Ok, so there’s a recession. So what?

Americans: Recession near - or already here - CNN Money

More than three out of four Americans believe that a recession has already started or will hit in '08. Half have cut their spending, which could make a slowdown worse.

All economies move in cycles. Plan for it. Expect it. The smart money does. You can too. I’ve always been a bit of a contrarian. When times are good I’m always a little worried because I know they don’t last. Make hay while the sun shines.

When economies recede not all sectors are affected. Some sectors continue to grow.

The term “recession” is widely miss-used. In fact, the true definition is two consecutive quarters of declining GDP. Some times they refer to a decline as “negative growth”. Funny. Anyway, that’s the official definition that economist use to define one. The force that has the greatest impact on economic growth is the public’s perception. If people think times are bad, then times are bad. If there is perception that times are going to get worse then people will hold off on major purchases like cars, homes, home renovations and major appliances.

OK, so despite this, life goes on. People eat, kids go to school, you drive a car, gotta buy new socks and underwear. It may mean that you don’t buy a new car. You choose to go camping instead of visiting Disney World.

The money that we spend on everything beyond the necessities is called discretionary income. You spend it at your discretion beyond food, housing and clothing basics. So things like renting a DVD at Blockbuster, buying a latte at Starbucks or flying on Southwest Airlines to play golf in Arizona are all discretionary purchases. During a downturn in the economy these purchases can be affected. However, if you are still working and have job security you may be unaffected.

If you are an investor you may want to consider invested that are resistant to recessions – sometimes called “recession proof”. These are the companies that tend to chug along through good times and bad. They are not the sexy stocks one looks for when times are good but they ought to make up a portion of your investment portfolio.

Want some ideas for recession-proof or recession-resistant investments? Here are few:

You gotta eat – my feeling, and this is just my feeling, is that we are going to see a strain on the prices of many foods. This is due to an increase in incomes in China and India. With more income there is greater demand for wheat, citrus fruit, coffee, dairy products, pork and beef. Check out some food stocks. Don't know of any specifically at present.

Drink – beverages, alcohol, water. If it’s alcohol, it’s Diageo– makers of Guinness, Smirnoff, Bailey’s, Cuervo and a wide variety of others. Demand continues through out the developing world as incomes improves, and, hey, aren’t we likely to want to drown our sorrows during bad times?

Go to school – how do you make money from going to school?! There’s a great company, a Canadian company, called Laidlaw who are quite recession proof. They are in two business areas: garbage collection and school bus operations. In good times or bad times you are going to make garbage and your kids are going to go to school. Unfortunately, Laidlaw is now privately owned. Somebody thought it was a good investment.

Go to the doctors – Health related stocks are often worth a look. Shares in drug companies are risky. New drugs need FDA approval, patents expire and generic drugs take the place of name-brand drugs, lawsuits emerge. Tread lightly here. Rather, look for more stable health-related companies like medical supplies and equipment makers.

Use energy – electricity, oil and gas. High oil prices are great if you own shares in oil companies. I do. I hope oil goes to $200 a barrel. Invest and be happy like a Saudi sheik. Natural gas is often a by product of oil extraction. Gas can not be transported like oil and presently there is too much of it. Electricity has a regular, ongoing demand.

Throw away – Garbage collection – There is always garbage. These companies exhibit stable income streams – good times and bad. I know of one Canadian company called BFI CANADA INCOME TRUST. This trades on the Toronto Stock Exchange as an income trust and not as a regular equity. Income trusts pay out to unit holders monthly from their cash flow. This is considered income to you, the investor. Read up before you invest. See:

Insurance – I am not going to pick any here. There are lots around. It worked well for Warren Buffet.

This posting and all content published herein is not a recommendation for investment and ought not be considered as such.