Fed’s Bernanke: Recession Might End This Year

Fed Chairman Ben Bernanke told a Senate committee this morning that “there is a reasonable prospect that the current recession will end in 2009,” and that “2010 will be a year of recovery.”

The chairman’s prediction is dependent on the financial system stabilizing at some point this year. He acknowledged that his forecast could prove to be wrong if the global economic crisis becomes more severe than expected or if the fears about the economy lead to reduced spending - the so-called adverse feedback loop.

Overall, this morning’s testimony from the chairman brought no new surprises. Bernanke called things as he saw them while trying to provide an ounce of optimism.

For investors, the chairman’s speech is just another data point. Nothing has changed since yesterday and nothing new was presented. Rather, for better or worse, the Fed is moving forward with its previous announced plans. Whether more needs to be done is a subject of debate, but it shouldn’t change your investment strategy.

How should you invest? Think conservative, counter-cyclical and defensive. Look at companies that either not directly dependent on a strong economy, such as Bristol-Myers Squibb (BMY) or Biogen Idec (BIIB), or those that benefit from a weak economy like Strayer Education, Inc. (STRA).

Alternatively, avoid those companies likely to be hurt by a global contraction, even if their stock prices appear to have stabilized. A good example is Guess? Inc. (GES).

Most importantly, understand that while it is important to maintain some exposure to stocks, you can control how much exposure you have. You can always buy stocks in smaller amounts, dollar-cost average or a set a limit at where you would buy a stock if it rebound (a buy stop).

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