Your posts on this subject are a warning light on the dashboard of my investment strategy.
In ’97-98 my wife and I saw the bottom of the last RE cycle but didn’t feel we had the financial wherewithal to invest quite yet. Our solution was to aggressively earn more and save more by working longer hours and deferring gratification. We parked the loot in CDs because with low inflation we were more interested in security than high yields.
We expected to see RE prices peak out by ’04 and thought by ’06 we’d be tracking the slow, sticky ride to the bottom of the market and investment time.
Instead, buyers downed a a few thousand fistfuls of low-interest ARM steroids and went crazy.
No problem, we thought, it buys us a few more years to save capital to invest when the time is right. Cash will be king when the low-interest hangover starts hitting the markets. A winning strategy.
But now you raise a much more fundamental question: if the financial structure takes a big enough hit from deflation, overleveraged debt, recession, insolvent retirement funds, shady accounting, etc., how and where do you preserve capital?
Can a government that is committed to funding an expensive war, preserving tax cuts, maintaining Social Security, bailing out insolvent retirement plans, etc., find the money to cover my little FDIC insured investments? Should I convert to T-bills? Bury gold in my backyard?
Dunno.
I’m certainly not convinced that the worst scenario is actually going to happen, but I am convinced that it could happen. Which means we’re all working without a net here. I’d certainly like to see other posts from people trying to figure out how to preserve capital.
