Up or Down

So will it be inflation? Or Deflation?

As the economy comes out of its funk, two opposing camps are preparing for battle. The inflation hawks point to the massive expansion of the Fed’s balance sheet and monetization of the deficit as a likely precursors to accelerating inflation. Nature abhors a vacuum, and those dollars will find a home somewhere.

The deflation bears point to the increasing “output gap” and the downward pressure on wages that 15.8% total unemployment necessitates as causing deflation, or at least lower inflation. How can such a slack labor force demand higher wages, or pay higher prices?

My answer? They’re both right. There is no question that wages are going to be stagnant for a while. Too much labor is chasing too few jobs for wages to rise significantly. But that doesn’t mean that other issues can’t push up prices. Problems with financing are boosting crop prices. And as the world economy recovers, the dollar is likely to fall. That will drive up oil prices.

So I expect stagnant wages and rising commodities. Call it the big squeeze. Ouch.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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By | 2014-09-04T21:05:04+00:00 May 12th, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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