RightSide, as the Fed is printing money to pay off the debt, and simultaneously raises interest rates to control inflation, what would be the outcome? Regarding the idea of stocking up on debt, it comes down to assessing whether deflation exceeds the drop in housing values. Do you see it this way too?
I remember reading the Wall Street Journal while I got my MBA in the early 1990’s, and at that time, there was a column where monkeys competed against mutual fund managers and stock pros for the best stock picks. The WSJ asked the experts to select their favorites, and then gave the monkeys darts to throw at a stock chart. Some period of time later, the WSJ tracked the profit/loss of each team’s selection. Most of the time, the monkeys won. Eventually, the column was phased out. I suppose it was too embarassing for the humans. My guess is the monkeys were ready to keep playing.
The reason I write this long story is to make the most important point of investing: no one can predict with certainty the future of a stock, the markets, direction of interest rates, deficit. No one can predict how these forces will interact.
I will never forget this lesson. Later, as I read more, I realized how this happens to the pros. You buy 10 shares of BiotechAsthmaDrug, because they were just approved by the FDA for a breakthrough asthma treatment. The stock soars. You pat your back for having made such a suave move. A month later, the people taking the drug get really sick, and some die. Lawsuits mount, and the company faces bankruptcy. The stock plunges before you have a chance to sell, and now you lost your money. The expert picked BioTechAsthmaDrug because he has extensive knowledge of the drug market. The monkey didn’t. Some event can happen and throw a monkey wrench in your most well-thought out plans.
There are those who have predicted economic armageddon for years, and perhaps they are wrong, or perhaps their timing is off.
I love reading all these diverse viewpoints, and am open to changing my mind, yet for now, I am happy to be without a mortgage, with most of my money in CDs, money market funds, low-risk stocks (UPS, Berkshire Hathaway, stuff like that), and Vanguard index funds. I have lost very little money in this way, unless I lost due to inflation. I laughed at the tech stock boom, and couldn’t believe people were buying overvalued stocks. I bought Lucent after it dropped from $90 to $5, but then lost half because it had still further to fall, to $2.50. That was my only tech stock gamble, and it was a gamble, because I bought it without knowing anything about it, except that it seemed cheap. I will not make that mistake again. I will only buy stock in a company I understand, with good fundamentals. My method worked in the current economic environment, but may not serve me well if inflation rises and gold were our only friend.
