If anything I've over invested in inflation hedging. I'm virtually certain there will be huge to hyperinflation sometime in 2010. I have planned accordingly. I just want to be in cash a bit for the fall when I think another crash in iminent as there is so much unwinding of crazy OTC derivative Credit Default Swaps that still needs to occur. Add to that all the toxic assets on bank balance sheets propped up by the mortgage guarantees, the purchases by the FED of junk paper from undisclosed financial institutions domestic AND foreign, cash for clunkers, long term liabilities (Social Security etc.) and outright monetization of the debt and it seems like mega inflation of a kind we've never seen is a lock. On the other hand I still worry about catastrophic deflation if they don't monetize the 100's of Trillions (some say over a quadrillion per the Bank of International Settlements estimates a year ago) in the crazy unregulated shadow bank derivatives market. Frankly short of a real show stopper like the creation of a North American Union after inflating our way out of debt, I don't see how the "West" stands a chance against the BRIC nations that have actual built wealth the real way with blood, sweat and tears. Of course there's also the war option but is that really an option in a nuclear world? That said my safety deposit box is pretty jammed full of Precious Metals because I think inflation is the only way out for the super rich and their minions in government. Obama will certainly want to go the inflation/spending route and if Bernake or the FED don't go along with that he might move against them. Jim Sinclar (www.jsmineset.com) who's been downright prophetic (see his 2006 formula!) believes there is a power struggle between wall street aligned "king makers" who put Obama into power and the "king makers" behind the FED. Sinclair if you don't know worked with Volcker after the Hunt brother's failed in their attempt to corner the silver market (another example of the danger of too much leverage). I'm curious what do you see coming Maxiep and why?
The derivatives issue is overstated, because each side offsets the other. Perhaps there's a trillion there--which is huge--but nothing completely catastrophic. I see inflation, but not Weimar Republic-like. It will be closer to Volckler's first term. Most of my worth is tied up in real estate--residential and multi-family personally and commercial in terms of my partnership stake. RE is a reasonable inflation hedge, but not a perfect one. There's still some room to fall in residential and commercial has yet to feel the re-fi hit. Other than that, currently I'm overweighted in equities. I jumped in with both feet earlier this year. I also own a fair amount of floating rate corporate bond product. I'd like to buy more MBS B-tranche, but I have too much exposure in RE as it is.
I fear we are headed toward debt-deflation. http://en.wikipedia.org/wiki/Irving_Fisher#Debt-Deflation
Sounds like some pretty sophisticated investors in here. To the OP, I think you are a little overweighted in Large Cap US equities. You will be getting some overlapping with the Vanguard 500 and Growth Fund of America. Europacific is a great Int'l Lrg Cap fund. Since you are 36 and have a lot of time for this to cook, I would consider putting about 10-15% in emerging markets. This is where the real growth will be over the next ten years. If you like American Funds, The New World fund (NEWFX) is a great choice with a little less risk that the average emerging markets fund. If you like index funds than (EEM) is a good low cost choice that covers the whole emerging markets universe. More specifically, I think China (FXI) and Brazil (EWZ) are the best bets, with India (INP) also exciting.
Thanks for replying. Unfortunately, the ones you mention don't seem to be in my 401k. Here are my choices: PIMCO Total ReturnView Schwab Advantage Money Market FundView American Funds EuroPacific GrowthView Fairholme FundView American Funds Growth Fund Of AmericaView Dodge and Cox Stock Vanguard 500 IndexView Neuberger BermanView American Capital World BondView
I agree with you that this will occur. Where I disagree with you is on how the monetary authorities will handle the debt deflation scenario. I think they will opt to go out Weimar style rather then 1930's redux. They want money circulating again and have gone on record saying they want to goose inflation with lots of people calling for another round of Stimulus. Sooner or later the money the banks are holding will enter back into the system at which time the velocity of money effect will kick in with a loss in confidence in currency as the rest of the world diversifies away from the dollar with more call for an SDR like world reserve currency made of a basket of currencies (and possibly a slight weighting in gold). If the IMF doesn't do it likely an Asian financial group will promote an Asian regional currency. That's how I see it shaking out. We simply cannot increase interest rates and taxes while reducing spending without running the risk of a massive social upheaval and violence. Far better to pay off our debt on the cheap and then replace it with a new regional or national currency much like Mexico did with the Nuevo Peso when the revalued there currency and shaved off a few zeros.
