< I would get into the refi game myself as a hedge - if I knew where to put the money. Gold maybe? Ideally, it should be anything which would be trending my way - and denominated in something inflation-proof... but I am not sure I am good enough to come out a winner in such a complicated game. >
I've been pondering this question long and hard. The #1 most important thing to remember is this:
Unless the Fed goes to extraordinary unconventional measures, the natural market response will dominate and we will ultimately deflate here.
The market will do what it has to do unless the Fed intervenes with extraordinary measures. The debt-deflation dynamic is too strong to be fought by merely lowering rates. And despite all the jabber about unconventional measures, as far as we know the Fed hasn't actually implemented *any* of them. So deflation rules. The reflation theme produced this immense rally over the past year, but the economic future looks as good as it possibly can right now, with the impact of the last refis, the topping of real estate pricing on an inflation-adjusted basis, and the tax cuts.
*If they do resort to unconventional measures* then we can discuss the type of inflation that will result. It will be skewed heavily toward commodities, gold, and other low capital intensity items (things where there isn't excess capacity, or where excess capacity has little impact on pricing), as well as things with very inelastic supply/demand characteristics. Also, pricing power will go to items that are not typically financed, as things purchased with credit run smack into the debt-deflation headwind.
(Remind me I said this every now and then - sometimes I forget to follow my own advice. <ng>)
BC |
