One way or another, RGE Monitor senior analyst Arun Motianey says we’re headed for an inflationary world.
The three most likely investing scenarios now, Motianey says, are inflation without indexation, inflation with indexation and deflation, says Motianey, who recently joined investment guru Nouriel Roubini's Roubini Global Economics.
"Deflation is a very serious risk [but] inflation is a greater likelihood,"
With debt swamping governments from here to Europe to Japan, Motianey recently told Tech Ticker he thinks the central banks will probably choose to monetize public sector deficits.
“I’m expecting the central banks of the world to see the light,” he says. “This would be a period of voluntary inflation, instead of involuntary inflation” (like the 1970s), he said.
In other words, the Fed will print money to buy Treasuries.
Motianey also expects that, because equities tend to respond positively to a bit of inflation, demand for credit will go up.
In an inflationary economy, investors would do well to hang on onto corporate bonds, Motianey says. Also, natural resource and basic material equities, dividend-paying stocks and gold and other commodities are also attractive.
The risks of global stagflation should not be taken lightly, says European Central Bank Executive Board member Juergen Stark, imarketnews reports.
In the text of a speech delivered to the National Association for Business Economics in Arlington, Va., Stark conceded that he could "see the temptation for governments to ask for higher inflation in order to monetize the dramatic build-up of public debt."
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