INFLATION OR DEFLATION??

March 2009 Newsletter by Joseph W. Harowski, CFP

We have been on a roller coaster the past several months concerning everything from food and gas prices to the stock market to certificate of deposit rates.  Volatility is what happens when the country operates in crisis mode.  No one really knows what to do or what is coming next.
The recent slide in food and gas prices has certainly been a welcome relief to consumers and investors as $4.00 gasoline was starting to crimp discretionary spending levels of every consumer.  Now oil (as of February 19th) is trading at $36 a barrel.  Much like the recent stock market slide from 14,100 on the DJIA to 7300, is $36 oil real and sustainable?  Probably not.  My belief is that both the stock market and oil prices will stabilize and find a level somewhere between the two extremes we have seen recently. The fact is, stocks do nothing most of the time, it is only during these periods of extreme volatility (both up and down) that we pay attention.

So what are we looking at….inflation or deflation?  Again, with all of the volatility out there, one can make an argument for both.  What if inflation rises but wages stay the same and consumer spending stagnates?  What if inflation drops, consumers continue to keep their wallets shut and prices decline?  Both of these scenarios would be troublesome for the economy as both inflation and deflation causes pain for consumers and investors alike.

The stimulus spending the government has undertaken to stem the economic slide seems to suggest inflation is sitting around the corner somewhere in our future.  I recently spent a few days in Las Vegas listening to economists discuss the recent government actions and none of them were too optimistic about a recovery in 2009.  I also heard T. Boone Pickens speak on alternative energy.  He believes the Obama administration will get our  dependence on foreign oil cut dramatically and he sees our sudden abundance of natural gas as a savior for our  energy needs in the future.

With all that has happened over this past year, it may be a good time to review your planning and investments as we prepare to ‘re-shuffle the deck’ in the investment landscape.  If we have not had a review in the past year or so, let’s get together.  I know it has been discouraging over the past months and you may be in a state of shock and denial, as many folks are, but this is no time to stick you head in the sand.  Drop me an e-mail or give me a call and let’s review and plan what’s next for you.  You may receive a postcard from me as a friendly reminder to schedule an appointment.  There is no ‘magic bullet’ out there and your portfolio will not be salvaged by buying the next hot investment product.  You will benefit, however, by paying attention now and finding the asset allocation that is right for you as we move forward through this bear market.

Take care,

Joseph W. Harowski, CFP