Best financial bets for future homeowners
Probably most of us here hope to buy a(nother) house someday, myself included. Many of us have been saving for that. The question I'm posing here is, where are the best places to put our money while waiting out stubborn sellers and while the economy is in turmoil, perhaps headed toward a depression? I'm no economics expert, but I'm learning, esp. to read between the lines. My stream of consciousness on the question:
What I've learned so far is to watch the dollar's value against other major currencies. So much depends on that. Lately the dollar is rising against the euro. It seems that some of the European Union has its own banking crisis, the exposure of which has lagged the US's. The recent bailout is seen as a sign that the US is working on its issues (for better or worse in the long run), whereas the EU is further behind.
When the dollar rises, the price of oil and gold tends to fall. The price of oil also falls when it looks like demand for oil will fall due to a recession/depression.
I want a safe haven for the money I'll use to buy a house. I'll trade high gains for safety. I don't want to lose with a falling dollar, so I want a hedge if the dollar plummets, which I think might well happen in the long run.
The strategy I'm following so far is to stick with the US dollar in CDs and money market accounts as the EU and other places face their own banking debacles, or are just dragged down due to the US's troubles. Hopefully the dollar will rise and gold will fall. I think there might be a bubble in gold now too, due to recent economic fears. I expect the House to pass the bailout, helping gold's decline for now. When the time looks right in the next few months, I'll put 10% of funds into a gold hedge. The hedge will probably lose value if a depression doesn't happen, or the dollar doesn't eventually plummet. I'll be open to changing the strategy as new info comes in.
I'm not convinced that gold is the best hedge, but I'd hate to be wrong too. Berkshire Hathaway could be a hedge (Buffett's certainly leveraging his cash lately to get some sweet deals), but comparing gold to BRK-A or BRK-B, Buffett has been underperforming gold and with about the same volatility (price see-saws). Plus Buffett could die.
Your thoughts and strategies?
What I've learned so far is to watch the dollar's value against other major currencies. So much depends on that. Lately the dollar is rising against the euro. It seems that some of the European Union has its own banking crisis, the exposure of which has lagged the US's. The recent bailout is seen as a sign that the US is working on its issues (for better or worse in the long run), whereas the EU is further behind.
When the dollar rises, the price of oil and gold tends to fall. The price of oil also falls when it looks like demand for oil will fall due to a recession/depression.
I want a safe haven for the money I'll use to buy a house. I'll trade high gains for safety. I don't want to lose with a falling dollar, so I want a hedge if the dollar plummets, which I think might well happen in the long run.
The strategy I'm following so far is to stick with the US dollar in CDs and money market accounts as the EU and other places face their own banking debacles, or are just dragged down due to the US's troubles. Hopefully the dollar will rise and gold will fall. I think there might be a bubble in gold now too, due to recent economic fears. I expect the House to pass the bailout, helping gold's decline for now. When the time looks right in the next few months, I'll put 10% of funds into a gold hedge. The hedge will probably lose value if a depression doesn't happen, or the dollar doesn't eventually plummet. I'll be open to changing the strategy as new info comes in.
I'm not convinced that gold is the best hedge, but I'd hate to be wrong too. Berkshire Hathaway could be a hedge (Buffett's certainly leveraging his cash lately to get some sweet deals), but comparing gold to BRK-A or BRK-B, Buffett has been underperforming gold and with about the same volatility (price see-saws). Plus Buffett could die.
Your thoughts and strategies?
Comments
A lot has to do with your time horizon though. One year? Five years? Fifteen?
You raise a really good point, if deflation looks very likely. I'll have to think about it more.
I have only 10% of assets in a 401K, all in relatively safe stuff. If I hedge against a falling dollar / inflation I would do it in the 401K. I'm not planning to retire on that.
The JPMorganChaseWaMu CDs look attractive now. I trust they'll be in business for the next year at least. The FDIC insurance limit looks likely to increase to $250K until the end of 2009 (House has to pass the bailout first).
I'm absolutely with you on the weakening dollar being bothersome. Problem is, we have already missed a lot of that. Look around, the dollar has actually been more or less holding its own the last 6 mos or so against most major currencies after a pathetic 2007. If you are really worried about downside, how will you feel putting all your dollars in loonies, and then seeing the loony drop from 1:1 to 1:0.93.
Besides, the upside for currencies seems so tepid these days that I doubt you'd miss much in potential gains even if the dollar weakens further. But if it makes you feel safer, by all means diversify.
I could stand to lose 5% of assets though, which is why I'm thinking a 10% hedge. I agree we've missed out on a lot of dollar-falling so far, and the dollar has held for a while now and is gaining ground lately. I'd wait until that rise looks like it's leveling off. What's making me consider this most is people like Peter Schiff and some economists who predict the dollar will fall a lot further in the long run. So far I've held to the idea that the US is not much worse off than many other countries. Now, with the multi-$trillion bailouts for the rich, including foreign banks(!), I'm not as confident on that.
You're giving me more to think about, thanks!
Keep in mind, most of the developed world is currently taking their own drastic actions. Many are simply lowering interest rates, but France/Germany are now fighting over a very similar bailout. Ireland recently declared it would back all bank deposits for 2 years...
It's kind of a bloodbath everywhere. Do let us know what you decide. If someone finds a really great safe haven, I'm all ears!
Will do. It would definitely be a bet. The only safety aspect is like insurance: even if ultimately I lose money I still had the benefit of the hedge.