Posted by: Howard Silverblatt on February 8, 2008
Lots of money being spent. The stimulus program will be in excess of $160 billion, the proposed 2009 Federal budget is $3.1 trillion, which is $410 billion more than it is taking in, and if unemployment picks up I would expect additional expenditures on extending unemployment benefits, aiding homeowners, as well as incentives to increase corporate spending. And of course it’s an election year, so there is no better time to spend; increasing taxes, oh excuse me for being politically incorrect, revenue enhancers, special purpose surcharges, and phase-out deductions, are for after the election. The stimulus checks could be in the mail by June, which should be about when the Fed rate reductions should start to be felt, which is right after those delayed tax refunds (another years, another AMT fix) arrive. So, as a consumer and a good American, if the government sends me a check (rebate, stimulus, anything), I will spend it, but as a greedy investor how can I benefit?
Outside of believing that the money will help turn the economy and the market around, it looks like a short-term play to me. So, if I was a gutsy guy expecting a few extra dollars, let’s say $2,516 (using some aggregates and the U.S. population), which short-term option might I want to roll the dice on? I think it would have to be all those nice retailers whom last time we received a rebate were nice enough to cash them for us and even give us an extra discount if we left the store with no money.
But since I’m becoming less of a gutsy guy as my kids get closer to college (separate fund), I have to think longer-term, as in retirement. To me the question is not who get’s the money today, but how will it impact the underlying economy. Since I’m touchy about what may not be on Financials books, I looked at the non-financial issues, which are still awash in cash (S&P Old Industrials have $613 billion that equates to 65 weeks of net income), so riding out a mild recession should be feasible. While the Q4 S&P 500 earnings posted a 22% decline, when I stripped out the Financials the rest posted a double-digit gain of 13%, and cash flow is coming in positive. So, while I don’t see light at the end of the tunnel (it could be because I’m too scared to look), companies with strong cash flow numbers based on ongoing operations, that have a sensible business plan and a management that has some experience riding out a storm seem attractive. In short, issues that are depressed more due to the current general economic and market conditions, then their own financial ones. It may sounds like a value play, but quality, experience, and execution, combined with reserves and a solid business plan usually performs better over the long term. But more important to me now is that they also have a tendency to lack some of those knee jerk reactions that shift the risk reward tradeoff against the shareholders. It’s not what you make with the Bull, it’s what you loose with the Bear.