Vol. 81 - RISK AND OPPORTUNITY

Dear member,

The US greenback is on a tear. Since mid-July the US dollar has been steadily climbing against the Euro. Only 3 weeks ago it was worth $0.628 EUR and is now worth $0.6755 EUR - a phenomenal increase for a currency. Last week we discussed the mounting economic worries of Canada and Europe. The spreading global economic weakness of these countries is beginning to bolster the US greenback. Review the historical facts when analyzing how to turn the rising US dollar into an opportunity; history will always repeat itself

Let's simplify things. If Europe, Canada and Asia continue to slide into a recession, companies with great foreign exposure should decline. If the US dollar continues to rise against these foreign currencies, companies with a strong domestic presence should rise. This is slowly beginning to happen.

Savita Subramanian, a quantitative strategist at Merrill Lynch, confirmed this theory by stating that "We confirmed that there is a very strong relationship between the dollar and the subsequent performance of stocks with pure domestic sales." This involved data dating back to 1995. In the month of July US stocks with a sole domestic focus rose by 1.8%.

As our economy has stumbled in past years many investors have been focused on US stocks with foreign exposure. The consensus that the US dollar is undervalued is growing and that spells PROMISE for many companies.

Savita Subramanian also found that stocks with pure domestic sales benefit more from a strengthening dollar than those depending on foreign sales. The main reason for this is that some companies are better hedged for this market shift than others.

In the past, industries whose profitability rose 12 months following the rise in the US dollar were:

1.    pharmaceuticals
2.    food products
3.    insurance
4.    household products
5.    commercial banks
6.    tobacco companies

These are consumer driven industries. Pinnacle Digest believes that many national banks have been trading at discounts and are preparing for a rally.

Currently our strategic sectors at Pinnacle Digest are