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Stock Profits and the Economic Stimulus

The Ultimate Stimulation

Written by Nick Hodge
Posted August 4, 2009

A recovery isn't a recovery until there's, well, some recovery.

Until recently, the stimulus, formally known as the American Recovery and Reinvestment Act of 2009, was all talk.  Talking heads and politicians squawked about whether or not it would help, if it was wasteful government spending, or if it would create the promised jobs.

In an effort to publicly portray steadfastness to their roots, some political leaders decried the effort as Big Government, tax and spend, or a redistribution of wealth. 

But now that the funds are flowing. . . those formally opposed have magically changed gears, and can be seen among the throngs with their palms open for handouts.

Of course, any investor with a brain knew that once the "guvmint" started writing checks no one would reject them — no matter their political leanings.

If you remember, I told you this would happen months ago.  Just days after the stimulus was signed into law, I reported on it:

A few sectors have been declared early winners now that the $787 billion stimulus has been signed into law.

Flaws and all, there's no point it debating or trying to fix it now. As savvy investors, all that's left to do is single out the ways to profit and try to recoup your personal share of the tax dollars being doled out to stave off what are now being called "catastrophic consequences."

It's been eight months since then, and two things have happened:

1)      The spending of stimulus money has commenced

2)      The stock market is sitting on eight-month highs

More importantly, the sectors I said had been "declared early winners" are now rewarding savvy investors with hefty gains. 

This is Sesame Street logic that some just can't seem to grasp.  Back in February, the stimulus earmarked about $100 billion for cleantech industries.  It's not hard to see — now that that money is being spent — that related stocks are soaring.

This is basically taxpayer money for companies that end up on their balance sheets in the form of tax credits, loan guarantees, and grants. 

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The Economic Stimulus: Transparent Profits

To be clear, even if you don't support the stimulus, your tax dollars are going to fund it.  And while you may not like the overall idea or where the money's going, I think it's fair to say that you wouldn't turn down personal profit from the stimulus, were it's available.

And it is. . . in a big way.

We had a general idea about where the money would go before it started flowing: $6.3 billion set aside for energy efficiency grants, $6 billion for loan guarantees for solar and wind, and so on.

But that wasn't really investable knowledge unless you put money in all efficiency companies, or in all solar companies, or in all wind companies. 

Now, however, the profit path is a bit more clear, thanks to numerous websites dedicated to tracking stimulus spending.  A quick peek at Recovery.gov, for example, would alert you that the Environmental Protection Agency has spent $38.1 million of the $5.91 billion that agency has made available from the stimulus.

You can track the available funds for each Federal agency, from Agriculture to Social Security.  Use it correctly, and the release of stimulus funds can act as an investment play book.

This is cause and effect at its simplest and its finest.

Stimulus Profits: an Example You Missed

I'll highlight the example of the smart grid. 

Back in March, it was announced that $3.2 billion had been made available to "provide formula grants for projects that reduce total energy use and fossil fuel emissions, and improve energy efficiency nationwide." Basically, for the smart grid.

I immediately began sleuthing the stimulus websites for a path to profit.  Once I had finished the reconnaissance, I passed along new buy recommendations to readers of Alternative Energy Speculator.

Here's a chart of the smart grid plays we entered, based on announced stimulus funding, compared to the Dow:

smartgrid stock chart

In this case, a picture isn't worth one thousand words, but rather several hundred percentage point gains.  We cashed out of one of those plays and are holding the rest for even higher gains.

And the same thing is happening in other cleantech sectors, with only a tiny fraction of the funding released to date.  In total, the Department of Energy has $16.796 billion to spend on energy efficiency and renewable energy.  They've awarded $3.5 billion and only spent $62.4 million. 

This is more than great news for savvy energy investors.  The DoE has spent less than half of one percent of their available stimulus funds for cleantech. . . and related stocks have already surged hundreds of points.

It may not be a cure-all, but the stimulus is generating serious profits for serious investors. . . as long as you know where to look and how to follow the trail.

The smart grid run is on.  I think water will be next.

Are you in position for these easy profits?

Call it like you see it,

Nick

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