Now that a Double-Dip Recession is All But Certain, What To Do About Personal Investments?
The American Political Machine has Sacrificed Upon the Altar of Compromise
With the passage of the new debt legislation, neither my colleagues of the democrat side of things nor my compatriots among Republicans see anything good. On the one hand, we were able to reduce the size and scope of government towards a balanced budget like never before. On the other, our timing couldn't be worse, pushing these much-needed policies onto an economy that remains underemployed in a dire economy. As anyone with a household budget knows, sometimes you have to pull out a credit card to keep the car repaired so you can drive to work. Sometimes you take out a student loan to get a degree that will propel you to new earning potential in your career. Sometimes you get a mortgage so you can build equity in a house. Sometimes, debt is a very good thing.
Not so, say the Tea Party Backed members of Congress who have abandoned one of the core principles of true conservative values: fact-based governance. When the facts of an issue clearly line up in one direction, toward one truth, only a idealogue ignores the facts of a case on the road to good governance. Neither political party has a monopoly on idealogues, naturally, but historically the conservative base were the ones toeing the reality line while the liberal base were crafting grand visions of a Socialized state with high taxes and poor services for everyone. Instead, the Republican base has been infected with a particular brand of radicalism that purports to uphold the constitution above all else, while simultaneously convinced they must add amendments to it, to get it in line with the true meaning of the founding fathers. The cognitive dissonance is magnificent, truly.
I prefer to live in a fact-based world, particularly when it comes to my money, and for that reason, I will not go into great detail about my personal feelings, as a Republican, about the radical wing of my own party incapable of looking at the very basic economic charts that clearly demonstrate we could have paid off our toxic deficit in 2009, instead of issuing tax cuts we have subsequently proven that we cannot afford. I'd prefer not to talk about the gutting of proven deficit-reduction programs and social safety nets that ought to work better and more efficiently, but fundamentally must be allowed to work.
Instead, I'd like to talk about how I can thrive with my personal finances in an economic environment that is dominated by this particular brand of GOP ideology, devoid of actual economic facts worthy of the name of "economic theory".
In a Sour Economy, Some Companies Do Well
Certain business sectors will experience an upswing in business, and profits, as long as the economy remains so slack. Interest rates remain near zero. Certain corporations hold more funds in their coffers than the entire Federal Reserve. Some companies profit from the large number of unemployed youths who are increasingly likely to wind up in prison for the crime of trying to earn a living in the only way their society allows them to do. (The correlation between poverty and criminal activity is so obvious that it almost need not be justified with a link, at all.) Also, the way to resolve this crisis, which should be the top priority of government, at the moment, not more tax cuts and certainly not some call out to "job creators" as if businesses sitting on massive cash reserves are going to suddenly start hiring everyone if only they have more money. Living in a fact-based world means studying history for clues to the present, and the way out of a massive fiscal disaster like this one is actually government spending into sections of the economy that can thereby produce wealth: infrastructure.
Ergo, I shall now investigate into places where money can go that will see growth during this time of economic disaster. I may not like profiting on the backs of Federal Inmates, for instance, but I know these companies are poised to do very well over the next decade or so based solely on the fact that they will have so many new customers to house if the economy doesn't turn around fast.
Privatized Prisons are the Future
Did you know many of our Federal Prisons are privately-held, for-profit institutions? Some people have a real problem with this. I don't. I think it's a good idea to privatize the prison system, to protect the prisoners from the unfairness that comes from treating their issues with more legislation. The last thing prisoners need are more government regulations.
I believe a private system creates better accountability, and allows the American people to hold their contractors accountable in a way that no city or state government can be. You can't fire the state. You can fire a contractor. That said, I don't have the stomach to own stock in a company that profits by housing criminals, what with the definite and clear racial imbalance in our judicial court system, where African-American and Hispanic members tend to go to jail longer for the same crimes as Caucasians...
If you have the fortitude for such a thing, I offer you this stock tip.
The largest of the private prison system by both market cap and revenues i
The largest by both market cap and revenues is Corrections Corp. of America (CXW), which is a company with over 40 facilities that is based in Nashville, Tennessee. It has a P/E of 34, and a PEG of 1.8. Its revenues were up over 52% year over year on a revenue gain of 11.5%. Expect this company's excellent revenues to increase simultaneously with the poverty and an ascendant GOP that loves to privatize public facilities, including prisons.
Infrastructure. We Need More Infrastructure.
When the government lays down the money to build our country out of a crisis, there are three companies uniquely poised to do extremely well in this crisis. These three companies are each heavily engaged with the construction of bigger, better, and bolder infrastructures, like roads and pipes and wires.
First, anyone who has driven past a construction site knows there is one company that specializes in moving large amounts of earth, and building tall, epic cranes. That company is Caterpillar. No one else builds the machines of industry and construction better. The company's earnings reflect that. They've been doing extremely well these last few years, as the environmental crisis after crisis has meant lots of large, heavy machinery being bought, leased, and built. As the environment continues to become unstable with the onslaught of Global Warming, this company will also do well. We will need to dig ourselves out of wreckage, and build bulwarks against the storms to come. They are piling up profits.
Powering all of those heavy machinery? It's not solar power. It's diesel. It's gas and diesel. All of this construction going on, combined with our already constant need for oil, means good days ahead for the Oil and Gas giants, particularly Shell and Exxon. If you haven't heard the soundbite in the political sphere, these companies are piling up record profits in this down economy. People still need to drive to handle basic functions in life, and no amount of economic strife changes the fact that our whole city and suburban infrastructures are built solely for the car. The fact that Shell has such strong profits so soon after the epic disaster in the Gulf is, frankly, depressing, but that speaks to the strength of the core business model.
With the Federal Interest Rate Hovering Near Zero, REIT Stocks Will Continue to Profit
Certain companies profit from the spread between the short-term and long-term interest rates on loans to purchase Agency-Backed Mortgages, carefully selected for profitability from a pool of available mortgages. These companies are organized as Real Estate Investment Trusts. Personally, I've been investing in these operations for years, and I've done mostly quite well with one blip during the full onslaught of the Great Recession that has since recovered. Stocks like Annaly Capital Management, and New York Mortgage Trust, in particular, are favorites of stock guru types who love the business model and success of management even in down economic times.
These companies do not see a lot of stock growth, per share, but each individual share receives huge dividends of up 10-20 percent! While the economy is down and most stocks remain flat, why not own stock that is designed to do extremely well in low-interest environments like this one, and require 90% of earnings returned to investors every quarter? I may not be seeing huge growth in the value of my portfolio, but I am seeing huge dividends every quarter that have been slowly increasing as the economy continues to sputter.
As long as the federal interest rate remains low, these stocks will be strong dividend payers. Nothing seasons the pain of a down economic time like massive, sustained dividends.
Maybe Things Will Turn Around Soon...?
With unemployment hovering above 10%, with unemployment for people ages 16-25 holding steady at near 50%, not including folks like me who abandoned the rat race after a layoff to "ramp up" at what was once a side business. Things could turn around, and hopefully will soon. Who knows?
In the mean time, I have plenty of money around to invest, and I know where I'm taking it. The strong dividends I've been receiving from various REIT stocks, and the oil and gas sector, has been a boon in these dour times. I expect to come out of this economic crisis with a stronger portfolio than when I entered it.
Perhaps, in a couple months, I'll return to this hub and question my judgment, or perhaps I will mentally pat myself on the back for my prescient view of the future.