As I continue to round out my portfolio I purchased a ~5% position in Powershares Base Metals Double Long ETN, which is invested in aluminum, copper and zinc futures. This brings my exposure to commodities up to about 20% of my portfolio, with a ~10% position in gold, ~3% position in silver, and ~2% in palladium. My outlook is bullish for these metals, driven by settling of worries about European debt, increasingly expansionary monetary policies with possible new programs announced by the Fed, and stimulus spending in China to re-accelerate growth. This outlook implies rising inflationary pressures within commodities, in general, stabilizing short-term world economic performance, and growth in demand for base metals from China.
Tying my current outlook to a longer-term Sagflation view, I believe we are simply buying time before deflationary forces overwhelm the economy. Sovereign debt in Europe and the US is increasingly hampering economic growth and reducing our ability to pursue Keynesian-like stimulant spending, in my opinion. I simply do not see an easy road out of the corner in which we have painted ourselves. Inflationary pressures within emerging markets are increasingly hindering monetary policies, which likely only worsen as we move forward, in my view, due to monetary policies. Europe is creating a short-term solution to a long-term problem, in my view. In essence, appeasing the markets and the voting populations. The US is also focused on short-term solutions to long-term structural problems, in my view. China has the financial flexibility to act aggressively but I fear time may run out on them at some point soon, as bank loans turn sour.
Sagflation is slow-to-negative real economic growth combined with volatile prices. For a while the prices likely swing up, in my opinion, but keep in my mind that bureaucrats are pushing it higher and higher, not fundamentals.
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