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Inflation or Deflation or Inflation or Deflation?


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I am seeing more articles trying to lay out their reasoning for Inflation or Deflation to the point that I am fairly confused and befuddled. Usually I don't like to pay much attention to macro economic issues. I am a adherent to the Peter Lynch School of thought that for the average investor spending 15 minutes a year focused on macro economic issues is a waste of 10 minutes time. But I have been very interested in reading and seeing if I can be prepared for either eventuality.


here is a new article that comments on the different theories on the issue.




the reason for posting it is the articles conclusion statement.


"I don’t know whether the dice will turn up inflation or deflation. But after a massive credit crisis followed by unprecedented monetary intervention, the one outcome I would definitely short is a happy ending."




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I do enjoy reading stuff and thinking about inflation/deflation...


Currently, nothing jumps out at me. My best guess is we see deflation in the short term perhaps followed by some inflation 4 or 5 years out.


Something I am thinking a little more about these days than inflation/deflation is how expensive the current market averages are versus historical averages. I believe that consensus opinion is markets are expensive and a sell off is long overdue. This leads me to believe that the market will likely continue higher in the near term...


As a result of all this, I am happy to try and continue to find well run companies trading at fair to cheap valuations. There look to me to be quite a few profitable, well run companies with solid long term prospects trading at a PE of 15 or less with a decent dividend yield. Perhaps these companies will not be home runs; however they likely will be solid singles (deliver returns of 8 to 10% per year).


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Naive view ... if credit is shrinking X pct/yr then holding cash is return X pct/yr in terms of advantage of liquidity?


Despite that, I'm almost fully into equities, holding very little cash.  Looking for inflation protection, mostly.


My largest position nowadays is Imperial Oil.  Shift in shareholder demographics is happening, because they

are investing formerly free cash flow into increasing future production - Kearl project, most.  The concept of

equity bond applies - increases to capital employed should produce beneficial future returns, is my opinion.

Don't have to see the earnings paid out via dividends or share repurchases, if company has better use of them.


Basically, cannot figure out the economy in macro sense, so pass the job to people who manage good businesses

of various types on a full time basis - Imperial's team, Fairfax's team, Berkshire's team - each bunch of people in

their respective competencies.  Holding excess cash via company should be as good as holding it in my account.


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