San Diego Housing Market News and Analysis
Is deflation more likely than inflation, next year?
User Forum Topic
Submitted by qcomer on September 12, 2006 - 3:08am
With the latest declines in oil price and commodities in general, what do folks think about a possible deflationary scenario emerging? Did anyone see oil going below $65 and COP going below $60? What are the oil bulls like zeal saying and I would be interested to know how folks think the drop in oil prices will work for other equities.
I think if commodity prices keep dropping, we may well enter a state of deflation next year. With real estate going bust and recession on the horizon, there is not much support for oil prices to hold up barring geo-political tensions. The argument for peak oil seem to be losing ground as the latest discovery of the oil reserve by Chevron indciates and as production from oil sands become more cost efficient with technology. Also, if OPEC reduces production since there is not the same demand, it will remove the "peak production" premium from oil. As per Fed, the biggest concern for inflation has been high energy prices. If oil drops and economy still slows to snail pace due to housing then we may as well enter a cycle of deflation where comodities, housing and equities will all lose value. It will be great for savers and bad for investors or speculators.
However, as per previous experiences, our Fed seems to be more capable of handling deflation than inflation. Maybe they will come to the rescue again by cutting rates drastically, considering the mid term elections, presidential elections in 2 years, etc?. What do folks think?
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