About

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Andrew T. Gillies is Director of Communications at the Center for Audit Quality, an affiliate of the American Institute of CPAs, in Washington, DC. Based in Washington since 2002, he has also worked in editorial and communications roles at the Investment Company Institute, the World Bank, Forbes, and Vault.com. His policy-themed writing has focused on aerospace and defense, energy and environment, transportation, and financial services.

Monday, October 28, 2002

Deflation Hedges

Only the most efficient companies fare well in a period of falling prices and slack productive capacity. Look at the success of low-cost operators such as Southwest Airlines and JetBlue, or Dell's continued dominance in computer hardware. Predicting more such winners in the current economy isn't easy, but one strategy might help: Bet on companies carrying a manageable debt load.

"Having debt is never so expensive as when inflation is low and moving lower," says Jason Trennert, investment strategist and senior managing director at New York brokerage and economic research firm International Strategy & Investment.

Trennert and colleagues don't expect a surge in corporate pricing power anytime soon. What's more, even if trouble in the Middle East forces oil prices up in the short term (see story, p. 126), the deflationary trend is unlikely to abate. Why? Companies, still saddled with too much capacity, will find it hard to pass on energy costs to consumers. "There's no way to sugarcoat a spike in oil prices," Trennert warns.

Full story (reg. required) at Forbes.com