Tuesday, October 11, 2005

Brace Yourself for Rough Times!

Man, this is not the happiest time to be an investor. The specter of inflation and recession loom large. Two respected writers have argued for one or the other. Bill Gross of PIMCO, aka Bond King (more like Bond God!) argues that rising interest rates will cause the bursting of the housing bubble, triggering a US recession. If this is the case, stocks will be pummeled as corporate profits plunge.

David Dreman of Forbes, on the other hand, argues that inflation will be a killer, and that locking in interest rates would be murderous for your investments.

Hmm, funny how no one seems to talk of stagflation. If prices of crude, copper and other commodities continue to surge, fueled by growing demand, isn't it foreseeable that the Fed has its hands tied? Or if the US Treasury is forced to print money to pay its debts, then you have a situation where you have too much money and slow economic growth. I'm no economist, so if there's someone who understands this stuff better than I, clue us all in.

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