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You may some excellent points. I concur with you statement that paying off debt is not necessarily the smart thing to do. As investors or speculators, and it is not always easy to tell the difference, we do not have to be "long" in everything. Also, we need to differentiate between good debt and bad debt. Consumer debt is bad, particularly if you are paying it off on high interest rate credit cards. Investment debt is a different animal altogether.
I live in the Dallas area. My house, since 1989, has appreciated at 2.7%/year and I bought fairly smart at the bottom of a real estate bust. The point is, housing in Dallas, where there is ample land for new homes, is not keeping up with inflation. What to do?
Here's what I did and I got the idea from Dan Amerman who posts at www.financialsense.com. I took out a 30-year home equity loan, reduced my mortgage payment significantly (I had a 10-year mortgage), "shorted" the dollar--I will buy them back as I pay off the mortgage, and have reinvested in higher returns elsewhere. I am also certain that I will I will be paying the mortage off with "cheaper" dollars in the future as inflation steadily erodes the real cost of this debt and I will bet the long rates will eventually go higher. Second, the invested money is paying all the interest expense on the borrowed money and a good portion related to the original unpaid principal. I am guessing that my "borrowed" money will fully fund my entire mortgage payment including principal in a few years. I do not to get real fancy because my hurdle rate is under 6%.
Keep in mind that the people who will do best in an inflationary environment are those who are leveraged and have low-interest rate investment debt, the ability to service this debt (having a job and getting cost of living raises helps), and hard assets that will rise as the value of the dollar falls. Whether I own my house outright or not, I will fully participate in any appreciation and I have cheap money locked up for 30 years. If I had opted to continue to pay off my old mortgage, I would have had to shell out my own money to pay interest. Also, if mortgage rates move higher, as I suspect they will, and if I ever wanted to tap my equity in my house, the cost is going to be pretty expensive.
Was this smart? I think so. I have been very careful how I invested the money when I refinanced. I have emphasized higher-quality, dividend paying stocks, including some of the Canadian oil royalty trust and have invested smaller amounts in gold and silver.
It is all a gamble. I reduced my house payment. I shorted the dollar and have investments that should do at least as well as what my house. Just my thoughts.
I did almost the same thing Slik. I got the idea from Peter Schiff in his Crash Proof book, but it's bascially the exact same thing. We're using the (still available) equity in our houses and setting up a carry trade. As long as our after-tax take on investments keeps above the 6% mortgage we're alright.
I especially like the foreign dividend yielding stock play since not only are the dividends of these relatively conservative companies paying quite a bit above 6%, but they're paid in the local currency which are all pretty much rising against the dollar.
Silver is a great place to be too as a hedge against the dollar, but mainly since it remains so wickedly undervalued and capped by the concentrated short positions. We've got a long way to go before the correct silver price is found and we're all in at the bottom as far as I'm concerned. SLW is probably the PREMIERE stock play to leverage the climbs ahead for silver.
That's why silver is going to make us rich.
The concentrated short entity is there to control the small silver market and 'control' the price and frustrate those seeking escape from the dropping buck. Banks are resting on their self-made precipices and I expect more bail out news. But it isn't just the banks. Debt is EVERYWHERE. Consumers carry huge debt loads and I've been reading that some now can't pay their home equity bills (another time bomb). Cities are in debt as well as states and corporations. All just in time for baby boomers (baby doomers?) to retire. They'll expect trillions in promised entitlements, but there will be no money to pay them. It's too late to let all this work itself out now. In my opinion the Fed has no alternative but to inflate. They will of course protect their own first, because after all, the Fed IS the banks: JP Morgan, Chase, Citigroup, Goldman Sachs, Warburg and so forth. One of the reasons these banks took so many risks is that they knew they were too big to fail and if something bad happened they could, in effect, bail themselves out with money out of thin air. That's what they're doing now. The rich hyper elite makes sure they can't fail, and they do it at OUR expense.
The money they create to patch up the leaks hurts the rest of us through inflation. It's a hidden tax. It truly is taxation without representation. We get no say in the buyout of Bear Stearns. Even BSC shareholders had no say--their wealth was simply stripped from them by the fascist Fed. We need another revolution to remove the bankster cabal.
Until that happens, the smart thing for us to do is to buy silver and gold and get the word out to friends and family. The banks don't want that and their corporate happy face media remind us that gold is in a bubble and a terrible 'investment' and on and on. They can't allow Americans to rush to gold and silver. That would mean we're cutting into their action. They want us to remain in crispy dollars. Makes it easier for us to be their bag holders. Their slaves. Therefore they manipulate the COMEX and commodities futures exchange to make the rules favor the shorts. (Themselves). They'll do anything to scare us away from our out of precious metals. They will keep doing this as long as they can. They will go down fighting gold and silver until all the paper arrows are gone from their quivers. The Cabal controls the entire market and its institutions. It's all built on lies and manipulation. I for one will stick with the 'reality' of gold and silver.
Ben-ben, you and I are definitely singing from the same hymnal! I agree with everything you said and think silver will go higher. I read a lot of what Peter Schiff writes and I think he is right on.
Any specific foreign dividend paying stocks you like? I like BTE, Vermillion, and Crescent Point among the Canroys.