Enough of the esoteric treatment of the causes of the “Great Recession.” Let´s get back to your main interest, where do I park my cash (presuming you still have some) now?
I still say the best investment is to buy distressed sale rental properties. You can pick up these in Florida at $40-50,000 that rent for $800 a month. If you pay cash, the return will be as follows: $9600 gross rental, minus $2000 taxes, minus $1500 insurance, minus $1000 rental agent fee for a net of $5100 or 10-12% return on your investment. And this is your base income, any appreciation in the value of the property will be gravy, e.g. 10% rise in price will give you a paper profit of $4-5000.
Otherwise, my advice over the last year remains the same, “follow the money,” and here I mean Uncle Sam´s money. Bank of America and Citibank, which received, I believe, the largest shares of the TARP money are doing very well, a trend that should be bolstered by their quarterly reports this week. Anglo Irish Bank in Ireland, which was the main bank bailed out by the Irish Government, is growing like a teenage boy. I am still hesitant about auto companies, but all, including GM and Chrysler, are doing very well at the moment.
Another favorite, structured products, e.g. securitized debt, mortgage backed securities and collateralized loans, you know, the investments blamed for the whole mess, are moving right back to where they were pre-recession. Since I doubt any of my readers have a hedge fund, the easiest way to get in on this action is to buy Fannie Mae and Freddie Mac shares. Uncle Sam holds the largest shares in both, but there is room for small investors as well.
For the long term one has to keep in mind the unemployment factor. Until emplyment prospects improve, overall consumer demand will remain low. All through the Clinton and Bush years much was made of the small growth in personal earnings. Wages did not rise in tandem with economic growth. But more important, we had what most considered to be “full employment.” Thus overall demand is more a factor of how many are employed, not wage levels. In other words, you buy more when you become a two income family than when the single income earner gets a pay increase.
Assuming that the unemployment factor will remain serious for some time yet, I would refrain from investing in commodities, companies supplying discretionary purchases, i.e. other than essentials such as housing, transportation, and food, and anything that exceeds a PE of 9/1 (price earning ratio of 9 to one in which the price of the stock is 9 times the annual earnings of the firm).
Again, please feel free to contact me with any specific investment question you may have. The first consultation is free.