Simplistic View of Asset Class Rotation
(SCROLL DOWN)
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Monitoring Prices for Deflation or Inflation
If you are concerned about turning points between deflation and inflation, the CPI is not a good place to look. It's well known to be limited in scope and may also be managed to some degree by the government, which not only is a player (with indexed entitlement programs and inflation indexed bonds), but is also the scorekeeper and the final court of appeals.
The place to look for price level changes is directly at the prices of key items themselves. They'll let you know whether we are in deflation or inflation.
The rate of change of prices (shape of the curve) as well as absolute price levels will inform you.
We would suggest following this basket:
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oil (USO)
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copper (JJC)
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gold (GLD)
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soybeans (JJG for grains)
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EUR/USD fx (FXE)
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USD/JPY fx (FXY)
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2-Year Treasuries (SHY for 1-3 yr T's))
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10-Year Treasuries (IEF for 7-10 year T's)
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30-Year Treasuries (TLT for 20+ year T's)
FROM: RBusser@charter.net