Puru Saxena's Blog

Austerity be damned, at this rate Mr. Bernanke will go down in the history books as one of the greatest money creators ever to have walked this planet! Never mind sky-high deficits and a crushing debt overhang, at its most recent FOMC meeting, the Federal Reserve all but guaranteed another round of quantitative easing. While the American central bank did not officially expand its quantitative easing program last month, it did reiterate its willingness to institute more aggressive monetary policy measures in order to combat the risks of deflation. Furthermore, Mr. Bernanke did officially downgrade the Federal Reserve’s outlook for inflation.

Today, many prominent economists (Nouriel Roubini, David Rosenberg and Paul Krugman) and fund managers (Bill Gross and Jeremy Grantham) are forecasting deflation and according to these folks, a deflationary contraction is now ‘baked in the cake’. In fact, these deflationists are extremely worried about the ongoing private-sector debt-deleveraging in the developed world and they are also concerned about the lack of aggregate demand in the industrialised nations. Bearing in mind these two factors, these prominent people believe that deflation is now almost guaranteed and inflation is out of the question.

BIG PICTURE – Global stock markets are in a multi-year bull-market and nominal prices are likely to appreciate for several more months. In our view, we are currently amidst a normal multi-week consolidation phase and most stock markets are likely to stage a sharp year-end advance.

BIG PICTURE – Many prominent economists define deflation as a decline in the general price level within an economy. To make matters worse, these academics use the establishment’s highly manipulated inflation data as their yardstick. Therefore, when the heavily massaged Consumer Price Index (CPI) and Producer Price Index (PPI) show a moderate increase, these folks celebrate the ‘perfect scenario’ of moderate inflation and when the CPI and PPI contract, they worry about deflation.

BIG PICTURE – Today, the economic news is scary and investor sentiment is awful. Therefore, if you are a long-term investor, this is the time to be greedy. Remember, when it comes to investing, nervousness is your friend, comfort your enemy.

Without a doubt, the oil spill in the Gulf of Mexico is an environmental disaster. Unfortunately, as far as the global economy is concerned, Mr. Obama’s six-month moratorium on new offshore drilling is an even bigger disaster. Remember, the supply of crude oil is already struggling and in order to offset the ongoing depletion, the world desperately needs to find new oil-fields. Thus, by stopping new exploratory drilling in the Gulf of Mexico, the US establishment is wasting precious time.