Reflation Winners ....

(this post is futherence of my last post on economic depression)

Since the begining of FY 2009 we have seen many policy announcements across the globe by governments trying to restore confidence into their respective economies. All possible monetary and fiscal measures have been adopted to abate the impact of recession / potential recession in economies across the globe. However, allow me to speak more on monetray measures rather than fiscal in this post of my blog.

It is really amazing looking at the amount of money that has got printed and is getting distributed to the needy sectors across the globe. Every one now seems to have made up his/her mind up that the worst is past us and we should see better days in the near future. Hmm... interesting! One doesn't have to be Einstein to figure out that when 1 dollar is printed it creates liquidity worth 10 and these 10 dollars are going to hit the market sooner or later. In some cases they already have. The equity markets have validated this fact in the recent past .. so what is happening after all?

My belief is this is 'Reflation'. Reflation usually is an outcome of increased money supply in the economy which clearly is the case this time. Also, the equity markets gave us a reflationary signal with commodity companies being real gainers in the recent rally. If one is a believer in this economic theory; commodity companies should continue to do well in this reflationaty phase as once may expect this reflation to eventually transform into an inflation (no matter how much time it takes) and inflation to push the commodity prices to new levels.

Rising commodity prices should also build a case for investing in emerging markets as most of these countries are producers of some of important commodities. Go long on the oil producing countries (who knows oil can be at $200 in the next 2 years). Similarly with currencies; commodity currencies should do well over the next inflation phase. Go long on the real assets as these are the safest bet against inflation. Inflation overall is bad for equity markets however will certainly boost the commodity companies in the coming year.

Reflation though also needs to be understood in the context of a fall. One may have several reflationary spikes in a recessionary fall and therefore the real question remains: whether this reflation is a rise within a fall or a spike within a rise (the U-Curve)? .. I just hope its the later.