Deflation: John Mauldin
Inflation: Ambrose Evans-Pritchard
Both of these well-written articles make for sobering reading. See also my March 2010 post an architect of hyperinflation.
3 thoughts on “Scylla and Charybdis”
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Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
Deflation: John Mauldin
Inflation: Ambrose Evans-Pritchard
Both of these well-written articles make for sobering reading. See also my March 2010 post an architect of hyperinflation.
Comments are closed.
I wish I knew. I am sitting on a lot of cash right now, and there is no convincing story to drive investment. I saw today in the WSJ that zero coupon treasuries were the best investment in the last quarter. OTOH, given where rates are, almost all of the risk in long term treasuries is on the long side. They can’t go up very far, but there is almost no limit to the amount they can go down. Equities could be defensive if there is mild inflation, but if we go off the deep end, watch out. Even mild deflation will pain equity investors. Check out the Nikkei:
http://en.wikipedia.org/wiki/Nikkei_225
Now trading around quarter of its all time high which occurred 30 years ago.
Cash is risky because of inflation. Short bonds have no yield. Long bonds are risky. Munis have tax advantages but low yield and increasing default risk. Real estate is risky because of deflation. Stocks may be a good short-term bet — at least you can get out if you need to. But deflation and long-term demographic trends work against stocks. A good long-term strategy might be to buy t-bond puts, rolling them as they expire. This strategy might work in part because it is psychologically brutal and few people will be able to stick with it. Some types of real estate investment may also make sense at current price levels.
Disclaimer: I don’t know anything and the above is not advice.
what held value in previous deflationary periods? [just asking rhetorically, i don’t know either]
wouldn’t residential real estate provide income, and retain value, even if the prices drop? wouldn’t the relative value of such properties stay even with other goods and services?