Shopping for good investments in a recession
Now that we have a confirmation that recession might be around the corner from Ben Bernanke, we’re pretty sure that one is coming. A recession is a contraction in money supply, business and the velocity of money. Its hard to shop for a bargain in a recession because you never know how bad things just might get.
Recessions and depressions are fueled by a drop in money supply. The housing market which has suffered a monstrous fallout has removed a lot of money from the system but this isn’t the end. A continued downward spiral in the real estate market will drop the supply of money even further and bring continued weakness to an already beaten sector.
Its hard to gauge future profitability when the market is setting on the edge of recession. Unfortunately, recession usually means that the overall stock market will correct. We don’t know when or by how much but my guess is 2-3000 points on the Dow in the upcoming few years. What this does mean is that there are plenty of stocks to short and a mere handful that are still worth buying.
Banking stocks are garbage, so I wouldn’t recommend buying into those. Unfortunately or fortunately, the big banking sector may or may not get a large bailout. A bailout would send the companies back to their fall 2007 values from essentially a free money bailout with US taxpayer money. If the banks are kept on a short leash and let to wither from their terrible investment strategies, the price of their stock is likely to drop hard. Its hard to predict what the long arm of government will do, so this is one industry that you want to avoid, unless you can get in on a reasonable option investment (I’ll highlight this later).
Recession proof is hard to accomplish. The best bang for your buck lies in the companies that make up the discount product niche, Big Lots, Dollar Tree and WalMart all make the list as their clientale consists of lower income consumers. Deep discounters profit heavy in times of economic slowdown. Companies like Unilever or Colgate-Palmolive will do fine as the necessities of life will always be necessities. CALM is another company that is set to do well.
