Investment Ideas For Hard Times To Come

Now that Congress has passed and the President has quickly signed what may well prove to be a rather ineffective piece of pork-laden legislation to inject more failed socialism into our free market economy, I believe that the individual investor should take steps to defend hard-earned assets and protect against what is almost sure to come: a national recession, followed by a global recession, followed by a round of dollar inflation and higher U.S. tax rates that will be described in the next Presidential term as confiscatory.

Licking some wounds in this unforgiving market, I have tried to simplify my portfolios to anticipate the above scenario - knowing that no one can predict the future. So I hedge my own feelings and retain some stocks that are dividend rich in lousy sectors that may turn on a dime into favorites.

The dividend-rich stocks I recommend include Master Limited Partnerships in oil and gas transmission. These include Kinder Morgan Energy Partners (KMP), Energy Transfer Partners (ETP), TEPPCO (TPP) and Enbridge Energy Partners (EEP). I own TPP and EEP.

Other dividend-rich securities examples include out-of-favor stocks such as Dow Chemical (DOW), Annaly Mortgage Perpetual Preferred 7.85% (NLY+A), Monmouth Realty (MNRTA) and the Alpine Global Dynamic Dividend CEF (AGD).

These type of securities are all speculative to a greater or lesser degree, with a secure dividend floor to resist plummeting to ground zero.

You may wish to consider the following investment ideas:

Rental real estate: If you have even the slightest inclination to invest out of the stock and bond market, buy into the real estate fire sale in a neighborhood near you. Bank short sales are easy and common transactions now (offer 40 cents on the list price for a cash offer to start). Rental rates are steady to up, the market is in need of rental units in neighborhoods. Urban subsidized rents are guaranteed and rising. With inflation and higher taxes on the horizon, the tax benefits of direct ownership of real estate is compelling. A 20%+ return before tax benefits is well within reach. Remember that real estate is, in the final analysis, a people business vs. a brick and mortar business, which is one reason why otherwise astute money managers flop as landlords.

Inflation Protected Securities: iShares TIP Inflation-Protected Bond Fund (TIP), or buy TIPs directly from the U.S Treasury web site. Inflation may well come close to 12% or higher as the government printing presses roll 24/7 to bail out liberal-inspired social justice programs and to concurrently stave off a severe recession. Circa 1977-80. One benefit: The new President will be a one term President as we finally get fed up and sort out our political mess.

International Dividend Fund: Fidelity Strategic Income Fund [FSICX]. I like the breadth of holdings and the mild diversification of currencies.

Safe Haven Stock Fund: iShares Switzerland (EWL). Gold-plated companies with a worldwide reach in a protective investment environment with a trusted currency. Keeps you in the game for the first stages of an eventual economic recovery.

Gold: First time I have recommended this commodity. 5% in a gold ETF such as iShares COMEX Gold Trust (IAU).

Bond Funds: Vanguard Short-Term Corporate Bond Fund (BSV), iShares Lehman 1-3 Year Treasury Bond Fund (SHY).

Preserving capital and gaining interest, to boot, is not a lot of fun and adventure. It's your money. Protect it for now to avoid having to fight the urge to become extremely speculative later in a futile attempt to recoup lost monies wasted away trying to game this market.

Comments

[philmore pi...:]

Thomas Smicklas for president!

2008 Oct 06 09:51 AM

[Vox Rationalis:]

"Inflation may well come close to 12% or higher as the government printing presses roll 24/7 to bail out liberal-inspired social justice programs and to concurrently stave off a severe recession. Circa 1977-80."

First off, based on the contraction of M3 and the rock-like fall of commodities prices, I think inflation is the least of our worries. The Fed and Treasury are working hard, and should be pumping as much money as possible into the banking system, to cut short a deflationary spiral.

Second, there's plenty of blame to go around. The "liberal-inspired social justice programs" you'd like to blame have been around since the late 70's, and we went through a significant drop in housing prices in the early 1990s without a systemic banking failure. It was only after the investment banks and insurance companies were let loose to securitize mortgages and trade default swaps that we entered this dangerous ground. Foreclosures are in the 6-7% range - since when does a 7% loss in one market segment bring the world's credit market to a halt?

