This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Threat Of Unexpected Inflation Could Negatively Affect Stocks And Bonds, According To Report From Mellon Capital





NEW YORK and LONDON, Nov. 7, 2012 /PRNewswire/ -- Unexpected inflation resulting from mounting debt burdens and easy monetary policy in developed nations could reduce the values of stocks and bonds, according to a report from  Mellon Capital Management Corporation, the San Francisco-based multi-asset manager for BNY Mellon.

"Since the onset of the financial crisis in 2008, both fiscal and monetary policies across the globe have been unprecedented," said Karsten Jeske, co-author of the report and senior research analyst at Mellon Capital.  "The U.S. especially has been troubled by persistently high deficits, with one trillion dollars added to its deficit each year since 2008."

In addressing this potential threat, Mellon Capital has unveiled a comprehensive program to help investors optimize the tradeoffs among expected returns, portfolio volatility and unexpected inflation.

The program is detailed in its report, Unexpected Inflation Hedging: A 3D SUPER Approach. The report distinguishes between expected inflation and unexpected inflation, which it defines as the difference between realized inflation and expected inflation for the same period.

"Past experience indicates that unexpected inflation is detrimental to both equity and nominal bond returns, while some other asset classes such as commodities and commodity-sensitive equities can help alleviate this risk," said Anjun Zhou, the other co-author of the report, and head of multi-asset research, of Mellon Capital.  "However, trying to anticipate unexpected inflation by moving into passive commodity indices would come at a cost, because these assets tend to have lower expected returns."

In its report, Mellon Capital extends the Modern Portfolio Theory by establishing a three-dimensional efficient frontier surface, which it uses to help determine the optimal trade-off among expected returns, portfolio volatility and unexpected inflation. The Mellon Capital programs are designed to move the efficient frontier upwards with the goal of providing improved unexpected inflation protection that would not have to reduce expected return, the report said.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs