July 27, 2010 - This recession is very different from any since the Depression. Normal events just aren't happening, ones like a rebound in housing prices, shorter unemployment periods, interest rates bouncing back. The severity of the economic slowdown continues to grind on, and investors who thought along the lines of a "normal" recovery have been disappointed so far as there's nothing normal happening.

So many investors sold longer term debt issues and bought short ones. Certainly the last place they wanted to be was in longer term bonds where rates were going to sky rocket and principal losses would be severe. But that strategy didn't work. Long term rates went lower. So did short term rates. A year later, and investors are still wondering when (now if) interest rates will soar again.

Other investors, a year ago, began buying real estate, dirt, houses, commercial buildings. In the last recessions, buying on the dips made a lot of them very rich as real assets increased in value. People were looking for things that were real, that were great hedges against inflation. But it never came. Deflation ruled the day. It still does. The overhang of foreclosed properties, both homes and commercial, will be a deterrent to higher prices for some time to come. How long? Can't say. The only bright spot is that if real estate continues to flow into lenders, they at least have better staying power to hold than individuals so all of the properties won't overwhelm the market at once.

Investors need to adjust to this new reality. For the moment, and until there is clear evidence of better employment numbers, consider these economic truths: interest rates will stay low; housing will not rebound meaningfully except in pockets where there is better employment; commercial real estate won't improve.

But there are sectors to consider. Part of the current reality is: technology companies are reporting record earnings and sales. Delivery companies like FedEx and UPS are revising their estimates higher as they see demand continue to increase. These two companies are somewhat of a surrogate for the eocnomy in general since more packages moving around means more spending.

Dividends will play a larger roll in investors' returns for the near future. With a sluggish economy, it's hard to believe there will be major stock moves, at least up. The exception are those companies with new products that are market changers. They are few. So dividends will make up a good part of investors' reward for risk taking in the stock market. Buying solid paying dividend stocks, ones that don't take over 50% of earnings to meet the dividend obligation, makes a lot of sense. For stocks that have good dividends see our stocks for Income Investors.

This market isn't about to take off. Neither are interest rates or housing prices or any of the other usual events that an economic rebound shows. We're not even close to a recovery yet. Conventional thinking isn't going to work in this economic cycle. Defensive investing makes a lot more sense.

ed Allrich