Stormy Weather - Any shelter in a storm?

Those of us who grew up on the west coast know all too well that when the weather gets really nasty, when you're out on a boat on the ocean, that it's a good time to head for a safe harbour. Preferably one where you can get out of the wind and waves, behind a solid breakwater if possible.

Well, the world economy is certainly going through a major storm these days, with the storm centred in the US Financial services meltdown as a result of the mortgage crisis.

Some investors are choosing to move to cash investments, others to precious metals, like gold. Both of these strategies are a little like adding ballast to the boat, stabilizing it but not really helping you get where you want to go. Holding cash or near cash investment is a sure fired way to go backwards against inflation and shrink your capital base. Holding gold is probably as high a risk as holding stocks right now... after all stocks are at historically low values and gold is at the top of its cycle of prices...

Actually the ballast in the case of gold might actually sink your ship... to carry the metaphor further.

Anyone who follows this blog knows that I am a big believer in mortgages and Mortgage Investment Corporation investments, because of their inherant stability and underlying security. Like all investments mortgages do require diligent review and careful allocation of funds, in addition to common sense lending (something not practiced in US backed subprime mortgage market previously).

But mortgages do represent a relatively safe harbour in an economic storm, with security based on something that every investor can understand... a home where the borrower has something real to lose in the way of equity.