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Category: Business and Industry
Date Submitted: 11/24/2012 07:56 AM
The Clover Asset Management Free Press
FORWARD THINKING
A I N D EPEND ENT POINT OF VIEW BY: E RIC ST-CYR CEO, CLOVER ASSET MANAGEMENT L I MI T ED
July 14 2008
forwardthinking@clover.ky
TE LEPH ON E ( 345 ) 947 000 5
FACSIM ILE ( 345) 9 49 00 0 5
Where do we go
from here?
INFLATION, DEFLATION OR STAGFLATION ?
The price of houses in the US is now down by more than 17% (deflation), the price of oil has more than doubled in 1
year (inflation) and the economy is bringing the stock market to its knees (stagflation). Where are the world
economies heading ?
Never in history has the economies of the world been
so interrelated. We canʼt make investment decisions in
isolation anymore. Rates of interest in China have an
impact on the US economy, terrorist attacks in Nigeria
influence the price of oil across the world and ethanol
consumption in Brazil creates riots in the streets of
Mexico.
Are the world economies facing inflation, deflation
or stagflation? Will it be a recession or a
depression? What should you do with your
money? Before we start our forecast, letʼs review
some terms to establish the
foundation of our
discussion:
Inflation: is a
broad increase in prices. Inflation can
be caused by either too few goods offered for sale,
or too much money in circulation. The most common
measure of inflation is the consumer price index (CPI).
Historically, inflation has been negative for bonds.
When there is high inflation, a government will take
the necessary steps to increase its rate of interest to
reduce consumption and slow down the economy.
This increase will reduce the value of your bond
on
flati
portfolio. The increase in interest rates will also
n
peri
e hy
make equities less attractive short term. In
bw
imba
theory, stocks should be able to absorb the
in Z
beer
effects of inflation as revenue and earnings
f one
ce o
pri
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