Expert: get out of western sovereign bonds

| 4 May 2009 01:00

Martin Hennecke, a frequent guest on CNBC, is recommending that investors who have fled to cash and government bonds need to rethink that strategy.  He sees inflation on the horizon and warns that western sovereign bonds will suffer as a result and sitting on cash will be throwing money away. 

The crux of his thesis rests on the huge budget deficits now being run by western countries to reflate their economies. These deficits must be funded and the fear is they will simply be monetized through printing money a.k.a quantitative easing by western central banks. This policy used to ward of the potential of deflation gives the potential for lots of inflation down the line if the excess liquidity is not retracted.

While I agree that the renewed risk of inflation exists (the Q1 U.S. GDP report demonstrating this), I am skeptical whether inflation will be a  problem for the immediate future.  Nevertheless, his view that vigilance against getting trapped in depreciating assets once inflation reappears is well in-line with how I see things.

He recommends commodities and precious metals as a hedge. He also recommends staying away from export-dependent Asian shares. But, he does see “some good picks” in domestic Chinese shares and elsewhere in Asia.

Hennecke makes some interesting comments about the Dollar and the Yuan as reserve currencies. Have a look at the video below.


avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

Related Posts
More About: , , , , , ,