Dennis Gartman Sees Both Inflation & Deflation ~ market folly

Tuesday, June 16, 2009

Dennis Gartman Sees Both Inflation & Deflation

It's been a while since we last covered Dennis Gartman so we wanted to catch up with some of his latest commentary and post up what he's seeing in the markets. If you're unfamiliar with Gartman, he is a noted trader, a hedger, and author of The Gartman Letter. He always likes to run a balanced book and this is why we keep track of him. To get a better view as to his style, check out his excellent rules of trading. This time around, Gartman is out saying that he sees both inflation and deflation. Confused? Don't be.

He explains that due to the weak US dollar complex, commodity prices are going up, indicating inflation in assets. He specifically cites the action in grains, crude oil, and copper. In fact, in the past, Gartman has even said he could see gold being the world's reserve currency. So, while those assets are signaling inflation, he cites deflation in employment and labor prices. Additionally, he points out that housing prices are in a deflationary spiral and he says that, "homes are not going to go up for a long time." Curiously enough, Gartman thinks that the impact on the consumer will be negligible. We're not exactly sure how his rationale behind that works out though.

Gartman likes to play pairs trades as we all know and he notes that it's a bit harder to play the deflation side of this trade. For the inflationary portion, he says he can simply buy copper futures or Freeport Mcmoran (FCX) or Southern Copper (PCU), etc. But, on the deflationary side of things, Gartman has trouble going long bonds to place that bet. In the past, we've laid out scenarios for investing in both inflation and deflation, a resource readers can use to place their own wagers. This debate will surely wage on for a few more quarters (or even years), as the United States' fate slowly begins to play out.

In terms of economic recovery and world strength, Gartman thinks that the United States and Europe are the only two that will still truly be in the house of pain. He sees economic recovery beginning to occur in the emerging market nations such as China and Brazil, while other countries are beginning to benefit such as Australia. However, he thinks the US and Europe will be up a creek for a while longer. You can put on this pairs trade by simply going long Australia, Brazil, Canada, or any other number of world markets, while simply shorting the US markets or those of Germany, France, and Japan. Simply put, Gartman likes being long the 'new world' commodity exporters and short the 'old world' commodity importers.

We've highlighted some of Gartman's major activity in the past here on the blog as well. Back in April, Gartman had said to watch base metals as a leading indicator. And, copper exploded to the upside for numerous reasons. This call was in addition to his tendency to use the transports and baltic dry index as other solid economic indicators. After all, the economy can't truly recover unless we see it 'going through the motions' and transporting the goods that make the world tick. The month prior in March, Gartman was long 'cheap' retail and short the malls.

He definitely is a swift trader and likes to cut his losses short and let his winners run. We track him because he runs a truly hedged book and often has cutting market insight. We'll continue to monitor him and post up his moves when we can find time to pry ourselves away from our hedge fund portfolio tracking series.

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