Thinking “Out Of The Box” To Invest And Survive In The Next Recession

Exploit “Income Inequality” to Beat the Next Recession

Exploiting the growing income gap between the rich and the poor—and the very demise of the middle class—might be another strategy to prepare for the next stock market crash and recession.

It may be unorthodox (and certainly politically incorrect) to consider investing in companies that derive profits from higher numbers of poor people, but it’s unrealistic to expect investors to shun this concept.

It turns out that seeking out companies whose business benefits from the ever-growing if dubious, rise of poverty levels might be an excellent hedge against falling “into poverty.”

At Lombardi Letter, I’ve often discussed the value of defense sector stocks as a hedge against recession. And I continue to subscribe to that concept.

Income Inequality Is a Sad But Growing Problem

Now, for the record, allow me to state without reserve that I think income inequality is the biggest economic problem of our time.

Still, it’s impossible to analyze markets, business, economics—or the world in general, for that matter—with rose-colored glasses, sipping a refreshing “Campari” on the Côte d’Azur, listening to Edith Piaf.

Income gaps are as inevitable as another recession.

Analysis, especially when it comes to matters of defense, from both military and financial developments must often be ruthless.

When it comes to a stock market crash, fortunately, being ruthless in defending your portfolio does not mean having to jettison ethics.

Taking advantage of the fact that most people’s incomes in America and other advanced economies are dropping is good-old-fashioned realism.

Moreover, there’s a flip side to this “income inequality” coin. If the middle class is eroding, and many are becoming poorer, then the rich are getting richer.

There Are Two Sides to the Income Inequality Coin

In other words, investing in “rich people” stocks is as valid a strategy as investing in “poor people” stocks.

Thus, a portfolio designed to hedge against the next stock market crash would include a good mix of stocks representing companies that sell to the rich and those who rely on the poor.

One of the most obvious examples representing this apparent contradiction might be Ferrari NV (NYSE: RACE).