Deflation Warning Sounded: Protect Yourself With ETFs

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The Consumer Price Index figures came out on Friday. While we can rest easy the inflation is no imminent threat, the deflationary red flags are going up. Here's why and how to cope with exchange traded funds (ETFs).

Consumer prices were pretty much flat in August, says Robert Reich for Wall Street Pit. Excluding food and energy prices, they were up 0.9% from a year ago -- well below the Fed's inflation target of 1.5% and 2%.

That's not the only reason deflation is a threat: Consumer sentiment is the lowest it's been in a year, and weekly earnings were unchanged between July and August.

Jane Bryant Quint for MoneyWatch reports that dividend stocks get especially interesting in deflationary environments because even if dividends don't rise, they'd be worth more in purchasing power if the general price level declined. (See "ETFs That Have You Covered in Any-Flation.")

  • WisdomTree Dividend Top 100 (NYSE: DTN  ) is just one of many viable ideas, and it has a Treasury-beating 3.9% yield. To find other high-yielding funds, dividend or otherwise, go to the ETF Analyzer and sort all ETFs by yield.

Too much money in the system can send prices soaring, but that's obviously not happening now. Even if business improves and demand picks up, so much unsold inventory will appear on the market that prices could still stay flat -- at beast. Unsold homes, empty retail space, and a population that is unemployed or tapped out all equal a deflationary setting. (See "ETFs to Tame the Deflation Monster.")

For deflation, investors should look to short-term investment strategies, such as short-term certificates of deposit or money-market funds. If you've got a 10-year time frame, the technology sector is also an appealing place to look, since companies often boost productivity through the use of technology.

  • PowerShares QQQQ (Nasdaq: QQQQ  )
  • Technology Select Sector SPDR (NYSE: XLK  )
  • iShares Barclays 1-3 Year Treasury (NYSE: SHY  )
  • PIMCO 1-3 Year U.S. Treasury (NYSE: TUZ  )

These are just a few of your many options. To see them all, visit the ETF Analyzer. Premium members have the ability to add funds to their watchlist and set up trading alerts so you never again miss an opportunity to buy or sell. Go here for more details.

Tisha Guerrero contributed to this article.



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