Inflation or Deflation? Which is the Consensual Opinion? Weekly Chart Update – 30/4/11
An update of the weekly google insights charts for 30/4/11. Using these indicators, the contrarian investor can attempt to gauge the prevailing opinion in the inflation vs deflation debate.
The following charts show how searches for ‘inflation’ are competing with searches for ‘deflation’. The idea is that when ‘inflation’ searches are growing in excess of ‘deflation’ searches, inflation fears dominate. Conversely, when ‘deflation’ searches are growing in excess of ‘inflation’ searches, deflation fears dominate. The contrarian investment strategy would be to oppose either conviction at its extreme; that is, the contrarian could insure against deflation in an environment of hysteric inflation fears, and conversely insure against inflation in an environment of manic deflation worries.
The first chart uses plain search volume indices from google insights, whereas the second chart uses the relative out-performance of those indices (compared to searches about ‘finance & investing’). I invert the ‘deflation’ parts (red) to show how the two search items are competing with each other. When the blue parts are high, people are searching for ‘inflation’. When the red parts are very negative, people are searching for ‘deflation’. The black line is the aggregate of these two. When it is rising, inflation fears dominate, and when it is falling, deflation fears dominate.
The charts above show that inflation worries remain at elevated levels. Indeed – according to these indicators – inflation fears are at roughly the highest levels since the start of this rally (i.e. since the March 2009 low). In recent weeks, these inflation fears have been spurred on by the price rises in gold and silver. Concrete forms of cash are just incredibly unpalatable and out of fashion – hence, the contrarian investor may find opportunities in insuring against deflation (and perhaps underwriting the risk of inflation).
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