Hussman Weekly Market Commentary: Stagflation!?!?
Hussman is fully hedged and worried about stagflation... read the whole thing.
Hussman Funds - Weekly Market Comment: May 15, 2006 - Yet: "The broad fundamentals - particularly an enormous current account deficit and reasonable prospects for stagflation - continue to be favorable for this group.
That reference to stagflation is based on two factors. First, historically, and internationally, it's not the rate of money growth per se, but the growth of government spending as a share of GDP (particularly spending that doesn't add to the productive capacity of a nation), that drives inflation pressures. Second, the enormous current account deficit means, by definition, that a substantial portion of U.S. gross domestic investment is currently being financed by foreign capital inflows. There are only two ways out of this deficit - invest less domestically, or save more domestically. Given a profligate fiscal policy and a low propensity to save among U.S. households (saving more requires income growth to outpace consumption growth), "saving more" is probably not a likely source of adjustment. More likely, we'll adjust a good part of the current account deficit through weakness in U.S. gross domestic investment (mostly via a housing slowdown, in my estimation). In any event, the U.S. has virtually zero likelihood of enjoying a sustained "investment boom" anytime soon - whatever growth we observe in capital spending is likely to come from a contraction in housing investment, leaving gross domestic investment relatively flat."