Tags: Alpert | deflation | economy | capital

Westwood Capital's Alpert: World Is Awash in Deflationary Forces

By    |   Tuesday, 21 October 2014 02:40 PM

Many financial experts are concerned about sluggish global economic growth.

Dan Alpert, managing partner of investment bank Westwood Capital, is one of them. And he is worried that the slowdown will spark deflation — a period when prices actually fall, reinforcing economic weakness.

"We have a deflation problem in certain places and we have an insufficient inflation problem in other places," he tells Yahoo, adding that the cause of both of "is a glut of labor production and capital."

"The problem is that when you have this global deflationary pressure that is bearing down on the advanced nations, that's even affecting the emerging nations, that's a big problem. And the big problem is that eventually prices are going to start to fall."

In the United States, consumer prices rose 1.7 percent in the 12 months through August. The Federal Reserve has an inflation target of 2 percent. Its favored inflation gauge, the personal consumption expenditures price index, climbed just 1.5 percent in the period.

U.S. deflation has been hidden by a "bubble-ette" in housing prices, Alpert notes. "Well, that's run its course." So coming price data will be weak, he argues.

The S&P/Case Shiller 20-city composite home price index fell a seasonally adjusted 0.5 percent in July, the third straight month of decline.

An increase in corporate capital spending would help the economy to be fully on the road to recovery, he notes.

But, "There is no demand for new capacity, new plants and equipment in the advanced nations," Alpert says. "Obviously China continues to grow . . . other emerging areas continue to grow but there is no reason when you have this vast offshore labor pool to exploit to build a plant here" in the U.S.

"Now the question is: We've leveled the wings of the plane, is it really flying or are we actually going to fall into the same disinflationary or deflationary trap as Europe?"

Experts, such as former Federal Reserve Governor Jeremy Stein, are particularly nervous about the potential for deflation in Europe.

"The right prescription [for policymakers] is to be aggressive" in combatting that, Stein tells The Wall Street Journal.

Eurozone consumer prices climbed only 0.3 percent in the 12 months through September.

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Many financial experts are concerned about sluggish global economic growth.
Alpert, deflation, economy, capital
Tuesday, 21 October 2014 02:40 PM
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