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Jacob Wolinsky
Jacob Wolinsky
Articles  | Author's Website |

Inflation or Deflation: Michael Burry and Seth Klarman Versus Robert Shiller

Everyone is talking about what the next "bubble" that blows up will be; gold, China, treasuries etc. Pundits are now predicting that farmland might be the next bubble. Robert Shiller was on Fox Business yesterday with this prediction.

However, Shiller is one of the few economists who happens to actually get a lot of calls right. In early March 2009, he stated stocks were cheap; the S&P500 is up ~100% since then. Before that, Robert Shiller, wrote Irrational Exuberance, whichir?t=valueinves08c-20&l=as2&o=1&a=076792laid bare, with remarkable timing, the speculative bubbles forming in the Internet-crazed stock market. He later predicted the next bubble in residential real estate.

What is interesting about this call on farmland is that Michael Burry who foresaw the housing bubble and made a fortune buying CDSs, has the exact opposite views of Shiller. In a _Bloomberg Interview:, Burry stated _“I believe that agriculture land -- productive agricultural land with water on site -- will be very valuable in the future” and “I’ve put a good amount of money into that.”

Only time will tell who is right. However, it likely depends if you think inflation is more likely or deflation. Shiller, recently stated that housing prices might not recover for "years", he seems to be in the deflation camp.

I am no macro-economist, but think inflation and possibly hyperinflation is more likely. With all the fiscal mess we are in; huge Federal deficit, large state deficits, massive underfunded pensions; the best way out would likely be to inflate ourselves out of the problem. Many people predicted that this was Ben Bernanke's goal of QE2, and Ron Baronstated this explicitly and thinks it is a good idea.

Furthermore, many people criticize the CPI as a flawed metric. Gas prices and food prices have skyrocketed in America, however, theyconveniently are excluded from the CPI. Nearly every country in the world, including the Eurozone is experiencing inflation now. The only major economy that does not officially have inflation is Japan, and America "officially" has very minor inflation. I believe that the inflation that we exported to the rest of the world is likely to (officially) come back to the USA hard.

Seth Klarman in his 2010 annual shareholder letter, which I cannot post online; stated "Today's money printing is tinder for tomorrow's inflationary storm". He had many more statements in the letter, which discussed his worries about inflation. He also made a similar point about the CPI being flawed. He stated that if we used 1980s methodology of inflation, the current CPI would be 8.5% instead of 1.5%.

However, I would not put my money on either side despite my thoughts. Below is the interview with Robert Shiller:

Watch the latest video atvideo.foxbusiness.com

Disclosure: None


About the author:

Jacob Wolinsky
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

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