Poway, you really outdid yourself with a great post. Yes, I agree it is a very important question. As for the answer, I have no clue. But here is something I said earlier in the year about the inflation/deflation debate, and what the government will do. I think all things considered the government still pitches to the voters. They will probably try to please as many as they can, and on the side pocket some money for themselves and their cronies, whatever they can get away with. So, look at the overall pressures and try to find which way they point. If we have a universal credit contraction, and everybody is in debt, the government might just lower interest rates and print money. But the forces in commodities might point up strongly, and also there are many people (retiring baby-boomers) who are not in debt, so this might limit the government’s ambitions. I can’t really see the government do anything to keep the housing market or stock market at the present level if oil goes to $100 and gold to $1000. Why would they anger retirees? But they might do something if housing drops 60% and gold only rises 20%. So basically, my answer would be that there will still be pain for homeowners, and there can still money be made by contrarians. But when the pain gets too large, or a large group of people or banks are headed for zero, the government will probably bail them out to prevent that. But it might not matter to me so much since I really don’t care if say LEND goes from $37 to $10 or from $37 to $0. I am not betting on the last $10, hoping that other opportunities will arise at that point. But I agree, it is an interesting and important question. And after all, if a stock trades at $1, it does make a big difference if it goes to $0 or to $10. This is actually where some great investors made the big money. So we have some time to answer this question. Maybe by then we know if we should risk getting long on certain $1 stocks.
