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Two Ways: The Great Inflation-Deflation Debate


Strengthen your portfolio in good times and bad.

Titans Argue over the Fed

It's the inflation/deflation debate between Goldman Sachs (GS) and Morgan Stanley (MS). In a story by Bloomberg, Morgan's co-chief global economist Joachim Fels says the Fed risks keeping its loose credit policy for too long and the US will pay the price of higher inflation for keeping the economy afloat. But Goldman's economist Ed McKelvey says inflation concerns are overblown and the Fed's actual worries may be its ability to ease credit further should the economy continue to deteriorate.

McKelvey wrote in a June 30 note that the there's no guarantee that the Fed will get all things right and "political constraints" could prevent the central bank from using all of its tools. This echoes similar comments made by San Francisco Fed President Janet Yellen. In a speech on the same day, she said the risk is that "inflation will be too low, not too high, over the next several years."

For context, see Professor Steve Smith's column, Economic Recovery? What Economic Recovery?

From the Bull Pen: If you're in the inflation camp, then the gold ETF (GLD) is your vehicle. Sell stops can be set below $90 support in the near term.

From the Bear Cave: If you're in the deflation camp, then bonds and the US dollar are your trades. Consider the dollar bullish fund (UUP), a sell stop can be set below recent lows ($23.60) in the near term.

Quick Check Around the World

Asian trading closed with the Hang Seng -0.65%, India 0.90%, Shanghai -1.13%, Nikkei -0.34%, and Taiwan 0.98%.

Glancing towards Europe, we see the FTSE 0.85%, CAC 0.67%, DAX 0.96%

As of 8:15 AM EST, S&P Futures are trading -2.60 to 898.72 and Nasdaq futures are -2.5to 1441.01.

A Look at Commodities

Over in commodities, crude oil is trading +0.29 to 64.34 while gold is +6.80 at 931.10 this morning. Silver is +0.127 to 13.36 and copper +2.95 to 228.00.

The dollar index is -0.2200 to 80.4750.

Light radar today but click here for the full list of events.

Turnaround Tuesday again? I dunno but good luck!
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No positions in stocks mentioned.

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