Wednesday, November 26, 2014
The concept of Inflation & Deflation is frequently misunderstood
TRISH REGAN: Bond investor Bill Gross is saying deflation is a “growing possibility” as governments worldwide struggle to create inflation and to stimulate growth. In his second investment outlook since joining Janus Capital, Mr. Gross writes, “The real economy needs money printing, yes, but money spending more so. Until then, deflation remains a growing possibility, not the kind that creates prosperity but the kind that’s trouble for prosperity.”
Well is Mr. Gross right and should investors bid good bye to double-digit returns in this new normal? Joining me here to discuss via Skype, Marc Faber, editor and publisher of Gloom, Boom and Doom. Hello, Marc. Always good to see you. What do you think here about what Bill Gross is saying? Do you think in fact deflation is a real possibility for the United States?
MARC FABER: Well, I think the concept of inflation and deflation is frequently misunderstood because in some sectors of the economy you can have inflation and in some sectors deflation. But if the investment implication of Bill Gross is that – and he’s a friend of mine. I have high regard for him. If the implication is that one should be long US treasuries, to some extent I agree. The return on 10-year notes will be miserable, 2.35 percent for the next 10 years if you hold them to maturity in each of the next 10 years.
However, if you compare that to French government bonds yielding today 1.21 percent, I think that’s quite a good deal, or Japanese bonds, a country that is engaged in a Ponzi scheme, bankrupt, they have government bond yields yielding 0.43 percent. So –
Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.
Posted by Nicole Bourbaki