Which asset classes do you recommend being long for the next 1-5 years if the fed were to continue to lower the target rate to about 2% with consequent increases in the CPI followed by an overall possibly prolonged deflationary environment? Did any asset classes do well in Japan's long deflationary period?
Nothing mentioned so far. To say it would be a gift, and there is no such thing as a free lunch, especially when it diminishes others' edge. Think.
Cash and GOLD.. but based on what we have seen from the Fed, it's pretty clear that deflation is their least desirable option.. As we're a debt-ridden country, they will choose to inflate away our debt.. pisses me off
If we head into a deflationary environment, which I think is highly likely down the road, I would be long dollars and short the tips & commodities. Tough to have on now as these markets have gone parabolic but when they crack...
The effect of Fed rates cuts are being felt now? Otherwise you wouldnot be making this post. When Feds cut rates your checking and CD rates drop a lot faster and so people are earning lower rates which creates a flight to asset class. Guess what? These funds go to stocks and real estate. Than those markets start getting strong. Last time Feds cut rates in 2000-2003 money market accounts were down to 0.75 % and people poured that money into real estate and stock markets and we saw both those markets took off toward the sky.... the same will happen here...in 2008. Its not rocket science..just basic economics and mortgage banking.