Opinion: Protect Your Money, Buy Some Real Estate

By Martin Sumichrast

As a good friend of mine likes to say, "Just when it seems like it will never end, the end is near." So goes the economy.

The U.S. Census reported that new home sales in December 2008, fell to their lowest levels since 1963. Median home prices continue to fall and America's GDP for the fourth quarter declined by 3.8%, the biggest drop since 1982.

On top of this, Congress and the Obama Administration want to spend almost a trillion dollars on economic stimulus, which will add to what the government has already spent the past six months on emergency programs like the Troubled Asset Relief Program, or TARP.

As a result of these factors, most investors are sitting on their cash ($9 trillion by some accounts) and wondering what they should do. Investors are afraid to buy stock, even though dividends of world class companies like General Electric (GE Quote) (which at $12.50 per share pay around 10%) are incredible. Buying bonds is just as risky because interest rates are going to increase -- they simply can't stay at ½ of 1% forever.

Let's assume the following scenario occurs. It's mid-2010, the housing decline has stabilized, the economy has flattened out and is inching upward. Governmental spending has lead to a trillion-dollar deficit in 2009 and buyers of governmental paper start to back away. In order to attract the buyers back, the U.S. has to raise interest rates. The result is an increase in inflation. Some pundants like Dick Morris, have been pushing a potential hyperinflation scenario, where there will be 20% plus inflation rates. What is an investor to do?