6.5-7% Money Market

[ferco]

Does anyone think we'll be at 6.5-7% MM rates by mid 2007? If we do, how would you change your short and long term investment holdings.....would you still be long in equities. I won't even bother to ask what everyone would do if CD's hit that mark.

[brewer12345]

Could be. If that is really the case we will be in a pretty ugly inflationary environment, since I imagine that the Fed would only jack rates that far if we see CPI running a good bit higher than it is. Certain equities would do quite well, but its hard to see how the broader market would be doing well. Commodities would probably do real well in that case.

[ferco]

Brewer, what asset allocation would YOU structure in that environment? Would you be more conservative or aggressive?

[modlair]

Quote:

Could be. If that is really the case we will be in a pretty ugly inflationary environment, since I imagine that the Fed would only jack rates that far if we see CPI running a good bit higher than it is. Certain equities would do quite well, but its hard to see how the broader market would be doing well. Commodities would probably do real well in that case.

The sad thing is, TIPS would not. The reported inflation rate would probalby be 2% -- regardless of reality. :

[brewer12345]

Quote:

Originally Posted by ferco Brewer, what asset allocation would YOU structure in that environment? Would you be more conservative or aggressive?

I'm most of the way there already. 8% PCRDX, 8% GIM, 8% ISM, 7% EFA and the rest is individual equities. The indvidual equities are concentrated in companies that own or control tangible assets (EGLE, STON) or produce commodities, or are non-market sensitive fnancials (catastrophe reinsurers, conservatively run retail banks). I don't hold a lot of cash and I would cash in my CDs if rates spiked. I am also modeatly leveraged with fixed rate debt (mortgage, car loan, student loans) all at below market rates.

If inflation gets away from the Fed, it won't be lots of fun, but I will be in reasonable shape. I think that if you are sticking with funds, just make sure you have a substantial amount of non-US stock and bond exposure and some commodities and you'll be OK. Oh, and don't go too far out with bond maturities (unless they are floating rate).

But then again, the Fed may succeed in paper-cutting inflation to death and the economy may actually slow back down to sustainable growth.

[poboy]

Had a merrill lynch money market account, ready assets, back in the early 80s. It was paying 14%. Had some friends who were being quoted 18% mortgages.

[Nords]

Quote:

Originally Posted by poboy Had a merrill lynch money market account, ready assets, back in the early 80s.* It was paying 14%.* Had some friends who were being quoted 18% mortgages.*

1982-- Chevy Chase Savings & Loan checking account-- 10%.

[Red-y]

I got a recommendation from my broker in 1985 to put my $1000 IRA contribution for that year into zero-coupon Govt bonds paying 14%. Certificate of Accrual Treasuries I think they were called--CATs.

Twenty years later, at maturity, I got $9000 back.