With interest rates at historically low levels, more and more senior investors are adding dividend paying stocks to their retirement portfolios. This message has resonated throughout the financial services community and Barron's magazine has now entered the fray with a cover story on "10 Terrific Dividend Stocks."

My first reaction to any article such as this is to ask, "What would VectorVest say about these stocks?" In this case, I was familiar with all ten of the stocks, CVX, INTC, JNJ, MCD, NVS, NSRGY, PEP, PG, STD and VZ cited in the article because they all represented large, well established companies. So I created a new WatchList Group called "Dividend Stocks." I put the 10 stocks into a WatchList called, "Barron's 10 Terrific Dividend Stocks." Oops, Nestle, a pink sheet ADR, was not found in our database and was not added to the WatchList. (We are seeing if we can get the data required to add it.)

Nevertheless, the WatchList showed that on 11/20/09, seven of the 9 stocks were rated "B" and two "H." The average RV and RS of the 9 stocks were above 1.00, and that is good. The average Forecasted Earnings Growth Rate, GRT, was -1, and that is not good. The average Dividend Yield, DY, was an acceptable 3.50%, but the average Dividend Growth, DG, was only 3.00%/Yr. Overall, I thought this was an OK portfolio, but not too exciting.

Could VectorVest do better? To answer this question, I created five more WatchLists, one for each of the five Retirement Strategies we have created, and put them into the Dividend Stocks WatchList Group as well. Here's a summary of what I found as of 11/20/09:

Name...........	Avg$/Sh	AvgRV	AvgRS	AvgGRT	AvgEPS	AvgDiv	AvgDY	AvgDG
Barron's 10	49.63	1.24	1.16	-1.0	3.85	1.72	3.50	3.0
Blue Chip Bnzs	52.78	1.47	1.18	11.0	4.72	1.16	2.20	13.0
Don's Dandies	29.36	.32	1.02	6.0	2.32	0.93	3.20	6.0
Optionable 2x4s	32.98	1.59	0.95	19.0	4.13	3.36	10.20	12.0
High VST+YSG	50.93	1.57	1.41	19.0	2.98	0.54	1.10	16.0
High Yield	24.18	1.48	0.89	13.0	3.38	3.29	13.60	7.0

Life is a matter of trade-offs. If you want high performance, i.e., the WatchList with the highest RVs, RSs and GRTs, you get low yield. If you want high yield, you get low safety. All of the WatchLists created by VectorVest searches had higher average RVs, higher average GRTs and higher averages DGs than the stocks in the Barron's 10 Watchlist. Only two of the Vectorest WatchLists had higher average RSs, and only two V V WatchLists had higher DYs than the Barron's 10.

If I had to pick one strategy to run with, I'd pick the High VST+YSG strategy and trade Covered Calls to generate income. But you, dear reader, can pick and choose your stocks one by one. See if you can put together a 10 stock WatchList that is better, in all respects, than Barron's 10 Terrific Dividend Stocks.

CHERRY PICKING HIGH PERFORMANCE STOCKS.
The VectorVest RealTime Tote Board makes it incredibly easy to see which strategies have performed the best each day. But the real question is which strategies are most likely to perform the best tomorrow? We want to pass this information on to you because the best way to make big profits is to place your bets BEFORE the market opens. How can you do that? Mr. Jerry D'Ambrosio, Product Support Specialist and Instructor, will show us how. So visit the VectorVest University to see this week's terrific "Strategy of the Week" presentation: "Cherry Picking High Performance Stocks."

There is a direct correlation between the direction of stock prices and the anticipated direction of corporate earnings. Stock prices go up when earnings are expected to go up and stock prices go down when earnings are expected to fall. This relationship was vividly shown last week when we examined the All-Weekly graph of the S&P 500 WatchList. In my essay, I said as long as the S&P 500 EPS continues to rise, I am content to believe that we are on the road to recovery. So what are the impediments to rising earnings?

Of course, a weak economy, such as we have had for the last two years, has made it very difficult for earnings to rise. Workers have lost jobs and they have less money to spend. So the demand for goods and services has decreased and employers discharged more workers, which further reduced demand and so on. In order to reverse this vicious cycle, politicians enacted a massive stimulus bill, the Treasury Department printed tons of money and the Federal Reserve lowered the Fed Funds interest rate to essentially zero percent. Therein lies a tale.

The Federal Reserve is the key player here because it has the responsibility of maintaining a stable currency and of ensuring full employment. This is an impossible task. One conflicts with the other. If The Fed wants a stable currency, it must favor high interest rates which will slow economic growth and raise the unemployment rate. If it wants to have full employment, it will favor low interest rates which will debase the currency and invite rampant inflation. Right now, The Fed is doing all it can to stimulate the economy and reduce the unemployment rate.

