It looks like 2009 will be another mine field. There is no denying that we are in a deflationary phase with prices falling, notably in the housing markets. The Federal Reserve sees this deflation as the primary concern for 2009. It was the impetus for lowering interest rates to near zero.
So far investors are not convinced that we have turned the corner. We have an explosion of money market funds and US backed Treasuries. The lack of a meaningful rally in the stock market is reinforcing this "wait and see" attitude on the part of investors. On the one hand the Fed is desperately trying to reinflate the economy, while corporate profits, foreclosures and defaults still paint the financial landscape.
If investors see that the Fed policy to reinflate is successful, then money will start to flow from money markets and US Treasuries back into the equity market.
Please add your thoughts on these ideas.
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