San Diego Housing Market News and Analysis
You say Inflation...I say deflation?!
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Submitted by Bubblesitter on August 11, 2010 - 5:42am
You say inflation, I say deflation.
You say potatoe, I say potato.
Well, there’s alot more talk of deflation these days in the media. What are your folks thoughts for the next couple years? How are you investing?
Here’s how I see things playing out in the next 5 year or so and how I’ve adjusted my portfolio. Please do NOT take this as any kind of financial advice. Although, I do have an MBA with finance concentration, I am no adviser, nor do I work in financial industry. I’m just a poor schmuck trying to save enough for retirement, put kids thru college in few years and fund life in general. Please consult your investment adviser. Ok done with fine print.
Near-term 1-2 years, double dip recession, mild deflation. Unemployment will be persistently high. Government will be turning on printing presses to hold back more serious deflation. From a famous Ben Bernake quote from 2002, about fighting deflation, "The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost." He will use it.
Payback will be a b*tch though in a couple years, with record deficits continuing for years and deadlocked Congress unwilling to make the hard decisions, we will probably see inflation kicking in big time as ROW recovers and treasury yields will need to go up. Perhaps a bad replay of that 70s show, with double digit inflation.
I’m still invested a good % in gold (via ETFs, gold mining, stocks), although less now than last year. Gold is still classic safe haven in times of serious economic turmoil, both inflationary and less so in deflationary times. It will take a hit during the deflationary period. I’ve protected my gold stock’s downside risk to 15% or so. Will jump back in when price takes bigger hit. I have shifted more to cash and some classic deflationary hedge such as stocks with good dividends and consumer staple stocks, along with higher quality debt instruments (shorter term <1-2 years).
I’m having fun playing with excel spreadsheet and sensitivity models.
What are you doing?
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