Investment Banker Alpert to Moneynews: 'Massive Deflationary Forces' Lurk

Sunday, 15 Sep 2013 11:51 AM

By Dan Weil and David Nelson

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Oversupply in economies throughout the world creates grave risk of deflation, says Daniel Alpert, author founding managing partner of investment bank Westwood Capital.

What he means is "a global oversupply of labor, of productive capacity, and of capital," Alpert told Newsmax TV in an exclusive interview. "There's way too much supply relative to demand for any of those things."

About 20 years ago, a huge number of people in what had been socialist countries entered the free market, he said.

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"They basically looked to us and said, we want to live like you," says Alpert, author of the forthcoming book "The Age of Oversupply: Overcoming the Greatest Challenge to the Global Economy."

Editor's Note: To pre-order 'The Age of Oversupply' at a great price — Click Here Now.

But there are only about 800 million people in the developed countries of Japan, the U.S., Canada, and Western Europe, Alpert says. That leaves 3.5 billion people scratching at the gate.

"Unfortunately, they're not consuming," he said. "There's not sufficient consumption to absorb that additional supply within those emerging countries, and so we have a condition where there's not enough aggregate demand relative to supply."

As a result, there are "massive deflationary forces" out there, Alpert said. "Oversupply is inherently deflationary. People are willing to work cheaper, therefore goods are cheaper, therefore prices fall."

In addition, there's excess debt throughout the developed world, including the United States, Europe and Japan, Alpert says.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

The one thing that can be said for the Federal Reserve's quantitative easing (QE) is that it helps forestall deflation, he says.

"Think of [Fed Chairman Ben Bernanke] as the Dutch  boy with his finger in the dike. On the other side of the dike is a huge wall of deflation, the pressure that is caused by the oversupply itself."

On the U.S. employment front, Alpert is concerned that the jobs now being created are part-time, low-wage positions.

Instead of the usual progression during a recovery from low-paid to high-paid jobs, "we've experienced the opposite," Alpert said. "We had more high-wage job creation earlier in the recovery cycle than we do today."

Meanwhile, the bond market rout that has sent the 10-year Treasury yield to 2.91 percent late Wednesday from 1.66 percent May 2 constitutes a "panic," Alpert said.

"Because of that prevailing mean, people believe that bonds are going to get crushed, and so they short them," he said. "There's a huge short on U.S. Treasurys tied entirely" to talk about the Fed tapering its QE, Alpert says.

"We don't really know what's going to happen when they taper. We don't really know when they're going to taper." But the talk is enough to hurt bonds, Alpert says.

"The problem is there's no real macroeconomic background for this." In addition, with all the 10- and 30-year Treasurys that the Fed has purchased, there aren't many available to buy, Alpert says.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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