Link: MSN Money - Say goodbye to easy money - Jubak's Journal.
Yes, the bulls are right in emphasizing the strength of the U.S. economy -- short of an energy-supply crisis -- and 3% projected growth does seem reasonable. But the bulls are underestimating the inflationary consequences of the monetary and fiscal policies of the last decades. The Fed flagged the rising possibility of higher inflation in the March 22 statement from the Federal Open Market Committee:
Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident.
Two strategies to stay out of trouble
Frankly, I don't know how rapidly either the bear or bull scenario will unfold (and neither do they) and I certainly don't know how long this period will last. But I do have a pretty good sense of the kind of stocks I want to avoid and the kind I want to own during these years.Avoid the stocks of companies built on leverage.
Buy the stocks of companies with a below-market cost of capital.
I think if you avoid the leveraged and buy the capital-advantaged stocks in the market of the next few years, your portfolio will outperform the broad market averages.
Comments