Back in March, we wrote an article in which we outlined a possible financial market roadmap -- a sequence of events that we thought the markets were likely to follow. Here is the roadmap we spelled out at the time:

1. Increasing liquidity, leverage, and risk tolerance will drive up most financial assets.

2. At some point, the liquidity, leverage, and risk tolerance will recede and most asset prices will decline. The price correction will be broad and even assets with good fundamentals will be caught in the downdraft as leveraged speculators are forced to liquidate their positions.

3. Deprived of the stimulative benefits that constantly increasing asset prices have provided for the last few years, the US economy will slow down.

4. The federal government, ever in thrall to the Keynesian idea of stimulating aggregate demand, will respond to the economic slowdown in the usual manner: the Federal Reserve will lower short-term interest rates and increase the money supply while Congress steps up deficit spending.

5. Lower short-term rates, higher monetary growth, and increasing government indebtedness will have an inflationary effect and will result in a decline in dollar purchasing power.

6. Dollar weakness will bolster the prices of hard assets and foreign currencies.

7. Reasonably priced, fundamentally sound stocks of companies involved in the real economy of trading goods and services will soon recover and head to new highs. Meanwhile, the stocks of companies that have benefited primarily from the debt-fueled, speculative financial economy will continue to languish (in inflation-adjusted terms, at the very least) for years.

Looking back, the markets have approximately followed the roadmap so far, but with a couple of twists. The first is that we skipped directly from step 2 to step 4! Shortly after the market troubles began, the Federal Reserve cut its discount rate by 50 basis points and started accepting lower-quality collateral from banks that wanted to borrow from the Fed. Then, just this week the Fed surprised the markets by cutting its target funds rate by a full 50 basis points and lowering the discount rate by a further 50 basis points.

By cutting rates with oil at an all-time high, gold at multi-decade highs, the stock market just off its all-time high, and the US Dollar Index at multi-decade lows, the folks at the Federal Reserve have clearly demonstrated that they are less concerned about inflation than they are about keeping our asset- and credit-dependent economy from experiencing too much short-term pain.

The market has certainly sensed this fact and has come back strong. It's notable that many of the inflation-beneficiary investments that we favor have performed particularly well of late.

That leads to our second twist. The market corrected quite viciously between July and August, but since then, it has recouped most of its losses. We expected the downturn to be more protracted than it has been thus far. Of course, it may not be over: only time will tell whether the market will hang onto these gains or whether it will experience another corrective downleg.

To the long-term investor, however, the short-term gyrations are not all that important. What's much more critical is the fact that the US monetary authorities have provided us with an incredibly clear signal that our big-picture investment trends -- the decline in dollar purchasing power, the increase in inflation, and the overseas migration of our wealth and productive capacity -- are well underway and will continue for some time to come.