Lastly, in thinking about 1977-1980, remember please that we were coming off the most socialist policies ever instituted in this country - Nixon's wage and price controls. This policy skewed markets so dramatically that we were destined to face a multi-year correction as prices regained equilibrium levels.

I'd like to keep politics out of it. There's plenty of blame to go around.

2008 Oct 06 11:47 AM

[Thomas Smic...:]

As mentioned by BS, there is plenty of blame to go around. I am still waiting for Democrats in Congress to shoulder their fair share in regards to the present financial challenges we face as a nation.

2008 Oct 06 12:04 PM

[Vox Rationalis:]

Are you still waiting for Republicans in Congress to do the same?

2008 Oct 06 12:31 PM

[Socialism c...:]

Ahem. Guns, ammo, canned food. Land.

2008 Oct 06 06:09 PM

[Socialism c...:]

@BS Detector: you're wrong...because you only see half the picture.

"Second, there's plenty of blame to go around. The "liberal-inspired social justice programs" you'd like to blame have been around since the late 70's..."

That is true to *some* degree. But basically, we suffered through them. We can no longer afford them -- the paying population is shrinking compared to the recipient base (translated: we're getting ever more squeezed between the underclass that won't work, and the huge boomer generation beginning to collect on their entitlements).

We all know how stressed Social Security and Medicare have been -- and those are not paying to every American. How the flippin' hell can anyone think "universal" healthcare can work?? Instead of just retired and disabled...*everyone* would be on it. You're looking at a 75% health insurance tax, instead of the current 7.5%. The Feds *NEVER* do anything as cheaply as the private sector can!

Kill the socialism. It's been tried and has failed. Here and abroad.

2008 Oct 06 06:14 PM

[Vox Rationalis:]

Socialism-boy: you said I was wrong, but said nothing about why. Why is there not blame enough to go around? What you should have said was that that 1970's legislation didn't get teeth until the Clinton administration, which is apparently true. And perhaps without this impetus, Fannie and Freddie would have stayed within acceptable risk tolerances. However, the fact remains that without the big financials packaging and insuring these things, there would never have been a systemic threat to the world's credit markets. And at its heart, this is a a systemic failure of our public education system, which churned out generations of kids who had to demonstrate the ability to cut up a frog, but not to balance a checkbook.

Like I said, plenty of blame to go around.

2008 Oct 06 09:22 PM

[myinvestors...:]

One investment idea for small investors is stocks. Now this may come as a surprise since most people think you need to have scads of money to get involved with the stock market.Stocks are influenced by several different factors.

MyInvestorsPlace - trading, value, investing, forex, stock, market, technical, analysis,
systems

2008 Oct 07 03:24 AM

[searcher:]

Socialism - Capitalism etc. - 'ism vs. 'ism ad naseum. Human institutions are just that and have always been subject to fear and greed, jealousy and envy, hubris and mendacity, etc. All characteristics inherent to the human condition. The point? No 'ism is going to save you from yourself.

2008 Oct 07 12:23 PM

[longtermstocks:]

Nice article thanks.

2008 Oct 08 09:27 AM

[short WFC:]

without tough accountability built into legislation -capitalist or (spit sideways) socialist, its very hard to prevent the legislation from being sooner or later abused and end up counterprductive. whats missing is not just the right philosophy but realism to provide strict accountability built into the laws so that whoever is charged with implementation has to make it work the way it was intended or else the blaim and severe repercussions are automatic. in other words in a good system the top management of FNM etc should have all resigned citing the impossibility of juggling subprime with safe banking

2008 Oct 08 12:34 PM

[doonboggle:]

