Inflation, Depression, neither, or both?

We are living in strange times. Everyone seems to be anxious about the future. “Will my job exist? Will my income be sufficient to meet my obligations?” Last week I spoke to several people who wanted to know where to invest their money. For some strange reason they seemed to think that I have the answers. Let me assure you that my crystal ball is no better than yours.

I can make a good argument that we are headed for a severe depression and another argument that inflation will be rampant next year and that we will be taking virtually worthless dollars to the supermarket in a wheel barrow in order to buy groceries.

Could we have inflation and deflation at the same time? I think many parts of the country will see both. I believe energy, health care and food costs are already inflating nationwide, while housing values and job opportunities are continuing to fall off the cliff in some areas.

Some say that now is the opportunity of a lifetime to acquire a bunch of houses (which the economy has made cheap) and to let inflation make you rich by riding its wave. Most talk of positive leverage not realizing that leverage is just a big magnifier that increases both the positive and the negative results of your investments. If prices inflate it is true that your wealth will increase quickly, but if values drop you can lose your entire investment and much more very quickly. What’s the solution?

I think it depends on who you are and where you are in your investment life. If you are a “starter” you have little to lose and time on your side whereas, if you are an “ender” you cannot afford to lose. “Starters” and “estate builders” should consider leveraging up using non-recourse financing, options and long-term well secured leases. “Enders” should consider paying off debt, building up cash flows and building reserves.

You know who you are and no one knows your situation or has a better crystal ball than you. Run with it.

David Tilney