Monday, March 30, 2009

Profiting From Reflation: A Bet On Economic Recovery

I read an interesting article in the Wall Street Journal this morning that I thought I should share. There are a lot of people who have been making a great deal of money during this economic crisis by shorting the economy, or specifically betting that it would get worse. Many of these same traders are now making a different bet. They are betting that not only are these exorbitant stimulus measures going to stimulate the economy, but they are also going to lead to high inflation.

Right now the Federal Reserve is so concerned with preventing the dreaded D words (Deflation and Depression), that they are basically ignoring the threat of inflation. Once the economy gets going again, though, they are going to have to react incredibly fast in order to prevent a massive run up in inflation. Chances are the government will be slow to react, and if anything they prefer to error on the side of inflation — opposed to prolonging the recession.

What this means is that as the economy starts to recover those investments which typically do well in inflationary environments, stand to do very well. Commodities specifically have proven to be the investment of choice for many successful investors.

To read the full Wall Street Journal article click here.

1 comment:

Christian said...

they certainly DO lean towards the inflation side, don't they? I don't pretend to be an expert on this, but what no one has been able to explain to me so far is HOW they will retract all this money they're putting into the economy. EVERYONE admits that if they stop printing money, everything will go south drastically. and EVERYONE seems to agree that the printing cannot go on forever, or we will eventually experience hyperinflation. So, what I don't understand is how they plan to stop. I recently wrote a post that speaks to this directly.