Deflation and Investment

The semester finally ended, which freed up time, some of which I had hoped to use for blogging.

No dice.  Now I'm back into the research grind.  Priorities...

Here are a few thoughts on a few recent developments:

Deflation:  For all the handwringing about inflation, deflation has been and will be the far greater threat.  I didn't think it would actually get this bad because I felt, especially with B.B. as Fed Chair, that they'd never never let deflation happen again.  But it seems history is repeating itself.  Paul Krugman is merciless on his intellectual enemies.  I can't blame him.  He's making a lot of sense.  And when John Makin from the extremely conservative AEI is essentially saying the same thing, and is equally clear and persuasive as Krugman, well... these guys are not your usual fluffy pundits that don't know what they're talking about.  I'm wondering and wishing I could know what Milton Friedman would say if he were still alive.

Investing:  Austerity measures and timid policy by the fed has put my plans for real estate investing on a temporary hold.  I'm shifting my portfolio toward long-run government bonds.  We're looking too much like Japan.   That means our long-run rates are probably headed toward levels similar to theirs, which means despite our record low rates, they're likely to go lower.  Since the stock market seems to be showing bizarre mean reversion, I'm shifting gradually, selling stocks on boom days and buying just a little back when the market crashes.  I'll reconsider real estate at a later time after more of the foreclosures come online and rates fall further.


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