Is Deflation Still a Threat QE Won't Cure?


Before I get all "macro" on you, let's be reminded that over half of the movement of your favorite stocks can be attributed to the economic and market environments, and their overall impact on sectors and industries.

I want to hear what investors think about a BIG macro trend that definitely makes a difference to sell-side economists and equity strategists running hundreds of billions: deflation.

We know it has been Ben Bernanke's goal to prevent deflation and avoid the specter of a Japan-style malaise which they are still mired in. I have always applauded him for his vision and conviction on this.

But we have to wonder how well is it working now and how much influence will QE policies have going forward, especially since the US's own austerity battles (i.e., the "fiscal cliff") don't leave much room for more economic stimulus.

I think they have done much to prevent a deflationary spiral. But two things lately are making me wonder if there are larger deflationary forces at work which even unlimited money printing cannot cure: 10-year Treasury yields dropping back to 1.6% and stocks failing to hold above S&P 1,400 since QE actions from both the Fed and the ECB.

My big question is this: How serious is the deflation threat and does it mean stocks will be under pressure into 2013?


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