What's amazing to me is that by simply looking around at the real world, that's exactly what is happening. Where are the opportunities for sound long term investment? A 30 year bond at 5%? Equity in a company whose production costs are skyrocketing? No, I am not stupid, my money is in gold mining companies, some short term speculative stuff and cash. The funny thing is the defenders of monetarism are doing the exact same speculation while pretending they are not, by buying funds that are speculating for them.
There are long bonds of sound financial companies available today for rates of 8% to 9%. I don't mean fly by nights, I mean Goldman and Bear Stearns. Preferreds yielding 7-8% are common, you can take your pick of industries. Muni debt yields 5% tax free. GNMA mortgages 5.5% with a federal guarantee, if you are highly risk averse.
These are the sorts of assets usually held at fairly high leverage by hedge funds and leveraged bond funds. Those can't sell their commercial paper right now, so they have been forced to liquidate existing positions and can't take on new ones. If you worry about the interest rate risk in such things, treasuries yielding only 2-4% can be sold in the futures market to lay off that component of the risk, isolating the credit risk involved.
Those are sound for the relatively risk averse. If you are willing to run higher risks, the entire financial sector is on sale right now, as is the construction industy. Debts of shakier companies are also at high levels - 12% for the likes of Ford, GM, and Sprint for example. There are also takeover arbitrage positions available that promise returns as high as 40% in a period of a year or less, due to deal risk - others with lower deal risk likely to return 15% or so are reasonably common.
Pretending there are no reasonable asset classes at these prices simply won't fly. Buffet has been a net buyer of stock to the tune of tens of billions over the last year, to take another signal. You can pick a comfortable risk level.
Can you just buy the highest flying stocks or the most overpriced real estate, as people tried to do in 1999 or 2005? No. But that never works, contrarian investing does. No change there.