How to Profit From the New Recession

Brace yourselves ... another recession is coming

   

Prepare for recession, round two.

First-quarter GDP has been revised twice. First it went from flat to -1.0%, and then was revised down again to an astonishing -2.9%. As Dr. Charles Krauthammer said in a recent interview, everyone is blaming it on the weather, as if we never have bad weather. True, this was a brutal season in regards to snow, but not so awful that it would shrink GDP by this much.

double dip recession How to Profit From the New RecessionThe Obama Administration has mismanaged economic policy from the outset. I’ll let other pundits determine the reason, but there are multiple glaring atrocities in regards to economic policy that have led us to this point.

Obamacare is costing Americans too much to implement. Businesses are cutting hours and laying off workers in order to slip under the threshold of having to provide health care, which hurts GDP. Absolute spending dollars have skyrocketed, bringing along record debt. The national debt has soared $7.5 trillion in less than six years under Obama, compared to $5 trillion under Bush (which is nothing to be proud of, either).

Perhaps the worst policy comes in the form of overreaching regulatory action. The Competitive Enterprise Institute reports that “President Obama has added 17,522 pages of regulations in his five years in office; one president growing the regulatory state 11 percent increase in five years. In his five years in Office, President Obama has averaged 3,504 CFR pages annually. Meanwhile, Bush’s final four years averaged 2,584 pages; his total eight-year tenure averaged 2,490 pages annually.” You can bet that hurts GDP.

It isn’t just the volume of regulations that hurts GDP, but the burden they place on business. Compliance costs money. Money diverted from investing into a business, including hiring new workers, goes down the tubes into compliance.

Partially as a result of these policies, the Labor Force Participation Rate is at its lowest point since Jimmy Carter, having fallen more under Obama than any other President.

Finally, we have inflation weighing on GDP. And it’s not just that prices are rising. Manufacturers are playing tricks like reducing the volume of material sold in packages. Remember how that bag of chips used to be 16 ounces? Now it’s 13. Remember gas prices under $2? High gasoline prices are choking consumer spending.

This is why we are seeing a cratering in GDP, and another reason why Q1 retail numbers were abysmal. The Consumer Confidence Index is at 85, below the 100 baseline which marked the 1984 recovery point under Reagan.

It’s also why I believe Q2 GDP numbers will come in negative, which means we will officially be in a recession.

This leads back to the usual question: How can you profit as an investor?

I would short the retail ETFs, because I think things are going to get worse in that sector. This includes the Consumer Staples Selector Sector SPDR Fund (XLP). I would go long gold, which is traditionally a safe haven when the news of a recession first hits. SPDR Gold Shares (GLD) is one way to go. You can also go long Central Fund of Canada (CEF), as it also holds silver.

People are going to turn to credit to make ends meet as more jobs get lost, so Visa (V) and Mastercard (MA) may see enhanced activity.

I’d also hedge your portfolio with the ProShares Short S&P 500 (SH) to offset losses on longs.

When stocks start falling across the board, it requires a lot of careful investment decisions to keep yourself from losing money. But with smart investments and well-chosen hedges, investors can still manage to profit, despite the movement of the broader market.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of Asymmetrical Media Strategies, a crisis PR firm, and PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets at @ichabodscranium.


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