Why it’s time to take profits on commodities

Fund managers see inflation as a real threat, but with America in – or heading for – recession, we should be more worried about deflation as consumer demand collapses. And that’s bad news for commodities, says James Ferguson.

Fund managers believe inflation is still a real threat, but with America in or heading for recession, we should be more worried about deflation as consumer demand collapses. And that's bad news for the commodities boom, says James Ferguson

According to the latest Merrill Lynch survey, most fund managers expect above-average prices this year with below-average economic growth. In other words, a return to that horror of the early 1980s: stagflation. These people see rising commodity prices feeding directly into the corporate sector's input costs (as measured by the producer price index, or PPI), which, exacerbated by the falling dollar, is pumping up headline consumer price index (CPI) inflation. Throw in imminent recession and that almost guarantees stagflation.

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James Ferguson qualified with an MA (Hons) in economics from Edinburgh University in 1985. For the last 21 years he has had a high-powered career in institutional stock broking, specialising in equities, working for Nomura, Robert Fleming, SBC Warburg, Dresdner Kleinwort Wasserstein and Mitsubishi Securities.