Tags: david | skarica | stagflation | economy

Stagflation May Slowly Be Staging Its Return

By    |   Thursday, 05 Aug 2010 07:53 AM

Let me tell you something about myself. I am a big-time contrarian on every level.

When I hear that something has become the consensus, I become very wary.

I, for one, have never believed the deflation argument. I believe 2008 wasn’t some sort of deflationary collapse but rather a major margin call. Everyone in the world was overleveraged. They got a margin call when asset prices fell. They were long commodities, among other assets. This caused these things to fall in price.

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The government’s response to this collapse was to print massive amounts of money that in turn will be inflationary at some point.

After a large decline, like we had in 2008, it takes a year or two before markets again restart their uptrends.

Recently, we have seen some real strength in commodities.

While the commentary has been towards a weak economy commodities are beginning to sneak up in price.

Below is a chart of the CCI commodity index, which this week touched its January 2010 high.

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If the index breaks above this high, it means that commodities will hit their highest level since the 2008 top.

Is this deflationary? No.

However, the economy is weak.

All of those who think that a strong economy equals inflation and a weak economy means deflation tend to forget what happened in the 1970s — stagflation, which is a weak economy with high inflation and a high unemployment rate.

Could the recent strength in commodities lead to this? Only time will tell.

However, they do tell us that deflation isn’t as big of a concern as many claim.

About the Author: David Skarica
David Skarica is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes the Gold Stock Adviser. Discover more by Clicking Here Now.

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DavidSkarica
Let me tell you something about myself. I am a big-time contrarian on every level. When I hear that something has become the consensus, I become very wary. I, for one, have never believed the deflation argument. I believe 2008 wasn t some sort of deflationary collapse...
david,skarica,stagflation,economy
318
2010-53-05
Thursday, 05 Aug 2010 07:53 AM
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