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Don't Despair Over Deflation

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Maybe it was just a few months ago that all the talk down in the canyons of lower Manhattan circled around the worry of inflation, but now it’s the threat of falling prices making headlines.

This week, Greg Zuckerman at The Wall Street Journal reported a piece looking into how some the world's leading investors are becoming more worried about deflation and are re-shaping their portfolios in response.

The heavyweight investors - including Bill Gross, Jeremy Grantham and hedge-fund managers David Tepper and Alan Fournier - are buying interest-bearing investments such as bonds, dividend-paying stocks, and protection against possible stock-market losses.

"Deflation isn't just a topic of intellectual curiosity, it's happening," said Gross, who captains the $239 billion mutual fund Pimco Total Return Fund.

But Michael Pento of Euro Pacific Captial doesn’t see any reason to sleep over deflation: in fact, it's inflation that remains the clear and present danger given the towering level of U.S. sovereign debt, he says.

The national debt now stands at nearly 92% of GDP. “Given this intractable and unsustainable level of obligations, the last thing the Fed and Administration can tolerate is to increase the burden of that debt by allowing the money supply to shrink,” the economist writes.
POSITION:  No positions in stocks mentioned.