Its Obama's Economy Now!

Well the first 100 days of the Obama Presidency have come and gone. Regardless of your political leanings you have to give the Obama administration some credit. We will avoid the next Great Depression!      

After a scary start in which the Obama administration did not appear to have a real handle on the economic crisis, the administration has settled in and has thrown every piece of stimulus that they could find at this economy in order to avoid a really severe economic meltdown.

Give Ben Bernanke a lot of credit for supplying most of the oxygen for all those sighs of relief out there, his fearless printing press has really made the big difference. 

Unemployment is slowing, the stock market has stabilized, and the Nasdaq is up 10% on the year. In addition, consumer confidence has increased and that light we see at the end of the real estate market tunnel is not an incoming train.   That's the good news!

The bad news is that major inflation and/or stagflation signs may be starting to appear.  Oil is up nearly 50% off its lows, the dollar is starting to weaken, and interest rates are starting to rise.   These will be the major hurdles in this economic recovery, and we cannot go on printing money forever.   

We are still a long way off from a Healthy Economy!

What can you do to protect yourself?

Be careful in this stock market.   Realize that this rally is a "government generated rally" by historical amounts of stimulus. This is not the time to go back on automatic pilot with blind optimism.  There will still need to be real economic growth and real profits from a lot of sectors.    

Favor small/medium cap stocks.   Smaller companies tend to have more flexibility than larger companies stocks and can bend much easier in the storms ahead. Heavy inflation and new regulations will require a lot of flexibility that the larger companies generally do not have.  

Lean towards emerging markets. China will most likely lead the world out of this global recession, and there is a lot of money being poured into these economies.   The BRIC countries are loaded with opportunities and having some money in the ETF's EEM) and (VWO) should make for great long term plays in your discretionary portfolio. 

Protect yourself with TIPS. Treasury Inflation protected securities, (TIP) will be very popular when the heavy inflation starts to hit, and we have already seen them jump when Ben Bernanke revs up the printing presses. The inflationary threat is very real, and on its way! 

The longer term investor has seen the majority of carnage already in this stock market, but there may be another big stock market tumble around the corner. This recent rally has really been about government stimulus and not about long term profits and economic growth. 

It's easy to say that these profits and real economic growth will be there in time, but only time will tell for certain as to how quickly this economy will re-invent itself. 

Bob Obrien

Senior Instructor