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Yoshikami: Stimulus Is a Kick Start, Not the Solution

Sunday, 15 Feb 2009 | 7:05 PM ET

With the U.S. Treasury's unveiling of a still vague collection of actions aimed at stabilizing the financial system, we begin the first chapter of the Obama's Administration's efforts to fix this mess we are in. But as trillions of dollars head towards the U.S. economy, the markets remain under pressure, still squirming uncomfortably.

This past Friday, the Dow ended a yo-yo session down 1 percent. This is the Dow's fourth consecutive close below 8,000 and its longest sub-8,000 streak since March 2003. For the week, the Dow was off 5.3 percent, the S&P down 4.9 percent and the Nasdaq down 3.6 percent.

The markets' aren't liking what they see or hear. The truth is that while a stimulus package might help, it does not heal the fundamental ill -- we all spent too much for too long.

Too much debt, too much bubble, too much euphoria. Until the leverage unwind is complete, the world will struggle to move forward. A stimulus package is a kick start, not a solution. Solutions take time. Expect this and you will understand more clearly how to navigate these choppy waters.

One thing's for certain, it's NOT full speed ahead if you are an investor. Icebergs remain and it's a stormy sea out there!

As is always the case, one must be aware of potential portfolio disasters particularly in this shifting world. So, what should you be extra cautious about in this environment of de-leveraging and restructuring? Tread carefully in the following areas:

Infrastructure stocks: Any stimulus is going to be overwhelmed by the global economic downturn. See Caterpillar's latest earnings announcement.

Alternative energy: A great long-term strategy, but in the short-term, $40 dollar a barrel oil is making these industries look less appealing.

Backorder companies: Valuation based on a built-up supply of previous placed orders may see those revenue generating orders go away. Less planes sold for Boeing ?

Commercial Real Estate: The next shoe to drop in the financial sector is commercial lending and real estate. Watch for bankruptcies and restructuring.

Expensive Discretionary Items: Great brands matter but only if consumers have the money to buy them. Tiffany's and Coach will likely be under pressure for some time to come.

Companies Needing Debt Refinanced: Obvious right? Watch what happens to XM/Sirius with a billion dollars needing to be rolled over this year. They are not alone.

Avoiding themes with major headwinds is an important investment tactic in times like these. Good companies in the wrong place, at the wrong time, have much to overcome. If the river's current is too strong it's tough to swim the other direction. And why would you want to? Especially now?!

More From CNBC.com

  • Stimulus Bill: What's In It For You
  • Market Insider: The Week Ahead
  • Stimulus Spending: Lessons From Japan
  • Obama Vows Quick Action on Stimulus

Investment opportunities are always out there in any kind of market. But it's just as important to avoid disasters. Making up for a 50 percent loss on the downside requires a 100 percent gain to get to break-even. And that's a mighty tall ladder to climb.

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Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). Michael oversees all investment and research activities of the firm and has over 20 years investment and financial planning experience. Michael is a respected lecturer speaking frequently on tactical asset allocation theory and appears regularly on CNBC and CNBC Asia. Michael can be reached directly at m@ycmnet.com.


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