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The word is that the recession is over. And with bulls enthusiastically making a run at Dow 10,000, there are thoughts of economic recovery. While it is important to consider that volatility is still a part of the equation, and understanding that this economic recovery is supposed to be a rather gradual one, it is nonetheless time to start considering strategy for an economic recovery, as you move out of your recession investing strategy. (If you are all about the index funds, chances are your strategy is set: Keep doing what you are doing.) There are different considerations involved when determining where to invest as things to start to pick up. Here are some things to consider as you begin planning your recovery investment strategy:

Past economic recoveries

Many investors and economists are noting the similarities the current recession has to past recessions. Looking to see what sectors and types of companies have done well at different points in an economic recovery can be helpful. Understanding the cycle, and where different companies fit into that cycle are quite useful. Industrial and materials companies generally pick up early an economic recovery cycle, and energy stocks often follow later.

Of course, the past cannot predict future results, and things may go differently this time, no matter how closely things appear to be adhering to the past so far. You can use the past to help you find patterns and possibilities, but it is important to be wary of relying wholly on the past.

Revenue growth

Another thing to look at is revenue growth. Many companies reported a profitable third quarter for 2009, but that doesn’t necessarily mean that revenue is up. Indeed, in many companies, revenue remained down. Many profits were the results of lay-offs and other cost-cutting measures. What you want to look for are companies that are starting to see increases in revenue, and that have stopped being so big on cutting costs.

This is where a focus on financials might help. The financial sector was hard-hit, and there are many bargains out there. Additionally, as things start to improve, businesses and individuals are expected to start looking for financing, bringing interest revenue to financial companies. And don’t forget that some financial sector companies, notably credit card companies, are actively looking for way to raise revenue through such things as interest rate hikes, increased fees and new fees.

Government projects and economic stimulus

The economic stimulus package passed earlier this year sets aside money for specific goals and projects aimed at creating jobs. Additionally, the government is also focusing on upgrading the road system and pushing alternative energy and improving the power grid. These focuses are likely to lead to more income for infrastructure companies (including those that concentrate on Internet and wireless infrastructure), as well as some alternative energy companies. As the economic recovery gathers steam, it is possible that companies connected to government projects and connected to economic stimulus money will see gains on the stock market. Getting in now could be a way to ensure profits in your investment portfolio.

Consumer spending

This particular economic recovery may not be kind to companies that rely on consumer spending. Many consumers have been shaken by what is being called the “Great Recession.” There has been a shift toward frugality, and many consumers have curbed the free spending habits that marked the run-up to the financial crisis. Additionally, even though the government has tried to promote projects that provide jobs, the employment picture remains relatively weak. With expectations of a “jobless recovery” it is unlikely that consumers will even have the funds to spend a great deal. That means that, even with the holiday shopping season coming up, retailers and the travel industry may lag behind.

You might also consider DRIPs moving forward, which can help you build an income stream while protecting you somewhat from the next crash. Of course, this is just speculation. In the end, you have to decide what you think is most likely to happen as the economy recovers. But looking at the patterns and possibilities can increase the likelihood that you choose a few winning investments that can offer you some solid investment portfolio growth.

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Investing in Economic Recovery

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What is best to help the economy? Should we spend or save money? We are getting mixed messages. We are trying to make rational choices in this economic downturn; which is to trim unnecessary expenses, conserve cash and boost our savings. As a country, we have so far done a really lamentable job of savings. If we were as fiscally conservative out of habit 5 years ago, as we are out of necessity today, maybe we would have bought smaller houses, drove our cars longer, charged less on our credit cards. The foreclosure problem would not have been as bad as it is now, the banks could have had more deposit capital (although they may still have made unfortunate and speculative investments). Lack of savings and over leverage in the past due to free flowing consumer credit is a significant reason for the current malaise. But we see religion now and are desperately trying to up the savings ante. However, we are also constantly bombarded with messages coming from the government and the media that the economic recovery will not arrive unless the consumer starts spending. The stimulus checks issued last year was to boost consumer spending. The tax cuts and credits for first home purchase in the current stimulus package are also meant to boost consumer spending. The thought is that as consumers buy more, the corporations will start producing more, increasing profits, adding new jobs, etc and that is what will start the recovery. We have always been told that a good and patriotic American spends and consumes and that is the only way to maintain the lifestyle and standard of living that we  are accustomed to. And now, there is also a new push in the congress to encourage ‘buy American’.

