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Market watch: Play it again, Sam

Money is going to be cheap again as the decks get cleared for another round of global asset-price inflation, writes Udayan Mukherjee.

india Updated: Sep 20, 2007 22:22 IST

It's a sense of Deja vu; the asset reflation theme is back in play. The way things are shaping up again is so familiar. Money is going to be cheap again as the decks get cleared for another round of global asset-price inflation. I call it the 'vaccine' syndrome: The poison and the cure are the same. Cheap money creates the problem and cheap money is the chosen way out of the mess.

Rather than debate the fallacies and pitfalls of such economic policy, investors should just focus on milking what's on offer. After all investors are not economists, they just want to make money. So, maybe the places to be now are commodities and select rate sensitives. The last time such a global asset reflation cycle played out, commodities multiplied several times. No reason to believe there isn't a trade on the table here again.

The dollar's weakness and cheap money are both fuels that will stoke the commodity fire. Real estate prices too should rise, at least in theory. Commodity and realty stocks have already started responding in the last two sessions.

The call on rate sensitives is a bit mixed. Banks are the easiest things to call in this pack. They should do well. Autos have valuations on their side, but rates may remain high for a while longer so it's not such a sanguine call yet. They may bounce in sympathy, but will probably not be the biggest outperformers in the rate sensitive pack.

Realty is truly high beta so you will see very sharp swings, maybe even irrational ones but they have the baggage of high valuations and demand issues to grapple with. But the reflation trade is on and it may make sense to swim with the flow, at least for a while.

(The writer is Executive Editor, CNBC-TV 18)