Consider Conservative U.S. Banks: How To Cure Your Easy Money Hangover

Easing rates during the financial panic in 2008 was the right move in stopping the economy from plunging over a cliff. By late 2010, however, the recovery was already under way and the unemployment rate was falling, but the Fed kept the federal funds rate just above zero.

The Fed sent mountains of cash to banks to rebuild reserves decimated by the subprime mortgage meltdown and domino effect on the economy, but this was no economic tonic. Banks had no appetite for risk and drastically cut lending to smaller companies, curtailing their expansion and forcing them to lay off workers. Another problem with freakishly low rates for tens of millions of investors in Treasury or high-quality corporate bonds–or anybody who saves via traditional savings accounts–is that they earn virtually no real return when you factor in inflation.

So what is the best course to take? You could own a diversified portfolio of value stocks that should perform well even in a slow-growth economy while also providing above-average yields. Another good investment is to own your home. If I’m right, Fed policies will inevitably produce much higher inflation. In this environment value stocks and real estate should both protect or even grow capital in real terms.

Venturesome types should consider conservative U.S. banks, which are only now emerging from the crisis. Subprime nightmares are only a memory, and beefed-up reserves provide good protection from the likes of another serious crisis in the future. Look for steady increases in earnings and dividends in the years ahead.

1. The SPDR S&P Bank
   
2. BANK OF NOVA SCOTIA
3. PNC Financial Services Group
4. Wells Fargo