Friday, September 25, 2009

Deflation and Commodity prices

Sometimes I really wonder why bulls on everything else are perma-bears on commodities and commodity stocks. That such high return ratios for commodity stocks cannot be justified. I don't think they realize that if commodity prices were to collapse, we will get outright deflation. The only thing holding the world up right now are high commodity prices.

That makes me wonder - all this recession and not even one scare of CPI deflation (not asset price deflation)!! Or is that a 2010 story?

The simple reason to invest in EM's is - there is structural inflation here. Somewhere like Brazil, where we get 7% inflation and an appreciating currency - if one can time the currency swings right - is the best. Economic theory would suggest currency depreciation in an inflation heavy country. What we see is currency depreciation in potentially -ve inflation countries and appreciation in +ve inflation currencies due to capital flows. This is such a better way to generate returns.

1 comment:

Great Penny Stocks said...

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