Earlier this week, The Fed announced that it will keep its benchmark short-term interest rate "exceptionally low" - near zero - for a long time to come. The decision not to raise rates seems prescient given today's jobs report which said that the unemployment rate hit a 26-year high of 10.2%. But it wasn't that hard to make. The Fed never raises interest rates until after the unemployment rate has peaked and begun to go down.

So the threat of high interest rates will not impede earnings growth for the foreseeable future. What about inflation? Inflation is not a problem right now. Banks are hoarding money and inflation won't start going up until they begin lending and consumers start spending big time. So inflation, in the classic sense of higher prices for goods and services, is benign and it will not hamper earnings growth for some time to come. But there is a problem.

The weak economy, excessive government spending and loose monetary policy are driving the value of the U.S. dollar down. This is driving up the price of oil and other commodities. In the long run, high oil and commodity prices will have the same damaging effect as rising inflation and interest rates, The Enemies of Earnings.

HOW TO PICK HIGH PERFORMANCE STRATEGIES.
Once again we mine information generated by the VectorVest RealTime Derby. This time Mr. Todd Shaffer will show us a simple but effective technique of finding Strategies showing the highest performance in several ways. So join Mr. Shaffer at the VectorVest University to see this week's "Strategy of the Week" presentation: "How to Pick High Performance Strategies."

It's been a long time since rising inflation and rising interest rates have been headline news. But they were this week, and that's not good for stock prices. Rising inflation destroys wealth and rising interest rates raises costs. Ironically rising inflation is seen as an enemy, which it is, and rising interest rates is seen as a weapon to fight inflation. Together they can devastate an economy, torpedo corporate profits and cause a bear market.

As Chairman of The Federal Reserve Board, Dr. Bernanke's job is to maintain monetary stability and to ensure full employment. (The latter task was added to the Fed Chairman's job a few years ago to make the politicians happy.) Nevertheless, his real job is to fight inflation. So he and his associates, known as Fed Governors, have been railing against inflation ever since he took office in February 2006. Moreover, Dr. Bernanke followed in the footsteps of his predecessor and raised interest rates several times after taking office. The last interest rate increase took place in June, a year ago. At that time he said the Fed would consider pausing in their rate hikes since a slower economy would moderate inflation.

First quarter, 2007 GDP growth recently was the lowest in four years, a tepid 0.6%. So investors thought Dr. Bernanke would finally lower interest rates. This move, they thought, would spur the economy, ensure solid corporate earnings and help stock prices go higher. But Dr. Bernanke fooled them. In a speech this week, he said he expects the economy to get stronger over the next few quarters, so he would remain vigilant in the battle against inflation. In just a few words, he crushed any thoughts of an interest rate reduction anytime soon. Stock prices fell sharply.

To be fair, Dr. Bernanke never indicated that he was more likely to lower interest rates than he was to increase them in his fifteen months in office. On several occasions his statements were misinterpreted, (see my essay of 05/05/06), and even I thought that he would lower interest rates. But I should have known better - The Fed Chairman lowers interest rates only after the economy has gotten into trouble, not while it's still showing signs of life, (see my essay of 07/14/06).

Our Market Climate Graphs show that interest yields on 90-Day T-Notes, 10-Year T-Notes and AAA Corporate Bonds bottomed in June 2003, but have not risen substantially since Dr. Bernanke took office. Inflation, as measured by the CPI, is about where it was in June 2003, but hit a high of 4.7 %/yr. in October 2005 and a low of 1.3 %/yr. in December 2006. At this point, it is much lower, 2.6 %/yr., than it was in February 2006, 3.4 %/yr., when Dr. Bernanke entered office. So it seems to me that neither inflation nor interest rates have moved much since Dr. Bernanke has been in office and that the media is overreacting to Dr. Bernanke's comments. So we should not worry at this time.

We should start worrying about high inflation and interest rates when they stifle the economy and cause earnings to go lower. VectorVest tracks these data in our Investment Climate report, shown below, and it interprets the data with the Truth Chart. (See my essay of 03/28/03.) Right now, the Truth Chart is saying we are in a Case 4, Bull Market Scenario in which earnings, inflation and interest rates are rising. This scenario has been going on for a long time and will continue to do so, provided that Dr. Bernanke is right about the economy. For now, we do not have to worry about high inflation and high interest rates, The Deadly Duo.