CPI Linked Derivatives

[RRJ]

I've been meaning to post this question for a while.  I am wondering if the CPI linked derivatives are the best protection against deflation risk, since the governments control the CPI numbers.  I remember Prem at the annual meeting saying that Japan experienced 14% cumulative deflation over the past 15 years, as did the U.S. in the 1930s Depression.  However, I have seen figures that Japan's CPI deflation was actually quite mild, and the U.S. In the 1930S was tied to the gold standard and so might not be a good model for what would happen in a fiat currency deleveraging.  Isn't it more likely that we will have asset price deflation in certain classes, and currency devaluation in nominal terms?  Bernanke was very approving of the 40% currency devaluation that Roosevelt's administration caused to occur in the 1933-1935 time frame.  I believe he would love to do that here, and has been reading from his 2002 playbook straight down the line.  Given this, would't we have both deflation and inflation in the sense of currency devaluation, which the CPI linked derivatives would not really defend against too well? 

[SmallCap]

If you are just looking for protection against inflation then try stuffing cash in a mattress, or maybe gov Bonds. That will protect against Def.

 

Now if you are looking for a small portion of your assets as a insurance policy against Def then wouldn't some put options on say Gold do pretty good in that situation?

[Packer16]

Not necessarily.  Gold actually increases in value the last time deflation raged (the 1930s).

 

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