Comments on: Planning For New Year Resolutions

By: Free Personal Finance Software, Budgeting Software, Tools, Financial Advice and Community » Blog Archive » Resolution Round-up : 4 Links to Help You Get Started

Wed, 10 Dec 2008 20:00:26 +0000

[...] Rich Slick said this in a recent blog entitled Planning For New Year Resolutions. Sounds like we match up pretty well in our thinking on getting started on mapping out our goals. [...]

By: RichSlick

RichSlick — Thu, 04 Dec 2008 14:14:40 +0000

I love having low interest debt during inflationary periods as debt becomes worthless as inflation makes debt worth less and less each year. During these periods, I borrow in a low interest environment and invest in a high interest environment.

There are now two major reasons for paying down as much debt as possible:

1. We are in a deflationary trend and debt becomes GREATLY MORE burdensome during a deflationary period than inflationary period because the inverse happens. If you owe $1000 and everything is deflating then that $1000 is actually “worth” a great deal more. Imagine an LCD TV that once sold for $3000 and you bought it on a credit card except now that LCD TV is worth $500 and you could buy a brand new one today for $500 but you still owe $2000 on the old one.

In this scenario you’re better off having cash and NO DEBT to take advantage of these great deals.

This has happened with houses that were once worth 500k now go for 200k; Cars that went for 50k have 20k off MSRP and are selling at 30k.

Imagine if you’re the sucker that bought a house or car and are now holding that debt.

This is exactly why people are walking away from homes, soon cars, and soon other debt like credit cards.

The other major reason for pulling out is that the government keeps changing the rules of the game with regards to investing and the stock market. I don’t know what that crazy treasury secretary is going to do from day to day. One day he’s going to support the banks, the next he’s going to support consumers, the next he’s helping insurance companies or mortgage lenders or whatever the roulette table tells him to invest. How the hell can anyone invest in an environment like this?

Will shorting be banned next week? Will banks get bailout money? Will the big 3 autos get a bailout? All those decisions impact the stock market in a way that it shouldn’t be but the government keeps meddling and until they stop, I’m keeping my money out of the market.

I hope this explains my position a bit more clearly.

By: davmp

davmp — Thu, 04 Dec 2008 04:41:02 +0000

I’m curious in learning more about why you decided to pay down the auto and home loans this year. Given your ETF covered call and other capitalist activity track records, it seems like you would have other uses for the money that earned a better return on the capital. Was it just de-leveraging you were going for or something else?

Not that I did anything different myself. But in my case, I didn’t have any sort of equivalent track record so my options weren’t as great — unless I wanted to do some gambling. Plus, there was the need for an emotional win as I talk about on my own PF blog.

BTW: I’m really enjoying reading your blog. Thanks for taking the time to write it up!