[QUOTE=CTM;2917140]Question though, we've also lost that much in paper wealth with the drop of home and stock prices. Should that new inflation just get us back to where we are?
What's the case for hyperinflation and why would the fed and bankers want that to happen considering how much debt we owe privately and publicly? If Hyperinflation occurs, my 2800 a month mortgage payment is going to be nothing..[/QUOTE]
The problem is that the Fed and Treasury can't really target inflation in one particular area such as home values. They'd love to inflate home prices while keeping inflation at bay in other areas such as fuel, food, consumer goods, etc. Not really possible though.
No one wants hyper inflation but it may become a consequence if they don't take their foot off the accelerator at the right time. In my opinion, they will be late simply because they don't want to be early. In other words, the Fed will wait until they are sure growth is back and price stability has returned in a variety of asset classes before taking away all the easing that has been done. As bad as inflation is, deflation is even worse...believe it or not. History shows that combatting deflation is much tougher than calming inflation. Deflation is very self-feeding in that as prices go lower fewer people buy because they believe prices are going even lower...so they wait and without demand prices go even lower.
These are unprecedented times, we all know that. I think the key, as always, is to be safe and diversified. Hedge your bets, look for safe returns and protect your portfolios. This is easier than a lot of people think and we can all do it in our portfolios and in our everyday lives. If you have a long commute and drive an SUV then you're obviously vulnerable to high gas prices. So, you can buy some assets (physical commodities like the USO or an ETF that follows the oil companies) such that you manage your risk a little bit. If you fear inflation, buy some gold or other physical commodities or maybe take a position against the US Dollar.
When the market got killed in October I started to buy safe, dividend paying stocks at good prices. Not the financials because they were/are a crapshoot but companies that have solid franchises, continuing demand and look pretty safe like Altria, Phillip Morris, Verizon, McDonald's, etc. Even in a bad economy people will continue to smoke, eat $5 meals and probably won't disconnect their cellphones. At least that's my view and the share prices had come down a lot, dividends appear safe. However, at the same time I'm buying some US stocks, I'm not doing it "naked". I have also bought an ETF that increases in value as the broad stock market goes down. It's an ultrashort fund, SDS, that basically increases 1.5 to 2% for every 1% the S&P 500 goes down. It limits my upside with stocks I buy but also protects on the downside. As I look at it, I'm positioned so that I can collect good dividends, participate in increases in stock prices for the companies I've bought, but have insurance against any more major corrections if the S&P 500 decides to drop 30 or 40 points in a day again.
Last edited by jetstream23; 12-17-2008 at 01:44 PM.