Law & Order - The Id, Ego, and Superego – and Penny Stocks

I love watching Law & Order. I love it when the police and lawyers are a little shy of concrete evidence and the truth hinges on whom you chose to believe. It’s always a matter of ‘he said, she said’. Do you believe the well heeled philanthropist or the street person whose lineage is of a dubious nature?

A number of differing views surfaced this week with regards to the economy. Like a Hollywood script penned by Freud, the opinions come from experts filling the void of the Id, Ego, and Superego. Some seem extreme, some sit nicely on the fence, and some seem conservative. Like a jury member, it’s up to you to decide where you find some semblance of truth.

First in the docket is Herbert Allison, the Treasury department’s assistant secretary for financial stability. He noted this week that the nation's economic recovery has just begun and "we still have work to do."

Allison said that declining prices in commercial real estate could continue to weigh down bank balance sheets; evidence we have a long way to go before a true recovery takes hold.

The rescue plan, known as the Troubled Asset Relief Program (TARP), is credited (in part) with pulling back the financial sector from near collapse last year. At the same time, its infusion of cash into AIG and the auto industry has been a bit of a sore spot with the American public.

Still, that’s one person opining that the economy, while temperamental, is on a slow uptick.

Federal Reserve Chairman, Ben Bernanke, said last week that it was “very likely” the recession in the United States had ended as consumers showed some of the first tangible signs of spending again.

Bernanke, who has become (cautiously) upbeat in recent weeks (amid signs of third-quarter growth), said for the first time, that forecasters agree "at this point that we are in a recovery."

Herbert Allison said that economic recovery had begun, and Bernanke bolstered that by saying the recession is virtually over.

Not everyone is enamored with the economy.

According to the ever dapper Peter Schiff, President of Euro Pacific Capital, the economy is actually worse today vs. during the depths of the recession.

"If the Fed really thought the economy was sound, why does he have it on life support? If he pulls the plug, our sick economy is going to die," he said.

According to Schiff, the Dow will fall another 90% from current levels when measured against gold. He predicts gold will hit $5000 per ounce "in the next couple of years," and predicts the Dow and gold will trade on a one-to-one ratio vs. the current level of around 9.7 to 1.

He also warned that the U.S. dollar is going to collapse under the weight of our massive deficit and “reckless policies” of the current administration. "Obama is making the same mistakes as Bush, but he's doing them on a grander scale," said Schiff. For the record, it should be noted that Schiff is running for U.S. Senate in Connecticut as a Republican.

Unlike the "legitimate bull markets" of many foreign markets, Schiff believes the U.S. is just experiencing a "rally in a bear market," and is lagging the rest of the world, "for a reason."

So who should penny stock investors turn to? Judging by the varying opinions, and the less than objective backgrounds they come from, I’m not sure any of them hit every marker – though they all appeal to their target audience.

If the economy is experiencing a “rally in a bear market” I’m not so sure that’s a bad thing for penny stock investors. After all, penny stock investors have never really been known to ‘buy and hold’.

Others note that the economic recovery is in a fragile state; it could also be a false dawn. If a penny stock investor finds their investment has climbed 100% in this climate, it might behoove them to sell. Or, at the very least, re-evaluate their strategy.

On the other hand, in spite of the economic climate, strong financials, encouraging outlooks, and speculation can still lift a good penny stock. Mediware Information Systems, Inc. (MEDW- Nasdaq); Accelrys, Inc. (ACCL – Nasdaq); SmartPros, Ltd. (SPRO – Nasdaq); and HealthStream, Inc. (HSTM – Nasdaq) are perfect examples of excellent penny stocks that have experienced solid gains over the last number of months.

These penny stocks also go to show that it’s important to keep an eye on your portfolio – to decide whether you want to hold or sell; regardless of what your favorite or least favorite pundit says.