Friday, May 8, 2009

Deflation

I am still surprised to hear the deflation argument these days. Is it because commodities are quite firm? Or the dollar is sagging? Or bonds are rising?

The only thing that goes up during deflation is cash and cash is sinking ('cuz everything else is rising).

No, the real surprise is people are still talking about deflation as Ben and the other helicopter pilots are saying that the economy has bottomed. Wasn't the prevailing wisdom (term used loosely) that we are in a 1930's style economy and bear market?

All of these reasons are why you should not listen to talking heads, market gurus or government officials. Subscribe to the information source of your choice - my own newsletter come to mind :-) - and let someone point out things you might not have seen. But in the end, nobody really knows what the market or economy will do. All we can control what we do about it all.

Tomorrow, if I am not schlepping my kids around the globe to their activities, I will post a chart from this morning's newsletter where I simply point out a possible shift in the offense/defense indicator.

Have a good weekend.

2 comments:

gingersue said...

I think one has to differentiate between deflation and debt deflation. I'm a believer in debt deflation, where interest rates go down but prices do not. Such as Japan in the 90's. They had about 6 different stimulus spending schemes, but all that evewntually happened was that their economy stagnated, prices didn't spike or collapse, but interest rates went down. A lot, if I recall. I expect the same thing to happen here.

My concern with my fixed income investments is not inflation, but re-investment risk (at a lower rate) in the next 5 years or so, when my muni bonds and preferred stocks get called away.

Scott said...

good point, buddy... pointing out how just two months ago we were in the worst economy since the depression... I guess it was different this time :-)