THE THREAT OF DEFLATION 67monetary experiments in the years ahead. A fourth round of
quantitative easing, so-called “QE4,” perhaps in late 2015 or
early 2016 cannot be ruled out. If deflation is strong enough,
central banks may even encourage an increase in the price of
gold by 2017 in order to raise inflationary expectations.
Eventually the central banks will win and they will get the
inflation they want. But it may take time and the inflation may
turn into hyperinflation in ways the central banks do not expect
or understand. This “tug-of-war” between inflation and defla-
tion creates the most challenging investment climate in 80 years.
The best investment strategies involve a balanced port-
folio of hard assets and cash so investors can be ready for
both. These strategies are the focus of our research and will
be highlighted in Strategic Intelligence in the months ahead.
■ Deflation’s Winning the Tug of War
Deflation is one of the most confusing issues for investors today.
To illustrate the point at a speech I gave once, I asked a
simple question: “Will anyone in the audience who is 90 years
old please raise their hand?”
As I expected, no one did.
My point was simple and relevant to your investments today:
You’d have to be at least 90 years old to have any recollection of
deflation in the United States. There hasn’t been a sustained de-
flation here since the stretch from 1927–1933. Even then, you’d
probably have been about 5 years old.
The main fear for the last few decades or more has been of
inflation as the Fed continually prints money. And as we dis-
cussed, that threat is very real, so you have to prepare. But the
battle between inflation and deflation is not a short-term story.
After months or even years, either force can prevail, which
is why it’s imperative you be prepared for either outcome.
Then, you watch for signposts along the way that will help you