I ran into an acquaintance who is a financial advisor with Merrill Lynch over the weekend. She told me that corporate is telling them to expect another 1/2% rate cute by the end of the year, and a federal funds rate in 2009 of 2%. (Last week the Fed cut the federal funds rates by 3/4% to 3.5%.) This morning's stock market turmoil suggests that indeed, there are more interest rates coming.
This would seem to be a good time to do some of the following, if you are sitting on a lot of cash:
1. Buy long-term Treasuries, even though interest rates aren't very good, with the expectation of selling them as interest rates fall, and making some money on the increase in the value of the bonds.
2. If you are really risk averse, or inflation wary, buy bonds with maturities of 3-5 years, so that you have decent returns over the next couple of years while interest rates fall.
3. If you are prepared to take some risks, buy real estate while it is still somewhat bargain priced. Falling interest rates will eventually drive up real estate prices. (This assumes that a recession doesn't wipe out so many jobs that it makes real estate buyers disappear.)
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