Business Cycle and Securities

Prices
Extracted from Investment Strategy
& The Money Connection
By Edward J. Cousin

Interest Rate Sensitive Securities

Interest rate sensitive securities should be the
initial purchase because interest rate decline
quite rapidly and respond quickly to
implementation of an accommodative monetary
policy by the Federal Reserve. These would
include Treasury bills, notes, and bonds.
Because the common stocks of utility companies
are interest rate sensitive, the shares of one or
several of the Dow utility companies also can be
expected to appreciate from a decline in interest
rate.

Housing & Construction Sector

Because mortgage rates respond quickly to
monetary accommodation, the
housing/construction sector leads the
economic recovery and expansion phases of
the business cycle.
Thus common shares of forest products and
building materials corporations should be
purchased for the portfolio.

Energy and Basic Material

As economic recovery proceeds and begins to
expand, this results in an increase in demand for
all basic raw materials such as copper, aluminum,
tin, nickel, steel, zinc, crude oil and so on.
Thus, the common stocks of corporations of the
nonferrous metals group and the oil producers
can be added to the portfolio sometime after the
purchase of all interest-rate-sensitive and housing
stocks has been completed.
Gold mining shares also should be added at this
time since the price of gold responds directly to
an acceleration of M-1 growth.

Consumer Spending
Consumer spending accelerates as consumer
optimism spreads, and the common shares of
one or several of the major retailers should be
added to the portfolio.

Airline
Business travel increases in an expanding and
growing economy. Thus, the stock of one or
several of the major airline carriers and of the
major commercial aircraft manufacturers also
should be included in the portfolio.