No matter what you think about the economy the government’s policy (both parties) of increasing budget deficits and created stimulus packages will lead us to inflation in the future. The credit crunch did cause temporary deflation, but you have to ask yourself can the government really control anything?
Everyone out there talking about the bottom is in. If that is the case then we better buckle up because if demand picks up then we are going to see some serious inflation. The global injection of more money will help with the current credit crisis, but in 6-18 months. Jim Rogers, Peter Schiff, and even George Soros see higher inflation in the future.
I have heard a lot of people claiming that we are in deflation and others stating that we are in for inflation. Right now I believe that there is so much money being created that deflation cannot continue. M2 money supply growth in the last 6 months has been 15%. This will not be good for the stock market in the long run. We will have a period like the late 70’s where prices rise.
I would seriously look at materials or natural resource stocks because the drop in demand has stopped any increase of capacity in mining or oil. Also we are going into the planting season for grains and you the credit contraction could make it hard for farmers to get loans for seeds and fertilizer. This could cause a reuction in supply later in the year right as all the easy money begins taking effect. This will cause prices to increase.
I have seen recommendations that ou should short the US treasury because rates will have to rise as inflation takes hold. The belief being that foreign investors cannot make enough to keep up with inflation then they would be better off buying materials instead of keeping their cash with us.
The S&P is still above the 50 day moving average and if it breaks above the recent high we seem to have clear sailing up to the 200 day moving average. I have used the rise to sell some items and build cash, because I think we need to pause, but if I buy anything I it will be something like the SLV, USO, or DBC. These are ETF’s that should do well if inflation hits us.
Please read the disclaimer. I am not a registerd financial advisor. Please do your own due diligence before making any investment decision. There are risks of principal loss in the owning of stocks or commodities.
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