Inflation or Deflation? Which is the Consensual Opinion? Weekly Chart Update – 15/5/11
An update of the weekly google insights charts for 15/5/11. Despite a rather harrowing week in the markets, the inflation vs deflation indicators suggest that all eyes remain upon inflation (and not deflation).
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.
This week’s update of the google insights charts show that inflation worries remain at elevated levels. Given that these levels of inflation fears are at the upper end of the range (during this stock market rally since March 2009), it would seem that the contrarian investor could find bargains in insuring against deflation (and perhaps in underwriting the risk of inflation).
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