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I'm For The Privatization Of Social Security But....

Let me begin by saying that I am generally in favor of the privatization of everything the government has its fingers in, including Social Security. Governments do very few things well and investing money is certainly not one of them.

As an investor in real estate and other things, I realize that if something is out there that everyone wants and there is only so much to go around, something has got to give.

In the early 1980's the Hunt brothers tried to corner the market on silver and the price soared to around $50 per ounce. When a hurricane strikes and there is a shortage of plywood, the price across the nation soars. When there is a shortage of gasoline because of a refinery fire or pipeline problem you can be sure that the price at the pump will skyrocket in no time at all.

So what is going to happen if people need to invest their billions of dollars in the stock market? I can tell you that in the long run, it will make the price of stocks go up, and the price to earnings ratio tumble. Perhaps some of the money will find a home in emerging markets like China, India and Brazil, which would be good for those economies, but investing in emerging markets is generally very risky. It will definitely place a huge burden on stock pickers and financial planners in their efforts to remain profitable and credible.

A 1.8% return on your money may ultimately look pretty good if everyone runs out and tries to buy Fortune 500 companies with their newly privatized social security funds. I don't know if you've looked lately but returns of 5% or more are higher than most blue-chip companies currently offer, and many are around 2-3% per annum. The only saving grace may be the fact that when you die, someone will be able to inherit your account rather than forfeiting everything to the government.

It's possible that I'm all wet, but I don't believe I will be the only one soaked without some better investment alternatives.

Posted by Rick | January 29, 2005 10:18 AM

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