For 2009-2010: Invest in this, not that.

Posted: June 22nd, 2009 | Author: | Filed under: Investing | Tags: , , , | 2 Comments »

Remember that old adage, “If you can’t beat them, join them”?

Well, a lot of people have come around to that line of thinking when it comes to the stimulus and bailout madness gripping Washington D.C. these days. Hey – we’re paying for it, why not profit from it, right?

Well, profiting from it may not be as straightforward as it seems…

Bonds.

Freddie and Fannie, not ‘private’ banks.
Avoid banks, since their profitability is suspect for the foreseeable future. Instead, buy Fannie and Freddie since they are directly backed (controlled) by the federal government whereas the banks are managed through TARP. Best buy for Freddie Mac and Fannie May Debt bonds is Vanguard Short-Term Federal Fund (VSGBX) This fund has beaten 89% of its peers over the past 3 years with returns of 6.3%.

Munis, not Infrastructure.
It’s easy to see why many investors would be tempted to buy infrastructure bonds, since much of the press surrounding Obama’s stimulus spending has been focused on infrastructure spending on roads and bridges. But the problem is that many states are deeply in the red and much of the stimulus spending will only offset the construction costs and not produce any real return. A better stimulus play is to invest directly in municipal bonds. Municipalities are getting a quarter of the stimulus on top of a federal bailout. The effect is to prop up the repayment of the municipal bonds, which have been yielding quite high lately. Best bet here is the diversified Vanguard Intermediate Term Tax Exempt fund (VWITX)

Stocks.

Big Pharma, not Health-Care IT.
Much has been made of the increased spending in the push to modernize hospital record processing and the like, resulting in a rise in the price of health care IT stock. At the same time, shares of big pharma companies like Pfizer, Merck and Johnson and Johnson have been hammered due to the fears that the Obama administration will seek to severely curtail their profitability. The result is over sold stocks of solid companies – just don’t expect eye popping returns for the next 4 years. Best play here is the iShares Dow Jones US Pharmaceuticals (IHE)

Old Energy, not Green energy.
The green energy market is over populated with tiny companies all competing for the Stimulus funding, so it’s going to be difficult to pick the winners. And that’s if green energy becomes profitable! The better play is fossil fuels, for 2 reasons – 1) They’re oversold, 2) they will likely be the ones to profit once green energy becomes sustainable.

They’re oversold for the same reason big Pharma is oversold – perception that Obama and the Democrat control congress will seek punitive measures on oil companies. This may or may not come to pass, but it is likely these stocks have been beat up too much. The other reason is what my post Why Investing in Alternative Energy Companies is a Bad Idea is all about.

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AP Clueless on Green Energy Programs.

Posted: July 7th, 2008 | Author: | Filed under: spending | Tags: , , , , | 2 Comments »

From a recent article by the Associated Press:

“Even as more Americans look to shrink their carbon footprints, relatively few have switched to providers of electricity generated by wind, water and sun.“

Firstly, I’m not sure most Americans buy into the carbon footprint movement, but even so the AP’s analysis as to why so few are switching is completely wrong.

“People involved in the alternative energy industry said Americans are interested in reducing the amount of greenhouse gases they are responsible for“

Really? I’m guessing that if you polled the average, working class American and asked them “would you like to cut your green house gas emissions?” they’d say sure, why not?. But if you asked them a more directly, “would you pay more to cut your green house gas emissions?” you’d get an entirely different response.

The AP doesn’t refer  to any such poll, so I wondered: what makes the “people involved in the alternative energy industry” think Americans are interested in cutting their individual green house emissions?

” — witness the popularity of compact fluorescent bulbs. “

Ah.. they’re mistaking the recent surge in compact florescent bulbs with care for the environment. To be fair, some people buy such things to lower their green house emissions, but I’d wager most Americans buy them because they lower their energy bills first and foremost.

The “experts” attribute the lack of New Yorker’s signing up for alternative energy providers to a general ignorance of the options. They quote Brian F. Keane, president of the not-for-profit clean energy-marketing group Smart Power:

“They don’t think wind and solar power can keep the lights on at night, keep the heat on the winter and keep the air conditioning on in the summer,…”

As a New Yorker who reads his energy statement every month and has considered switching, I can tell you that our power company makes it extremely clear that signing up for such alternative power source does not affect power delivery, only where the energy company derives its energy from.

Also, as a New Yorker who reads my energy bill every month, I can tell you the #1 reason New Yorkers choose not to sign up for alternative energy providers: The Cost.

Alternative energy providers cost a premium, and with most people already paying much more for gasoline and energy than they did a year ago, we don’t want to pay even more for what many see as an uncertain green house effect.

Sorry folks, when it comes right down to it, the pocket book wins out over our guilt about how we might be contributing to green house gasses. With their constant election headlines reminding us “it’s the economy, stupid” I wonder how they overlooked this aspect with regards to green energy.

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