- As the global financial crisis continues, it is important to understand that the dueling forces of deflation (a painful and value destroying process) and inflation (challenging but more manageable) will continue to drive significant market swings. Some political leaders and central bankers may continue to print money to address the problems caused by too much debt - potentially stabilizing and/or inflating real estate, equity, commodity and bond prices. Other players believe that “natural forces” should address economic imbalances - potentially resulting in deflation.
- Bottom Line: Most equity and commodity markets continue to lose value and wage growth for many workers remain stagnant – this could lead to deflation. Investors need to understand the changing economic bias (inflation or deflation) and act accordingly.