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Rob Arnott continues:


“The implication of this is really simple, and that is that there is no closure.  There will be no closure on the European situation until one of two things happens, and they will probably happen back to back:  Major defaults, and/or major leaders in Europe simply acknowledging the obvious, that you can’t spend what you don’t have indefinitely.


An aging demography is inherently deflationary....


Continue reading the Rob Arnott interview below...  




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“Deleveraging of an economy, which is already happening in the private sector and at the household level all over the world, is inherently deflationary.  What’s inflationary is the money printing.  It’s inflationary only if there is no will to reverse the money printing when economies start to exhibit resilience and velocity of money accelerates.  That’s where we’ve got a problem.


I don’t see any of the central banks around the world likely to be willing to reverse trillions of dollars of money printing in all of the economies of the developed world.  If you are not willing to reverse that, then an acceleration in the velocity of money creates inflation.  Inflation creates inflation expectations.  Inflation expectations accelerate the velocity of money further as people are reluctant to hang on to cash.  So you get into a vicious cycle, indeed a very, very vicious cycle. 


My own view is that we will see inflation in the United States above 5% in the next five years.  Sometime this decade there is a 50/50 chance we will see double digit (inflation).  That has me alarmed because most investors are really poorly positioned for that.  Most of their money is in mainstream stocks and bonds.  We know what happens to mainstream bonds in inflation.  Yields go up, prices (of bond holdings) go down. 


We know what happens to stocks.  Stocks have inflation pass-through, but it’s after a 3 to 5 year lag.  In the intervening 3 to 5 years, valuation multiples tumble because the added level of uncertainty associated with the inflation means that investors demand higher yields and lower P/E ratios before being willing to commit to those risks.


So the mainstream markets, where most people have most of their money, are positioning themselves for a really disastrous outcome.”


Rob is one of the most brilliant and original thinkers in the financial world today.  It is not surprising that he oversees more than $100 billion.  He is warning KWN listeners what to expect going forward, which includes chaos, inflation and more.  The KWN interview with Rob Arnott is available now and you can listen to it by CLICKING HERE. 


© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.


The interviews with Rob Arnott, Michael Pento, Gerald Celente, James Dines, Marc Faber, James Turk and Art Cashin are available now.  Also, be sure to listen to last week’s line-up of other KWN interviews which included Egon von Greyerz, Sean Boyd, John Hathaway, Eric Sprott and Jean-Marie Eveillard by CLICKING HERE.


Eric King

KingWorldNews.com

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