Company Investment Solution

There's a problem with investing in the conventional oil majors, like Exxon Mobil Corp. (NYSE:XOM) and ConocoPhillips (NYSE:COP). You miss out on the huge flow of money to oil producers that comes from higher prices and higher revenues.

Third-world governments often "renegotiate" the contracts under which the oil producers had been operating or even nationalize their operations overnight.

When that happens, what should have been a bonanza for oil company shareholders becomes a mass of pointless lawsuits that might or might not lead to recovering some of your investment.

Even in Western countries, the opportunity to slap a "windfall" tax on oil company profits is often all too tempting to cash-strapped governments.

There is a solution to this. Investing in places like the Canadian Athabasca tar sands.

The oil there is a sticky, tar-like form of petroleum so thick and heavy that it must be heated or diluted before it will flow. So overall operating costs are high, but they mostly consist of real out-of-pocket hard costs, not royalties to a grasping government you cannot control.

However, most of the Athabasca tar sands companies are selling at high prices in relation to earnings and book value.

So even though their earnings are real and likely to grow, the companies may not be bargains at present.

With one (incredibly attractive) exception…

Indeed, Nexen Inc. (NYSE:NXY) is more than a bargain right now. There are three reasons I'm jazzed about this company.

1) Its Unique Technology Overcomes Barriers

Based in Calgary, Alberta, Nexen is the former Canadian arm of Occidental Petroleum.

The company uses a unique steam-assisted-gravity-drainage (SAGD) technology with several advantages. It can recover bitumen that is too deep to mine, while more efficiently extracting oil from the sands, at some of the lowest operating costs in the industry.

According to the company's website, its SAGD process addresses three main economic hurdles of bitumen production (see table below).

Nexen has worked hard to make bitumen production profitable at reasonably lower oil prices. So the higher prices go, the more profits they'll clear.

From here upward, it's all profits.

2) Its Valuable Energy Assets Span the Globe

Nexen has a minority shareholding (just over 7%) in the enormous Syncrude project (the same project that actually first started Athabasca development back in 1975). This joint venture was created to mine the shallow oil sand deposits, extract the bitumen, and upgrade it to a high-quality, light, sweet, synthetic crude oil.

This is a very profitable scheme.

But to me, Nexen's most interesting asset is its controlling shareholding (65%) in the Long Lake tar sands project in Athabasca. (OPTI Canada owns the remaining 35% as its sole project.)

Long Lake produces 60,000 barrels/day of premium synthetic crude.

But given its large Athabasca land holdings, Nexen believes it can replicate the Long Lake operation many more times, with each replication generating low-risk production of high-quality synthetic crude for 40 years.

And it's not just oil assets that make Nexen attractive.

The company also has 199 sections of undeveloped land in an emerging Devonian shale gas play in British Columbia. It contains gas reserves to the tune of between 700 million and 2.5 billion boe (barrels of oil equivalent).

Outside of Canada, Nexen's two deepwater Gulf of Mexico projects are now back on track following the disruption caused by the BP disaster in spring 2010.

It also has oil and shale gas exploration interests in Colombia, where oil and gas production is expanding rapidly.

Across the Atlantic, in the U.K. North Sea, Nexen owns a 43% interest in the mature Buzzard field, a 41% interest in the Scott field, a 71% interest in the Telford field, and a 80% interest in the Ettrick field.

The Ettrick field is relatively new, having come on-stream in 2009.

In Africa, Nexen owns the controlling interest in the Usan field offshore of Nigeria, which comes on-stream in early 2012 and is expected to produce 180,000 barrels/day, of which Nexen will have the rights to 36,000 barrels/day.

With the need for offshore technology and a deal that already gives Nigeria 80% of the oil produced, the political risk here is not great.

Finally, Nexen also has a mature operating field in Yemen (although the contract runs out at the end of 2011.)

3) It's Leveraged (and Cheap)

As global growth continues strong and Ben Bernanke's dollar stays weak, I expect oil prices will soar. And Nexen is well placed to benefit.

I regard its Athabasca and British Columbia projects as having most value and long-term earnings potential, with Nigeria offering some nice short-term upside.

Because of its tar sands and offshore drilling projects, it offers us a leveraged play on oil prices; if they continue to increase, Nexen's earnings should increase more than proportionately – much more.

Its market capitalization is around $12 billion. That may not be much for an oil company, but it gives Nexen a diversification, liquidity, and financial stability far greater than a small single-well operator.

Best of all, right now, NXY is selling at 8.09 times P/E, with earnings expected to increase in 2012 as new projects come on-stream, and a PEG ratio of 0.62.