1. Regarding the comments to the writer's opinion statement of 24/7 printing presses for the social system, he is right on the 'money'. 'Money', as defined generally in dictionary, is "something generally accepted as a medium of exchange, a measure of value". Well, to be frank, and back to the 24/7 comment ... folks, we ain't got any 'money' these days. With the presses working overtime, and for the past several decades, we have 'PAPER'. No gold standard, no silver notes, etc. as we did several generations ago ... thanks to 'Tricky Dicky' of course.
2. Regarding blame ... yes it is spread out all over the political landscape ... but, to be frank (aka BARNEY FRANK ), the massive blame belongs in the Demo. camp. Without ALL of the social welfare programs that began in the Roosevelt years, this country would be in much better shape. With all the aid to the leaches of this country, there is no hope. Unfortunately due to the human psychic, 'FREE" is the word of the day-decade-year-whatev... For thousands of years welfare was extremely limited. Not any more! Sit on your butt...get your welfare check ...have more babies to get more checks, on and on and on. Tax and spend is the motto of the far left so that the country, as we are, will go belly up ... then they can sieze power and put all their idols in office. Thank goodness I am an elder person and won't be around to see the chaos that is just over the horizine ...all thanks to the Demo. far left idiots.
FWIW

2008 Oct 09 02:08 PM

[taxed2much:]

The regulators have failed and failed and failed and failed and failed and failed. Why? Because the answer and solution they use every time is the same. It never changes. They are manipulating this crisis to their eventual takeover now of all banks, not just the failing ones. How's that for a fix. We control the money the money supply, the rates on the money, when and who gets the money, how much to spend of the money and soon they will be taking all our money and yours. This takeover of the banks does a huge thing for the politicians: if that happens the banks and IRS will be blended to automatically confiscate any sign of wealth you may be accumulating in a manner they might not approve of. Although our money says "for all debts public and private", this has not been true for a long time. Not since the IRS and Congress took such wide view control over collection and rights to and of course estimated quarterly (Ie. weekly payroll taxes)tax payments to them. They have grown so accustomed to this pilage and plunder every last cent they think is left out here, they have started to eat their own tail so to speak. Soon there will be nothing left but nothing. Total deflation is almost upon us and actually is in stocks and the other markets. It is too bad too. All they had to do, and they knew this and so did those few in Congress that tried to hold out against this felonious money grab from the taxpayers, all needed was a few changes in some of the accounting laws that prevent these large companies from absorping the losses in their wholly owned subsidiaries and the repeal of all the capital gains tax at all levels. Instead they ran through this poop noodle law with so much in earmarks and pork it makes me want to go to washington DC and just find a group of our elected officials and begin uncontrolably vomiting and spewing monumentous amounts of chunk all over them. I would hope this impossible feat would I be able to maintain for at least 10 whole minutes. Chasing them and spewing ridiculous amounts of bile and spunge clods upon their heads and persons completely and thoroughly soaking all who have ever written in an earmark or subsidy or a handout to a lobbying group all the way through clothing to the skin with puke. I think that might make alot of us feel better and would get the message across that we as a Nation are fed up with how our lives are being ruined by their innane repetitous inept (but carefully planned to benefit them) policies that do not help anyone in this country without it benefitting themself. Yes they make me sick. They should do the same to you and I hope I see you there vomiting your spew chunks of bile upon another many shamefull disrespecting politicians. Do it at the local and state level too cause those idiots have been copying Main St. all along. Puke Puke and puke some more.

Barf for change. Barf for change. Barf for change. Barf for change.
?:^O>bbbbweawoowwew... woewaowaofofoeiossssssdsspsppslstsplatsplatptooey. ?:^O>
Barf for change. Barf for change. Barf for change. Barf for change.

2008 Oct 10 02:51 AM

[myinvestors...:]

This comment is good.At some point in most people’s lives comes a realization that the dreams of youth and more sober aspirations of early adulthood may never come to pass. A childhood fantasy to become a famous movie star, a teenage obsession to excel on the athletic field.

2008 Oct 12 01:19 AM

[Mathguy:]

According to the Stock Trader's Almanac on average the stock market does better under a democratic president than under a republican one.

Aug 26 11:25 PM