Inflation, Deflation and Commodity Prices: How Emerging Markets Matter

Sometimes I really wonder why bulls on everything else are perma-bears on commodities and commodity stocks. That such high return ratios for commodity stocks cannot be justified. I don't think they realize that if commodity prices were to collapse, we will get outright deflation. The only thing holding the world up right now are high commodity prices.

That makes me wonder - all this recession and not even one scare of CPI deflation (not asset price deflation)!! Or is that a 2010 story?

The simple reason to invest in emerging markets is - there is structural inflation here. Somewhere like Brazil, where we get 7% inflation and an appreciating currency - if one can time the currency swings right - is the best. Economic theory would suggest currency depreciation in an inflation-heavy country. What we see is currency depreciation in potentially -ve inflation countries and appreciation in +ve inflation currencies due to capital flows. This is such a better way to generate returns.

Comments

[Dave Wrixon:]

Change of World Order.

The Dollar will be worthless very soon.

Sep 26 04:11 AM

[Michael Clark:]

Have you looked at commodity stocks lately -- in the last five days. They don't look so good. Lumber: negative. Oil (all the energy components, Heating Oil, Natural Gas, Unleaded Gas): ugly. Copper: breaking down. Industrial metals: ugly.

This instablog has charts of some of these:

seekingalpha.com/insta...

Sep 26 07:13 AM

[Alan Young:]

"The only thing holding the world up right now are high commodity prices."
-- You have it exactly backwards, twice! The only thing holding commodity prices up--when they are up--is the world's demand for them, because the world economy is doing well. But NOW is not that time! Commodity prices are DOWN, because the developed-world economy is so weak.

Sep 26 04:39 PM

[Gold Bug:]

Deflationist Mish Mike Shedlock Global Economic Analysis at Google Tech Talk a must watch
Source :
peterschiffchannel.blo...#

Oct 10 06:24 PM