That suggests solid earnings for its growth, and it's just stellar for the oil industry.

NXY also pays a dividend of 5 Canadian cents per share, with the next ex-dividend date being September 9, for a yield of about 1.00%.

Action to Take: Buy Nexen Inc. (NYSE:NXY) at market and use a 25% trailing stop to protect your principal and your profits. MMR

Martin Hutchinson is a former investment banker with 25 years’ experience in London and New York, as well as the former U.S. Treasury advisor to Croatia. Martin edits The Permanent Wealth Investor, which focuses on Alpha Bulldog stocks that pay high dividends, and the brand-new Merchant Banker Alert. For more information, call our VIP services group at 888.570.9830 or 410.454.0498.

Ask Keith

Peter Krauth

Q: What drove the massive sell-off on Thursday, August 4?

A: Not to be flippant, but there were more sellers than buyers.

Simple as that.

It's when you look at the mechanics that things get really interesting.

It's one thing when the sellers pile in, but quite another when there are no buyers. That, as much as anything, contributed to the massive drop.

Nobody wanted to put their money on the table, so the sellers had to present ever-lower prices. And, as panic set in, they were willing to lower them in a real hurry.

Q: Come on, Keith… Gold has to be a bubble… Right?!

A: Not necessarily.

This year alone, emerging market government banks have purchased more than $10 billion in gold as a means of hedging their exposure to the U.S. dollar. And when they're buying, that's a powerful price influencer.

Don't forget, gold is not just about individuals any more. Entire governments are buying to preserve their purchasing power – just like we are, albeit on a much smaller scale.

According to IMF data, emerging market central banks have purchased more than 180 tons of gold so far this year, which is more than double the 73 tons they purchased in all of 2010.

And this doesn't, incidentally, include China, which is notoriously secret about the composition of its foreign reserves.

Confidential source estimates suggest that nation may have quietly picked up as much as 350 tons. That would suggest another 150 tons purchased since April of this year – an amount nearly as great as all the other central banks combined.

Q: What's the best choice I can make today?

A: Go offshore with your money. And I don't mean pack it up and move.

I mean buy companies that are focused on the strongly growing international markets we've favored since the beginning of The Money Map Report.

It really is a simple equation…

According to SmartMoney, Americans have more than 90% of their money tied up in U.S. markets, yet our economy accounts for less than 45% of the world's stock market capitalization.

Moreover, that latter percentage is dropping and may be below 30% a decade from now or sooner. MMR

Got a burning question for Keith?
Just email it to him at, and use the subject line
"Ask Keith." While he can't provide individual investment advice, Keith can address your
questions and comments in future issues. And log on to to take a look
at our FAQ page, too, where we post answers to the most popular questions submitted by
your fellow Money Map Report subscribers.

Portfolio Review

There are many predictions of doom, gloom, and boom out there, but there are just as many predictions of a glorious rebound in the works.

Truth be told, we're likely to get both.

Just keep your head screwed on straight.

Our hedges are in place and working as they should. Our positions are well concentrated and appropriately balanced, thanks to the proprietary 50-40-10 structure we adhere to. Our trailing stop discipline protects our profits.

Perhaps most importantly, we're still building upside (even though that may be hard to imagine when the market pitches a fit like this). That's something most investors are sadly lacking in their scramble to sell – at precisely the wrong time again, I might add.

Base Builders

American Century Capital Preservation Fund (CPFXX): Despite the U.S. debt downgrade, CPFXX is one of the most senior and established Treasury-only money market funds in the investment industry. So it's an ideal place to stash your cash while we wait for new investment opportunities. Plus, it's exempt from state income tax.

Nuveen Quality Income Municipal Fund (NQU) remains a great way to earn tax-exempt monthly distributions on quality municipal bonds. Our favorite muni is currently trading at a -7.26 discount to its NAV and offering a 7.20% yield. Use this to your advantage and stock up.

iShares Barclays TIPS Bond Fund (TIP): With the U.S. economy limping its way toward a probable double-dip recession, Washington will be forced to take action. That will probably amount to some sort of stimulus – even if it is disguised with another name. No matter what it's called, it should be inflationary in the long run, and that bodes well for TIP. While we wait, TIP is delivering a 3.92% yield.

SPDR Gold Shares (GLD): We hold this gold position to help hedge our bonds and the income we receive from them. Allocate between 5% and 10% of the value of your bonds in GLD to execute this hedge most effectively. The fact that gold recently hit brand-new all-time highs (above $1800 per ounce) is an added bonus.

