One of the easiest stock picks for me to make this year is also one I made last year and for many of the same reasons. In a time of economic turmoil, high unemployment and tight liquidity, what could be more practical than pawn shops and cash advance outlets? EZCORP (EZPW) made me money last year and I expect more of the same as it continues to expand.

Most investors wish they could have gotten in on the ground floor of the hugely successful The Home Depot Corporation (HD), McDonald's Corporation (MCD), or Starbucks Corporation (SBUX) franchises while they only had a few hundred outlets. In the case of EZCORP that is still possible.

Sometime in the future the economy will recover, maybe not with staggering gains, but it will recover. Ah, but you ask when? Well, trying to forecast that, would really be sticking my neck out.

If you are an avid reader then you have seen some predictions that speak of a recovery in the spring and some that push it out as far as 2011. Tough business that prediction business.

All that is well and good, but let me get to something that I do feel comfortable predicting, or at least repeating the daily news: UNEMPLOYMENT WILL BE GETTING A LOT WORSE in 2009. Who will benefit from this? I expect the church pews and bar stools will be in full use. I also think pawn shops, those lenders of last resort (excepting your local loan shark) will be doing a booming business.

The two most prominent pawn shops that are expanding organically and by acquisition are Cash America (NYSE: CSH) and EZCorp Inc. (NASDAQ: EZPW). Both are down this year but beating the indices by a fair margin.

With the housing crisis and less-than-robust economy making paupers out of people who thought they were living the American Dream a few years ago, investors are looking for ways to capitalize. Yesterday, I wrote about the strong business that self-storage companies are doing housing the belongings of former homeowners.

Today's Heard on the Street column (subscription required) in the Wall Street Journal looks at another obvious beneficiary of other people's misfortune: pawn shops and payday lenders. Shares of companies like First Cash Financial Services (NASDAQ: FCFS) and EZCORP (NASDAQ: EZPW) have run up nicely in recent years but have since pulled back as times have gotten tighter. Some analysts blame the aggressive expansion of pawn shops into payday loans, which lack any form of collateral.

"The earnings strength of payday loans is untested in a tough economic environment, when borrowers who lose their jobs default on the loans," according to The Journal. "And the business has come under increasing fire from state legislatures and consumer groups, which contend that the fees on these uncollateralized loans often amount to interest rates of as much as 400% a year."

The contradiction here is remarkable, and the Journal doesn't point it out: investors are worried that payday lenders are running the risk of defaults high enough to wipe out the profits from high-interest loans. Meanwhile regulators and consumer groups are accusing the companies of charging outrageous interest rates. But which is it? If the high "interest" on the loans isn't enough to overcome defaults, then the interest rates aren't high enough! Perhaps this explains why none of the big banks offer payday loans.

The Wall Street Journal [subscription required] suggests that the 70% of economic growth that's driven by consumer spending is shifting into reverse. High, middle, and low income consumers are cutting back their spending. Lower and middle income consumers are selling their gold and using pawnshops to pay their bills as food and energy prices hit record levels. Investors should consider whether to sell their stocks or hold on and suffer.

High income consumers hit. Companies that serve higher income consumers are losing altitude, including:

• Tiffany & Co. (NYSE: TIF) said that its U.S. sales slumped during the holiday period.
• American Express Co. (NYSE: AXP) warned of rising delinquencies and slowing spending among its cardholders.

Lower and middle income spending down. Less surprisingly, retailers to lower and middle income people are also suffering. These include: