Author Topic: Deflation hedges  (Read 128254 times)

wisdom

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Zorrofan

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Re: Deflation hedges
« Reply #391 on: April 29, 2016, 07:04:31 AM »
Eurozone inflation continues to grind lower.....

http://www.ft.com/fastft/2016/04/29/eurozone-inflation-falls-short/

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Zorro

Cardboard

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Re: Deflation hedges
« Reply #392 on: April 29, 2016, 07:12:23 AM »
Core inflation which excludes energy and food was up 0.8%. What do you think is going to happen to overall inflation with oil now going up?

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Zorrofan

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Re: Deflation hedges
« Reply #393 on: April 29, 2016, 07:29:36 AM »
that's the $64,000 question isn't it - will oil continue to strengthen or will it roll over as Iran ramps up production, US shale drops off further etc....on the other hand Japan has had deflation for over 20 years regardless of oil.  European demographics , China overcapacity etc etc......this is why WEB ignores macro

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Zorro

TwoCitiesCapital

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Re: Deflation hedges
« Reply #394 on: April 29, 2016, 08:17:15 AM »
Core inflation which excludes energy and food was up 0.8%. What do you think is going to happen to overall inflation with oil now going up?

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The rally in all commodities since mid-February has been driven by a weaker dollar given the dovish Fed. The markets are literally pricing in 0 rate hikes for the remainder of 2016. Now, how many rate hikes we get is up for debate - I couldn't care less.

The fact of the matter is that the U.S. economy remains in a much better position than either Europe or Japan from a growth perspective (even though growth here is pitiful). Our rates are also significantly higher than both countries making us even more appealing for foreign capital. My guess is that the U.S. dollar begins to rally again some time this year and we'll see additional weakness in commodities and emerging market currencies.

That being said, I'm still heavily invested in them simply due to the value available and so I can still profit from being wrong to offset my U.S. equity market hedges.

And, ultimately, it doesn't matter if see deflation in the U.S if it happens in Europe instead - which is the base case if the dollar remains where it's at or gets weaker. We have protection in both areas. The real question simply seems to be a matter of who bears the load of the deflation - does the U.S. import deflation via a stronger dollar and bear some of that load or does it remain in Europe/Japan.


 

« Last Edit: April 29, 2016, 08:35:08 AM by TwoCitiesCapital »