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Cantor's John Trammell provides insight, looks for solutions in deflationary market environment By Mark Melin

The #1 fear for family offices face is deflation, noted John Trammell co-head of investment advisors at Cantor Fitzgerald. "The financial crisis that occurred in 2008 and the amount of money that governments have spent to keep us from falling into deflation, apparently has worked thus far. They are still worried they may run out of money."

Trammell points out family offices know that the Federal Reserve Bank purchasing 61% of treasuries, as was done in 2011, can't continue indefinitely. "The only play left in the central bank's playbook is to engineer an environment of price inflation. They're hoping that the engines of growth pick up, wanting to see a small inflationary bias in the economy to keep us from sliding backwards into a recession," he said, noting that most investment portfolios are better set up for an inflationary growth environment (correlated to economic strength) than a deflationary one, which can occur in an over-leveraged debt environment."

"No one has their arms around how to make money in a deflationary environment for any length of time." - John Trammell, co-head, investment advisors, Cantor Fitzgerald

"The hole that we blew in personal balance sheets, bank balance sheets and government balance sheets was so large that trillions of dollars was put back into the banking system," he said, noting the large-scale intervention was the only thing that kept the economy from sliding into a Japan-like deflationary environment.

Given an over leveraged fiscal environment staring down the mathematical logic of an approaching debt crisis, this leaves family offices with few options.

"No one has their arms around how to make money in a deflationary environment for any length of time. Its easy to recommend long bonds," he said, citing a successful strategy in the past during a deflationary environment. "But right now we're in an environment where bonds can't rally through zero," referring to the current low bond yields putting a floor under any further significant appreciation in bond prices. "We can only hope for inflation and signs of growth. We want the economy to be strong enough to sustain higher interest rates," noting the potential for a deflationary period followed by an inflationary period, which is among the better case situations.

"We're going to have to face austerity across the board," Trammell observed. "Government austerity and personal austerity."

This could be a very different investing environment, indeed.

[This is an excerpt from a longer interview to be broadcast on the next Uncorrelated Investing Show [link: http://www.Uncorrelated-Investing.com]