Ahead of the Curve provides you with analysis and insight into today's global financial markets. The latest news and views from global stock, bond, commodity and FOREX markets are discussed. Rajveer Rawlin received his MBA in finance from the Cardiff Metropolitan University, Wales, UK. He is an avid market watcher having followed capital markets in the US and India since 1993. His research interests includes areas of Capital Markets, Banking, Investment Analysis and Portfolio Management and has over 20 years of experience in the above areas covering the US and Indian Markets. He has several publications in the above areas. The views expressed here are his own and should not be construed as advice to buy or sell securities.

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Friday, 23 May 2014

Signs of Upcoming deflation

Some telling signs of deflation despite the 5 year plus QE induced rally:

First, Gold has collapsed almost 40% from its all time highs of $1975 plus an ounce and doesn't appear to be recovering anytime soon: (Chart courtesy, Yahoo finance)
Chart forSPDR Gold Shares (GLD)

Second, the baltic dry index is down over 95% from its highs of near 12,000 in 2008, if there has been real growth and economic recovery why are shipping rates collapsing?(Courtesy stockcharts.com)

Thirdly, Abenomics has not succeeded in keeping deflation out of Japan: The Nikkei is still down over 70% from its all time highs (Chart courtesy, Yahoo finance)
Chart forNikkei 225 (^N225)

Last but not the least the deflationary spiral in China is getting out of control: The Chinese market is down over 65% from its highs (Chart courtesy, Yahoo finance)
Chart forSSE Composite Index (000001.SS)
Bottom line: Deflation is alive and kicking and is going global in short order, beware those low volume stock market rallies

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Cash - 40%
Bonds - 20%
Fixed deposit - 20%
Gold - 5%
Stocks - 10% ( Majority of this in dividend funds)
Other Asset Classes - 5%

My belief is that stocks are relatively overvalued compared to bonds and attractive buying opportunities can come along after 1-2 years. In a deflationary scenario no asset class does well other than U.S bonds, the U.S dollar and the Japanese yen, so better to be safe than sorry with high quality government bonds and fixed deposits. Cash is the king always. Of course this varies with the person's age.