it is hoped that this will be a reasonable and rational discussion by seasoned traders about the current economic zeitgeist. the "reasonable and rational" qualifier necessarily excludes about 87% of ET. *** So, first off, we got the panic rate cut (the first one, at least), and everything may be ok. Two thirds of the world is still catching up to the 20th century in terms of infrastructure, so that should continue to be bullish for some time. But at the same time, inflation cannot be ignored forever. Not only is there inflation proper (due to devaluation of money), but also there is across the board greater real demand for commodities. This screams higher rates over time. Now, old timers, how about comparing notes on how things might unfold over various time horizons...
I may not qualify as an old timer in your book, but I think I do. I think nouriel roubini has got it right on this one - combinations of excess liquidity and irresponsible debt creation by the non-bank entities & ratings agencies has created a real mess and a 'minsky moment' where everyone is looking at everyone else very suspiciously & with good reason. It no longer becomes about maximizing return - its about capital preservation, boys. Combine this with the game of competitive currency devaluation and china's fixed exchange rate and you have a real problem. Deflationary influences in this scenario are truly scary, and people probably have little to no idea how to deal with them (note Ben's flub this morning). I'm more worried about immediate disinflation than inflation in commodities right now. Maybe later, commodity inflation. But today, deflationary influences rule. I think we exist (for a while) in a time of declining long yields despite money creation, similar to japan, with a reasonably stable exchange rate. Equities, particularly the financials, will continue to trade lower as bad debt is retired - probably in a long slow grind. Energies probably lower too as disinflationary influences decrease demand. The rest - not sure. Mining stocks may again be hailed as a safe store of value. Consumer staples & telcom ditto. Tech - ? Remainder of the market will probably rise or fall on their own values. Although the gimmicks are done. Once the economy starts re-heating and lending begins again, then we can start to talk about inflation. Until then, fed and treasury can print what they want to, but it just sits there and takes the place of those bad, defunct loans.