We hosted an investor call last week, followed by our presentation at a Private Wealth Summit on The Great ‘flation Debate. Our slides can be accessed below. Bottom line:
QE2 will be successful, but not so much in generating employment or economic growth. Throw enough dollars at the problem, and The Ben Bernanke will eventually be wildly “successful” in crushing the dollar and sending commodity prices into the stratosphere. But like everything else in finance, it works until it doesn’t. And then . . . bad things happen. Bad things happen when a lower dollar fosters inflationary pressures. And as Quantitative Guessing is unlikely to generate economic growth, rising inflation and rising interest rates are likely to become a rally killer sometime next year. Ironically, cyclical Inflation is Deflationary, particularly asset price inflation within the context of an Extended Deleveraging Process. Any cyclical rise in interest rates and inflation is likely to choke off the global “recovery” providing us with another opportunity to position for lower rates in the years ahead. The logic is flawed. Global monetary policy may unleash a speculative dash into natural resources and emerging markets near term. Long term, they are set to slaughter them.