The market is headed for deflation soon, said Charles Nenner, the founder of the Charles Nenner Research Center.
“We are still up for a deflation scare” in the near term, he said.
Investors should expect a short tem rally in the bond market ending in the middle of 2011 because of deflation, says Nenner, a technical analyst.
“The moment that the Fed will take liquidity out of the market, I think then we’ll feel some deflation,” he told Yahoo Finance Tech Ticker.
After the bond rally ends, inflation will occur, Nenner predicts.
The central banks solution by adding liquidity to the market is only causing — and potentially extending — inflation, he said.
“The longer it takes [the Fed to raise rates], the bigger the problem is going to be,” he said.
Inflation could jump to 5 percent to 8 percent during the next three to five years, said Rob Arnott of Research Affiliates, Money Magazine reported.
Other economists predict that deflation is headed this way.
“We could see annual economic growth of just 2% over the next decade, as well as significant deflation," said economic consultant A. Gary Shilling.
Investors should start preparing for more problems in the market.
“With the risk of more credit strains ahead, and possibly rising inflation in the next few years, it's a good time to be defensive," said John Hussman of the Hussman Funds.
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