Where to Put My Money?

This is a laundry list of pros/cons and analysis meant to help me make a decision on where/how to invest my money. It's a work in progress. As time permits, I will flush it out and update it. I encourage you to participate in a parallel analysis.

Pros: Interest rates, technology, global growth prospect

Interest rates have been sliced by 50 basis points in an aggressive move by the Fed to keep the economy strong. This, taken at face value, is a good thing for the investing climate. Over the long haul, though, I think this is a bad deal. The Fed, by cutting rates, has done several things: positioned itself as an corporate booster as opposed to an inflation fighter. This is opposite the position Greenspan took. He used words (irrational exuberance) to control hot markets and gentle innuendo (and measured cuts) to bolster bad ones (the Fed has its eye on growing weakness in the --- sector). I think the Fed buckled to private interests here and did not look out for the long-term. By dumping money into the system and bailing out investors who were irresponsible, and now, by stabilizing the investing environment with a rate cut in the face of growing inflation, the Fed as effectively subsidized bad investing decisions and therefore endangered our long-term economic future. In other words, this temporary salve treats the symptoms of the credit malady, not the source.

Technology is strong. Initially, it looked like investors making a flight to an area of the market where credit issues would not loom as large, now it seems a sustained run driven by restlessness elsewhere in the market, and genuine strength in the sector.

Global growth looks comfortable. I was interested to see that the US now accounts for roughly 40% of the world's market cap. This means, among other things, that some relief from domestic turmoil may be sought overseas - where quasi-independence from US markets is possible.

Cons: Inflation, housing, consumer debt, China, irresponsible federal monetary policy, time lag on the market

Several of these issues are addressed in the Interest rate discussion above. Suffice it to say that the credit/inflation/domestic growth/consumer debt beast is a tangle too complicated for one such as myself to unwind. I do believe though, that the ultimate conclusion of this mess is a bad winter. The catalyst for a market plunge could very well be poor holiday shopping returns. I think this is quite possible as consumer default rates work their way through the system and finally show up at the doorstep of companies (that are still rolling thanks to shortsighted Fed policy and last year's great profits). When the buck finally stops, it will be the consumers who find it on their desk. This is my great fear: inflation is real, debt is real, and the base that supports the corporate apparatus gets hit from both sides and, oh yeah, those interest rates are too low to stop it. We need interest rate stability. Greenspan (trough no fault of his own) cut rates for too long too consistently and now we've raised and lowered them too frequently.

China's rising core costs of food and energy should export itself along with all those toys to the US in the form of higher prices. How significant is this trend?

I have a whole take on the real estate market, which I happen to know something about, and plenty more to come. I would also like to do a comparison of some basic investment vehicles as compared to an index or two and adjust these for risk. This should give us an idea about how to invest my money.