Larry Bellehumeur

Inflation, Stagflation, Deflation: How to Play Them with ETFs

Interesting article.....I like the idea, but don't agree with any of your choices.

Inflationary Period = the need to find assets that will rise as fast (or faster) than the inflation rate. First, if you are using CPI as your main gauge of inflation, you are missing most of the picture, as the main causes for inflation (food and energy) are not included, so this is a very inaccurate reading. Nevertheless, you are missing other asset classes that also rise in these times (such as the main cause of the inflation, namely Energy companies, Energy Services, Agriculture and more). You are also missing items that are hard assets that tend to rise with inflation, such as Pipelines, REITs and more. Agreed that TIPs are great....

Deflation = Needing to find long term locked in rates, to compensate for the depreciating short term rates. Would Zero Coupon Bonds not be a better play? FYI, we are not in a serious deflationary time, so what relevance does the YTD performance have?

Stagflation = Need to find things that grow at inflation rates, even during down times. Wouldn't Pipelines, Oil Producers, Oil Services, Gold Producers and others be better choices? Look at how large caps performed during the Volker years......can't think that the performance would be much better today, since the P/E ratios are still relatively high now. With the expected P/E compression brought on by Stagflation, I wouldn't want to own companies such as GE, Boeing, MMM and others, especially if they cannot pass on price increases to their customers. Companies such as KO would do ok.....

Disclosure -- long on Multiple Oil Producers, Oil Service companies, GLD Trust, several REITS and TIPS