How to invest in the Obama recovery

By Tim Middleton

It's always the economy, stupid.

FDR won the Second World War, but he's better remembered for the New Deal. Ronald Reagan won the Cold War, but his economic reforms are what broke the back of stagflation. Bill Clinton eradicated welfare as we knew it, but he'll be remembered more for free-trade deals that unleashed global prosperity.

Barack Obama won the White House promising to overcome the economic malaise created by his predecessor. He will be the first black president of the United States, but he wasn't elected because he's black. He was elected to fix a badly broken wealth engine. He made his priorities clear enough that we investors can see the outline of the kind of economic recovery he has in mind. We can, therefore, invest alongside these trends to our personal profit.

And though no presidential candidate can explicitly promise his favored constituents that he will give them absolutely anything they want, he can do it implicitly, and Obama has. These are the Three Anythings the incoming Obama administration offers to investors. Accept the invitation by buying:

• Anything green, including the U.S. dollar.

• Anything with its hand out, especially government itself.

• Anything that would hurt if you dropped it on your foot, like a cement truck.

Alternative energy, municipal bonds and infrastructure are the new Halliburton (HAL, news, msgs), the oil services giant whose stock more than doubled under the watch of its former boss, Vice President Dick Cheney, at least until the bear market came along.

In league with global trends that recognize the greenback as the world's only reliable reserve currency, this trio will help restore the U.S. dollar to primacy over the euro. That bodes well for domestic over foreign securities, from stocks to bonds.

Here are the priorities, and how to invest in them, explained:

Go green

When Sarah Palin cried "Drill, baby, drill!" she showed how clueless her ticket was in this year's election. Petroleum is so Republican. And except at extravagant prices, it is so scarce. (Ignore the current momentary dip; it won't last.) Moreover, so much of it lies beneath land under the sway of people who are not America's friends.

Wind and solar energy are expensive, too, but so was hydroelectricity once. Now it's the cheapest energy. Indeed, the Pacific Northwest has become the home to so many high-technology companies -- including Microsoft (MSFT, news, msgs), the publisher of MSN Money -- because theirs is an energy-intensive enterprise, and that's where so many rivers were dammed to harness generating potential.

And the cost curve of alternative-energy sources is going down, not up. Solar panels exploit the same advantages in engineering as microchips, which makes it possible for them to become "relentlessly cheaper," just as LCD televisions have become, says Kevin M. Landis, the manager of the Firsthand Alternative Energy Fund (ALTEX).

Among the incentives the Obama administration could offer to aid alternative energy would be to expand net metering and time-of-day pricing, strategies already employed in parts of the nation. Under net metering, the excess electricity that power-company customers produce -- through solar panels, for example -- is bought by the companies at retail prices. Where time-of-day pricing is used, those prices peak in midafternoon during summer, exactly when solar energy is most abundant. The power companies, in turn, are spared the cost of building generating plants just to meet peak demand.

Stocks in this area can be extremely volatile, making funds a better choice for most investors. Relatively few mutual funds are specifically targeted to green energy, but several exchange-traded funds are, including PowerShares WilderHill Clean Energy (PBW, news, msgs), Market Vectors Solar Energy (KWT, news, msgs) and First Trust Global Wind Energy (FAN, news, msgs).

Buy American

The dollar began rallying earlier this year as the whole world dumped risky investments and flocked to U.S. Treasurys, which you can buy only with greenbacks. Demand was so great that three-month T-bills were yielding almost nothing. It was a reminder that, no matter what they say about the U.S., foreigners recognize it is the only superpower -- economically as well as militarily.

Also, the U.S. was the first to recognize the current economic malaise and try to deal with it, in part by cutting interest rates. Thus, says Robert J. Froehlich, the chief investment strategist of DWS Investments, U.S. stocks will recover before those of other nations, and everybody knows that -- including foreign investors, who will flock to our stock markets at the expense of their own.

The immediate way to play the dollar's rally is PowerShares DB US Dollar Bullish (UUP, news, msgs), up 13.5% for the year, through Nov. 19. The indirect way is to cut back on foreign funds and switch the proceeds to domestic stock funds. Froehlich also recommends Wal-Mart Stores (WMT, news, msgs), which gets only a quarter of its revenue overseas. In contrast, the average company in the Standard & Poor's 500 Index ($INX) is dependent on foreign sales for 41% of revenue.

Continued: Buy government bonds

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