[jyl]

What to do about it?

On a macro-economy level, I think at some point the commodity price pressure reaches a stop. Some portion of soaring commodity prices is a speculative bubble, which will eventually burst. The biggest pension fund the country, CalPERS, is considering investing a portion of its funds in commodities. When huge, slow-moving money is getting in, is usually a sign that the smartest are getting out. As for the fundamental demand, China/India growth will eventually decelerate, perhaps helped along by a US slowdown/recession. The equilibrium price of copper probably isn't where it was 4 years ago, but it probably isn't where it is now either.

Same, I think, for energy (oil) price pressures. If the economy turns down, at some point you get demand destruction. Alternative energy sources will be developed, whether it be oil sands or solar or nuclear. And the speculative portion of the current price will eventually deflate.

Liquidity is also reversible. Whether it takes another +100bp, bank loans and securitized mortgages going bad, dunno. But eventually credit will become tight again.

The unknown, for me, is how much inflation and economic slowing/pain we get in the process, and for how long. I know I'm not smart enough to predict the path from here. All I hope to do is watch the signs and notice the directional turn when it happens.

On a personal level, I think the thing to do make your income grow, whether by advancing in your job, changing jobs, more education, etc. And tighten your belt. And, if you can, invest wisely. Maybe that means buying stocks when P/Es crash through 10X, shorting them down to there, picking up repossessed houses, who knows. But having cash and borrowing capacity is going to be a good thing in the coming year(s).

PoP, there was a point in the mid-1990s when you could buy LA houses out of repossession for good prices. I knew guys who accumulated several houses that way, and profited handsomely. Save like mad, polish up your credit, get a better-paying job, and I bet you'll get your chance - and not have to move to Ohio.