News (Bloomberg). Commodities dropped on speculation that austerity measures planned by indebted European nations including Spain and Greece will cut growth. Crude oil traded at a three-month low, boosting the appeal of synthetic rubber made from petroleum.
My point. I have been writing to my clients in The Peter Dag Portfolio and on this blog that the enormous budget deficits are deflationary. Not inflationary as feared by most observers.
The sharp decline in oil and commodities suggests I am right. Why?
We will have to pay the bond holders of our deficits. The interest we will have to pay is a transfer of wealth from us to the bond holders.
We will have less money in our pockets. It means we lose purchasing power. We will have to spend less. And this situation is deflationary. Not inflationary. This is the meaning of the decline of commodities. This is also the reason why bond yields are not rising in the USA, as feared by most.
George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 by Timer Digest
To find out more about my in depth views of the markets and my strategy just visit our website https://www.peterdag.com/ where you can subscribe to The Peter Dag Portfolio. You can also call me at 1-800-833-2782 to discuss your specific investment portfolio.
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2 comments:
Very astute analysis.
Thank you. It is very nice of you.
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