PIMCO Strategic Global Government Fund Inc. (RCS) invests primarily in a portfolio of investment-grade, fixed-income securities of the U.S. and other countries. It's paying a hefty 8.38% yield.

Vanguard Wellington Fund (VWELX) is one of the oldest and best managed balanced funds in the business, and it serves as the cornerstone investment in our 50-40-10 portfolio structure. By investing in VWELX, we get stability, lots of upside potential, and a healthy 2.75% yield.

Growth and Income

ABB Ltd. (ABB): The Swiss power and automation tech company reported 2Q/2011 net income of $893 million, representing a 43% increase over the same quarter in 2010. ABB also reported a 17% increase in orders for the second quarter (again, over last year).

McDonald's Corp. (MCD) saw 2Q/2011 net income increase to $1.41 billion (or $1.35 a share), up substantially from $1.23 billion (or $1.13) a year earlier. MCD is dishing up a 2.80% yield.

Altria Group Inc. (MO): Altria's 2Q/2011 adjusted diluted earnings per share increased 6.0% to $0.53 in the second quarter and up 5.4% to $0.97 in the first half of the year. We love steady growth like that. Plus, the tobacco and alcohol holding company is delivering a nice 6.00% yield.

iShares S&P Preferred Stock Index (PFF): Income is a key component to long-term success in the markets, and PFF provides us with a very solid 7.28% yield for exactly that purpose.

Vodafone Group plc (VOD) will receive a $4.6 billion (£2.8 billion) dividend from its 45% shareholding in Verizon Wireless on January 31, 2012 (the first such payment in five years). Vodafone says it will pay out 70% to its own shareholders in a special dividend and use the rest to pay down debt. 7.20% yield.

Ecopetrol SA (EC) announced that group production increased 22.3% and 19.9% for 2Q/2011 and 1H/2011 respectively (over the same time periods in 2010). The Colombian petroleum company's stock is yielding 5.20%.

LINN Energy LLC (LINE): So far in 2011, LINN Energy has closed acquisitions of several oil and natural gas properties for a total combined contract price of $857 million. These additions boosted total proved reserves by approximately 41 million Boe. And it is yielding a hefty 7.80%.

Raytheon Co. (RTN) announced 2Q/2011 adjusted earnings of $1.39 per diluted share. That's a 3.73% increase over adjusted EPS for 2Q/2010. Our defense contractor and weapons and electronics manufacturer pays a 4.20% yield.

Rocket Riders

PowerShares DB U.S. Dollar Index Bearish (UDN): As long as there is turmoil in Europe, people will view the U.S. dollar as a temporary safe haven – but that can't last forever. When the dollar safety party does end, I expect we'll see a renewed move to upside for UDN. (It is designed to increase in value as the U.S. dollar declines.) For now, continue to HOLD.

WisdomTree Dreyfus Chinese Yuan (CYB): China's yuan has gained 2.62% against the U.S. dollar year-to-date (as I write this). That's a nice gain (with no exposure to stocks), especially when you consider that the S&P 500 has shed -11.98% in the same time period.

Kubota Corp. (KUB) reported that year-end March 31, 2011, operating income increased 23.5%, and net income attributable to Kubota is up 29.5%.

Mosaic Co. (MOS): Fiscal 4Q/2011 net earnings were $649 million, an increase of 63.89% over the same quarter in 2010. The fertilizer giant also reported quarterly net sales of $2.9 billion, which represents a 54% increase over the same quarter a year ago. MOS is yielding 0.30%.

iShares MSCI Thailand Index Fund (THD): With per-capita GDP of just $3,893, Thailand has a lot of room to grow – but the recent market volatility has THD on the defensive. Until the dust settles, I want to move it to a HOLD. THD is yielding 2.17%.

Micromet Inc. (MITI): On July 11, Micromet announced the licensing of three of its experimental cancer antibodies to Amgen Inc. in a deal that could be worth $990 million. Continue to HOLD.

Elron Electronics Industries Ltd. (ELRNF.PK): The Israeli-based high-tech holding company is off most investors' radar screens, and that's good. It gives us the opportunity to pick up shares of this one on the cheap. Buy any time it's trading below $5.00.

Rydex Inverse S&P Strategy (RYURX) is a great way to smooth out portfolio volatility while adding some upside potential to market turndowns. Our suggestion is to allocate somewhere between 2% and 10% of overall investment capital to RYURX. If you've just joined us or want to begin assembling your own downside hedge, break your capital into five equal chunks and invest once a month for the next five months to average in. MMR

LSV Index


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