by Andrew Zarowny

Created on: November 26, 2008   Last Updated: December 01, 2008

There are four basic economic conditions: inflation, deflation, growth and retraction. Inflation and deflation concern fluctuations in monetary value. Growth and retraction concern the flow of currency within an economy. Each have their preferences for investors. During an inflationary period, commodities, such as gold, are the smart play. With deflation, cash is king, as it increases in value. An economy experiencing growth in it's GDP (Gross Domestic Product), stocks are the investment instrument to be desired. During a retraction, where the GDP declines, bonds are the safe play.

Our current situation appears to be a combination of retraction and deflation, though I am leary of the latter, given the amount of money being churned out by the central banks. At some point, the situation may switch to retraction and inflation. But for now, the smart plays seem to be to stay in cash and bonds. But if one must invest in stocks, the best play for the moment would seem to be with companies that provide fundamental products and services.

With everyone looking to stretch their dollars, discount retailers are a good buy. Companies like Dollar Tree Stores (DLTR) and Wal-Mart (WMT) look recession proof. Wal-Mart, for example, had declined from 63.17 as the financial crisis began in September to a recent low of 49.97 and has rebound back up to 54.68 at the time of this article, 11/25/08. Such companies provide the essentials of life, everything from soap to toilet paper, and do so at bargain prices. During this same period, Dollar Tree went from 41.07 down to 32.62 and has more than rebounded to 41.78. With so many other stocks losing an average of 40% of their value, had you been in these two companies, the current crisis would have had a nominal impact on your portfolio.

With Washington in the midst of bailout fever, I am quite certain that the government will provide bridge loans to the three domestic automobile companies, General Motors (GM), Ford (F) and Chrysler. Both GM and Ford are still publicly traded and are at extreme lows currently. Ford has gone from 5.29 down to 1.26 and is currently at 1.66. GM, likewise, has gone from 13.08 down to 2.79 and is now at 3.56. Once Washington rescues these companies, their stocks will jump in value, at least for the short term, making them good buys for potentially doubling or tripling your money. I would be careful and set a sell price once a good profit can be made. A good strategy would be to sell half quickly after achieving a desired profit level. Both companies should survive for some time while they have friends in government, till at least the end on 2010. Ford probably is in a better position for getting through these tough times and actually becoming profitable beyond 2010. They also offer the higher potential for major profits in the stock market.

Learn more about this author, Andrew Zarowny.
Click here to send this author comments or questions.