So what is the right thing to do? What should a good patriotic American do?

I have three observations that can help us make these choices.

1. You can’t fight the aftermath of a credit bubble by spending our way out of it. This is laying the foundation for the next credit bubble. We can build a stronger economic foundation for the country as a whole if our individual or family economic foundation is strong. This would of course means save. Save what you can, cut out the unnecessary expense. Plan, build a budget and stick to it or even improve it. Get out of debt first. Build up your emergency fund. Discuss money in the family. Work multiple jobs if need to.
2. As a nation, we are aging. We have a massive wave of retirements coming on the horizon. Many of these retirees have seen their savings dwindle in this recession. As a country, we have a tough future ahead where we face tough choices on how to take care of our population. Many of us will find ourselves in a position to not only needing to support our own families but also our aging relatives. And frankly, we will not be able to depend on social security for our own retirements. It may not be around.
3. Consider the nature of this downturn. Even if the demand picks up if consumer spending opens up, many companies will still struggle to ramp up production because the credit markets are frozen. Regardless of whatever savings vehicle you choose (savings accounts, CDs, money markets, bonds, etc), they all work to create liquidity in the credit markets. Increasing savings may still be the best way to jump start the economy. Heck, we can even lend to the government and buy treasuries thereby reducing our dependence on Chinese debt.

Let us hear your thoughts. What do you think is better, spending or saving?

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Should we Spend or Save to Help The Economy

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Culture and Art hit a rough spot in 2008 and the situation has worsened as 2009 started. Arts funding has dried up and artists are cutting down on their schedules to save money. This begs the question: what culture and art trends are we likely to see in 2009? We feel that two clear trends will emerge: Art and Culture gets better integrated with family life, and, online media takes center stage

Year 2009 began with many well publicized instances of arts funding getting cut both from public and private sectors. One of the most severe economic downturns in living memory was no doubt the main culprit. For example,struggling  GM has yanked its support for Art and Culture in the motor city. And GM Foundation is not the only Corporate body deciding to cut its arts funding. The situation is exacerbated by local governments cutting spending as they struggle to balance their budgets. Even the artists are tightening their belts and cutting down on their schedules as the patronage appears to dry up. 2008 was already a rough year for Arts. So what is the year 2009 likely to bring? What new Culture and Art trends are in the offing?

In these tough times, Arts and Culture are considered as luxuries  as the patrons and corporate sponsors try to focus on conserving capital and daily survival issues. Recovery is far off and is likely to trail the general economic recovery. Or it seems that way.

Arts and Culture gets better integrated with Family life

While all of the above may be true I think a counter trend is likely to emerge. Consumers are being more careful on when and where they spend their money and with this I think the focus again will turn towards inexpensive activities that can be enjoyed with the family. This could mean more family outings to watch a movie together and possibly more parental involvement in children’s art and cultural projects at schools and local community groups. Typically during the periods of economic instability, people rediscover the joys of family life and art and culture pursuits that involves the entire family as this strengthens family bonding by creating shared experiences.

Online Media takes Center Stage

Also watch out for online media becoming a bigger tool to showcase art. There are already services sprouting up to help artists and art organizations market on social media often inexpensively. Art groups and artists are now rapidly embracing social media. New Social media services create many opportunities for the artists to network within the artistic community as well as with art promoters. Many services also exist that allow the artists to showcase their work on online media. MySpace is one such social media site which is heavily used by the music community. Twitter, Facebook and LinkedIn allow one to form professional groups or networks to easily share information with each other. And Art blogs now abound where artists have started posting their artwork (paintings, photographs, podcasts, etc). And then there is YouTube.

Will this lead to the Utopian democratization of arts? 2009, despite its many challenges, will likely turn out to be quite an interesting year for arts and culture. There will be changes, hopefully the changes work towards getting more people involved. It will be interesting to look back in one years time.

How do you think the trends and the current economic situation will play out with respect to arts in 2009? Let’s continue the discussion

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Culture and Art Trends in 2009 – Online Media takes Center Stage and Better Integration with Family Life

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