What Should I Invest In When The Fed Cuts Rates

Flashback to August 2007
Ok, close your eyes. It's August 2007, the stock market is chugging along. The Fed has been giving inflation fighting speeches for months, but taking no action on rates. There is actually some doubt as to whether or not the Fed will be raising or cutting rates.

Everyone has been ignoring the subprime warning signs for almost half a year. Some of us don't even know what subprime really is. We don't realize that many people in our great nation are refinancing from low teaser rate mortgages to new low teaser rate mortgages, thinking this could continue forever. (Guilty as charged!)

Cramer's Meltdown
Suddenly one day, the infamous "Love Him or Hate Him" Jim Cramer has a meltdown on CNBC, basically pleading for the fed to cut rates. Many people laugh at him and mock him.

[Let's just be clear here... if you surfed around, particularly on some bear finance sites or blogs that I frequent, there was an overwhelmingly large number of people that thought the Fed was going to raise interest rates.]

Correct Prediction
I watch the recap once to see what its all about... but I'm not laughing. I KNOW at that instant, that we're in trouble and that the fed will be cutting rates soon. And I'm right. Less then a week or so later, the credit crunch hits us hard, and the Fed responds with a quick rate cut... just days after an inflation fearing speech.

Reality Bites
Now back to the present.
You say: "Wow, you're a genius! How much money have you made since?"
I say: "... Hrm... well actually... I've lost money since August."

Sigh, I know I made the RIGHT prediction, but I made ZERO money off it. I knew the Fed was going to cut rates, but I still didn't know what to do!

What Should I Have Invested In?
If I had known the Fed was going to cut rates, what should I have invested in?. Is there an "easy money" investment that can be made? Let me take a stab, let me know what you think:

1. I should have started selling my questionable stocks fully into any strength.
2. I should have take my initial investment out of the stocks that I still thought had growth potential. (Playing with house money.)
3. I should have started buying bonds or bond ETF's or bond funds.
4. I could have locked in a multi year CD with any cash I didn't need for the next few years.
5. I should be watching for real estate to make a bottom sometime soon.

Am I wrong about the bonds? Any other thoughts? What should we have done in August 2007? Is it too late now?