Don't Make Big Bets on Inflation Just Yet, Najarian Says

With crude and copper hitting 7-month highs, gold pushing $1000 per ounce and Tim Geithner in China defending America's profligate spending, inflation is remerging as major theme for policymakers and investors alike. In the latter category, "Black Swan" author Nassim Taleb has joined John Paulson among the growing number of investors making big bets on a weaker dollar and rising inflation.
With soaring U.S. budget deficits and the Fed's printing press running on overdrive, it's not a stretch to say big inflationary pressures are baked into the economic cake.

But don't put all your eggs in the inflation basket just yet, says Jon Najarian, co-founder of OptionMonster.com. Najarian recommends no more than 10% of assets be put into inflation hedges such as gold (which he's long) and Treasury Inflation Protected Securities (TIPS).

What's pushing commodity prices, emerging markets and Treasury yields higher lately is the "reflation" trade, he says, i.e. a re-embrace of risk by traders after the flight to the relative safety of the dollar and Treasuries in late 2008/early 2009.

Financial markets are reflecting these fund flows and renewed appetite for risk, rather than actual inflation, Najarian says.