The recent moves in the currency and commodity markets are indicating that we could potentially be at an inflection point in terms of the deflation/inflation debate. Gold and oil have surged higher as the dollar plummets. The bond market, on the other hand, remains stubbornly fixated on deflation. As of now, the evidence seems to all be pointing to at least a quarter or more of deflation ahead of us, but we could be seeing the first signs of an uptick in inflation. Naturally, we won’t see it in the figures for 3 or more quarters, but waiting for the BLS or NBER to make your investment decisions for you is about as intelligent as asking a linebacker which way you should run around him.
In my opinion, the deflationary forces of falling home prices and deleveraging still have a firm grasp on the global economy. While the rate of price decline is likely slowing I don’t think it is reversing.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.