A Second Stimulus?

While talk is circulating among top Democratic leaders about the possible need for a second stimulus plan, the Republicans are wasting no time putting Obama and the Democrats in the hot seat for lack of results from the original stimulus package. Personally, I've seen no improvements in the economy other than some stabilization in financials and the auto industry. I tend to agree with some who think that any further stimulus package should include payouts to taxpayers, legal citizens of the United States. If they want to get the economy moving, give the money to the people who will put it back in to the economy, i.e. consumers. The banks have horded stimulus money, while at the same time increasing the burden on the taxpayers through fee and interest rate increases. If you're not helping the cause, then you're hurting the cause. Charging more fees and higher interest rates while cutting charge limits is not going to get consumers spending again. I personally have stopped using credit cards entirely.

The real bottom line is, we are not going to see the economy improve until people go back to work. An unemployment rate of 9.5 % will continue to drag the economy down and now experts are saying it could go as high as 11 %. That's a great deal above the what Democrats predicted with the passage of the economic stimulus, so I think the Republicans and the American taxpayers are right to be throwing some hard questions towards the current administration.

Given all this, I think the stock market will remain down for the better part of this year and in to 2010. It does present some great buying opportunities, the price of good companies being down along with the bad. But it does call for investors to be very selective. As I mentioned in an earlier post, I've recently invested in Proshares TWQ fund, which shorts the Russell 3000 index, as a hedge against falling stock prices. I'm doing this on an experimental basis and while it is too soon judge overall effectiveness of this strategy, the price per share did go up as the overall market fell earlier this week. The real test will be its' effectiveness over a longer period of time. I'll keep the readers posted on how it's working out.

Tough Times Call For a New Strategy

When faced with tough economic times, it is important to review your investment strategy and make adjustments in accord with the changes in the direction of the economy. With seemingly no end to massive government spending in the foreseeable future and no provisions made to pay off excess debt, with the exception of some ill advised tax increases, I've decided to take a different approach. Robert Kyosaki, one of my favorite best selling authors, says that the rich make more money in a downward trending market than one that's going up. So I've taken a position in Proshares TWQ exchange traded fund. It is a leveraged ETF that shorts the Russell 3000 index of stocks. While I believe the stock market will eventually recover, I'm hedging my bets by shorting the market.

Another idea I'm looking at is investing more money in foreign shares. I like the fact that the government of Brazil is cutting spending to address their budget shortfalls, as opposed to increasing deficit spending the way our government has. While working with some good people from India on my last job location, I also came to appreciate their strong work ethic and entrepreneurial spirit, something we could use a whole lot more of in the U.S.. So I will be looking at ways to invest in India as well.

While this does represent a new approach to my investment goals, my overall strategy is still the same. Which is, to build a well diversified portfolio of dividend paying stocks to generate a steady stream of present and future income. There is always a way to reach your goal, you just have to find it. During these tough times, as investors, we need to stay on top of changes in the economic environment and change our strategies accordingly.