H-P, Merck, Part of One Manager's Defense Play

The candidates and the cameramen will leave Ohio soon after next week's primary votes are cast, let alone counted. Five-star fund manager Barry James will remain in the Buckeye State, however, and while he is not stumping for office, James is certainly worth listening to on economic and investing issues.

"The economy has been awful in Ohio," says the Alpha, Ohio-based James. "Manufacturing in Ohio is very grim and people are leaving the state at alarming levels. Not just losing their jobs but leaving the state."

Like many of the politicians playing through, James says that Ohio is a microcosm of what is happening throughout the Midwest -- and nationally.

"Health companies are popping up, but in no way are they replacing the sheer number of manufacturing jobs," says James. "Housing is still in a post-boom hangover, with new-home inventories 22% higher than last year and consumer loan delinquencies are the highest in 10 years. Jobs are the next thing to go, and you can already see companies cutting staff."

So how is James positioning his $380 million Golden RainbowGLRBX fund considering his gloomy outlook?

Right now, he is buying big-cap stocks, raising the equity portion of the portfolio to around 50% from 40%. The rest of the fund's asset will remain in TIPS and short- and long-term Treasuries, with maybe a muni-bond or two mixed in, because "the Treasury rally looks tired and munis look unavoidably safe and cheap."

Take note, however -- his shopping spree is temporary and "technical."

"The number of new lows is shrinking," says James. "Retail shorting is high and the bull/bear surveys are showing a lot of bears. From a technical perspective alone, that means it's time to buy."

In order to take advantage of this rally, James favors technology stocks like Hewlett-PackardHPQ and SeagateSTX. He also likes consumer based names like P&GPG and drugmaker MerckMRK.

As for commodities, which are experiencing a bull market he expects to continue, he owns Archer-Daniels-MidlandADM and DeereDE.

In terms of financials, he prefers insurers like American Physicians CapitalACAP and money managers like AllianceBernsteinAB to the troubled brokerage houses and investment banks.

"Insurers are helped by lower interest rates," says James. "Their portfolios are primarily made up of bonds, which rise in value as yields drop."

James will likely reduce the fund's equity position once the technical indicators reverse themselves. The Golden Rainbow fund has returned an average of 11.25% annually for the past five years, making it what James calls a "solid sleep-at-night fund."

He also expects Ohio to rebound from its recent economic hardship, mostly due to the small, often forgotten, industrial companies that dot the state.

"The Midwest will rebound from all this turmoil," says James. "The industrials will come back faster than a lot of people think. But right now, there are just too many home foreclosures listed in the paper to be too optimistic."