The markets are so crossed up right now many investors don’t know what angle to play. Inflation was the prevailing concern, but now indicators are signaling potential deflation. Whatever eventually happens, exchange traded funds (ETFs) will be there to help you play it.
As recently as three months ago, investors were buzzing about inflation as a result of massive stimulus packages worldwide.
Now, the CPI is negative and our dollars are suddenly worth more. Should we worry about deflation instead? The experts are now saying that instead of worrying about one or the other, you may want to be concerned about both.
- Henry Blodget for Tech Ticker reports that is one of them. Deflation may be the near-term concern, given the CPI’s recent numbers. Further out, when the economy begins to recover, inflation will be the bigger worry.
- Blodget is not alone. PIMCO CEO Mohammed El-Erian sees the risks of both, as well. Kurt Brouwer at MarketWatch notes that in PIMCO’s Secular Outlook report, deflationary forces right now are strong and inflation lies farther down the road.
Deflation is a deleterious cycle can be created as banks stop lending, businesses halt expansion, wages fall, people reduce spending – all serving to drive prices downward. The CPI is a good indicator for deflation. [How to play the deflationary cycle.]
To play deflation, investors should look to short-term investment strategies, such as short-term certificates of deposit or money-market funds. If you’ve got a 10-year time frame, the technology sector is also an appealing place to look, since companies often boost productivity through the use of technology. [Playing Inflation, Deflation and Stagflation with ETFs.]
There are a multitude of ways to play inflation. TIPS (Treasury Inflation-Protected Securities) are linked to the CPI, and there are a variety of ETFs available to track them. Commodities tend to rise in inflationary times, so it may be worth considering them as a hedge. [TIPS for the Inflation-Conscious.]
- iShares Barclays TIPS Bond Fund (NYSEArca: TIP)
- SPDR Barclays Capital TIPS (NYSEArca: IPE)
- PIMCO 1-5 Year U.S. TIPS Index (NYSEArca: STPZ)
- SPDR Gold Shares (NYSEArca: GLD)
- United States Oil Fund (NYSEArca: USO)
- PowerShares DB Agriculture (NYSEArca: DBA)
For more stories about inflation, visit our inflation category.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.