In 1932, the U.S. floundered around in the depths of the Great Depression. What to do about it was a question on most people’s minds. The New York Times edition of August 14, 1932, reported on the solution offered by Henry I. Harriman, then president of the Chamber of Commerce. “H.I. Harriman Gives Recovery Program,” boomed the headline in big bold type: “Urges Beer at Once.” (Thanks to James Grant for sharing this headline.)

Well, this was during Prohibition. And why suffer the ills of a financial calamity stone-cold sober? Harriman also suggested a 25% cut in “all governmental budgets” and an overhaul of the tax system. Times do change, after all. It is hard to imagine such a person of prominence making that kind of proposal today.

In any event, the investor today finds himself in the worst stock market since the early years of the Great Depression. Unlike his forebear, he is free to drink beer. But like his forebear, he is likely wondering what to do. I have no political solutions to offer, but I have a portfolio recovery plan of sorts – some ideas as to what areas may do well in the years ahead, even if the economy continues to struggle.

I would invest in those areas of the economy for which there are real physical bottlenecks and scarcity issues: like ports, roads, pipelines and energy. At this very moment, investors are entering a window of opportunity to profit from global infrastructure construction and renovation.

President Obama plans to spend tens of billions of dollars on infrastructure projects. And he is not the only one. The U.K. recently announced a $30 billion stimulus plan – with huge chunks of money for infrastructure. Argentina quickly followed with its own big plan. The news agency AFP calls it “a massive public spending plan to pump more than $21 billion into Argentina’s infrastructure.” China has its own $586 billion New Deal, too, as we’ll see. Where is all that money headed?

A lot of this cash is targeted for public works projects to repair crumbling infrastructure, or build completely new projects. China’s stimulus plan will also include a fresh infusion of cash to promote alternative energy and green technology. Already, China’s infrastructure spending has grown at a pace of 20% annually for the last 30 years.

(The impact on China’s economy has been transformational. For example, new highways now connect small far-flung rural towns to much larger booming cities. As a result, the economic activity between the two areas is in full bloom. The amazing developmental transformation in China reminds me of the effect canals had on trade in the U.S. during the 1820s and ’30s. The Erie Canal alone cut transportation costs by 90%, according to Tomorrow’s Gold by Marc Faber. It linked the Great Lakes grain markets to New York. Canals more closely knit the interior part of the country with the Eastern seaboard, resulting in explosive growth in trade.)

How to pay for these stimulus plans is a question almost no country seems all that concerned with at the moment. There is this belief that you must stave off economic contraction at any cost. And so it has come to pass…

The U.S. government’s fiscal position is atrocious, with a deficit topping $1 trillion and the federal debt approaching $10 trillion. China is in much better financial condition. But China’s stimulus plan is also a very big bet. It’s about 14% of the Chinese economy. As The Wall Street Journal reports: “The central government likely will have to significantly boost its own debt sales to fund the stimulus.”

Both big expansion plans will probably end badly…from a monetary and fiscal standpoint. Often, these governmental infrastructure programs plans lead to wasteful spending and overinvestment. In government intervention, as in an Argentine steakhouse, everything gets overdone…Nevertheless, there is money to be made before the steaks turn to charcoal.

The infrastructure-spending plans around the globe have become a kind of contagion. Soon every government with a slowing economy from Capetown to Moscow, from Brasilia to Bangkok, could follow suit. All of which spells a possible golden age for those companies that make asphalt, water pipes, wind towers and the like.

This infrastructure idea is right in the wheelhouse of the investment themes we have been pursuing in Mayer’s Special Situations. Astec Industries (ASTE:nasdaq), for one, ought to benefit from the road-building efforts. Northwest Pipe (NWPX:nasdaq) has the U.S. water pipe niche nailed down. And ABB Ltd (ABB:nyse) should grab a share of any money for new power systems, wind or otherwise. It should be a nice ride for investors who get in now, especially as prices for these stocks have become so cheap.

Source: Portfolio Recovery Plan

This from The Rude Awakening:

In the market, of course, we have endured a sort of destructive khamsin blowing through the market and economy in recent months. The longer it blows, the more it seems to make brittle and destroy. The severe drop in commodity prices, for example, is worrisome for commodity investors. But more worrisome is how long it goes on.

Financial strength is not an unlimited reservoir, and many companies never had much to begin with. Even those that looked okay months ago are now scrambling. So even though the market crash has created a lot of bargains, I think the market still looks treacherous. The biggest risks now are financial, such as the inability of a company to finance itself through this crisis.

Something might look dirt-cheap, but if it can’t make it through the credit crisis, it’ll get a lot cheaper…and might even go out of business. So investors should be looking to buy stocks that are like camels – creatures that can cross the desert without needing to refuel. At least with these stocks, even if the prices go down a bunch, you have a good shot at making your money back, and then some, later. You could still wind up with a good return over a period of years. You can’t do that if the thing dies in the desert.

So financial strength is going to be very important in 2009. I also think it will be crucial to stay in essential industries and/or industries that have a well defined, long-term future, as opposed to businesses that can grind to a near halt.

One such company is Astec Industries (Nasdaq:ASTE). It has no debt at all. And it’s in an area — infrastructure — in which there are clear needs and a bright future. Astec, like most of the stocks of companies that build highways, bridges, water pipes and wind towers, should perform very well, even in a sluggish economic environment.

Astec Industries is in great position to benefit from the rebuilding effort just announced by President-elect Obama. The company just released an outstanding earnings report, posting a 39% increase in earnings per share. Backlog remained healthy. Astec’s “green” lineup of products, like its asphalt recycling equipment, plays well to politically minded buyers – besides saving folks some money and making better asphalt. And remember, Astec is also an international story. Overseas sales grew 37% in the third quarter and made up 43% of total sales.

Then there are natural gas pipelines that require products from Astec. Gas pipelines are not suffering from years of neglect or poor maintenance. Rather, the building boom in natural gas pipelines reflects all the new supply from America’s new shale regions and the nation’s growing appetite for natural gas. This year, we added some 4,400 miles of new pipeline. That’s more than 2.5 times last year’s figure. It is the biggest addition to the network in the 10 years in which we have data.

Those additions help meet a greater reliance on natural gas for fuel. But the pipeline companies are struggling to keep up. It’s not easy building new pipelines, especially in the dense and developed Northeast. Earlier this year, El Paso Corp. canceled plans for a 7.8-mile pipeline in Massachusetts because it couldn’t win approval from local authorities.

Other companies have had similar problems. Take Islander East Pipeline. Local authorities rejected its 50-mile pipeline that was to stretch across the Long Island Sound. Where folks expect to get natural gas, I’m not sure. No one seems to want to build anything, but people complain when prices rise. Anyway, this situation makes existing right of ways and pipelines enormously valuable.

In addition to repairing roads and bridges, the Obama plan will almost certainly direct funding toward water infrastructure projects as well. That’s just one more reason to like a company like Northwest Pipe (NASDAQ:NWPX), which makes large-diameter water pipes.

But even without any help from Obama’s new infrastructure spending plan, Astec and Northwest Pipe are two solid examples of companies that can withstand the khamsins that stock market blow our way.

Source: Shooting Stocks in a Barrel