Saut Confirms Mixed-Flation Theory

I have previously argued that we could have inflation in food, energy and health care prices, and deflation in most other asset classes:

You know from experience that when you’re in a national park, movie theater or some other contained place, prices are higher than elsewhere.

Basically, the stores in such places know you can’t go somewhere else, so they can charge you what I call “got you” prices. In other words, you’re a captive buyer, and they’ve “got you”.

I’ve noticed the same thing with health care costs. My family’s health care premiums increased 6% last year – on top of the 6% increase the year before.

This is “got you” prices. The health care industry knows that Americans are desperate for health care, and that if they raise prices, people will pay.

I’ve previously pointed out that inflation versus deflation is not necessarily an all-or-nothing proposition: we can have inflation in some asset classes and deflation in others.

So my current theory is that we will have deflation for some time in most asset classes, but inflation in the “got you” classes of basic necessities that everyone needs – food, energy, and health care.

Jeffrey Saut – Chief Investment Strategist and Managing Director of Equity Research at Raymond James – is now confirming that theory:

Inflation, or deflation, the argument rages; yet on CNBC last Thursday I opined that we are currently experiencing both… It appears to me that the country’s top quintile of wage-earners (the folks with the most assets) are experiencing deflation as their home prices have collapsed, their 401K’s are substantially below where they were in October 2007, their bonuses have been “whacked,” and the list goes on.

Meanwhile, the lower-income households are experiencing inflation with their heath care costs rising, food prices escalating, insurance premiums climbing, etc.

Saut thinks inflation will eventually win out:

Our “bet” is that the inflationary forces will eventually win out because that’s the way it has always played since the Great Depression.

But that is not controversial. Indeed, even the greatest advocates of the deflation theory say we may eventually get inflation. For example, David Rosenberg says that deflationary periods can last years before inflation kicks in.

Note: I am sure someone else came up with this theory of food, energy and health care prices versus other asset classes first. I just have never run across it before.

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