Friday, August 28, 2009

Deflation Hitting New Records

Japan’s Deflation Deepens as Prices Fall Record 2.2% (Update1)

“Nothing can stop prices from falling now, given that demand has deteriorated so much,” said Masaaki Kanno, a former central bank official and now chief economist at JPMorgan Chase & Co. in Tokyo. “Consumer-price declines threaten to squeeze corporate profits because material costs are edging up” and companies are unable to pass them onto customers, he said.

That's worth reading twice.

I remain braced for deflation AND inflation as best I can. You may note that my short-term inflation mood (as seen in the upper left corner of my blog) remains neutral (roughly 0% overall inflation). It almost seems permanently stuck there.

TIPS (treasury inflation protected securities) offer some inflation protection AND some deflation protection. On the inflation side, their value tracks the CPI (consumer price index) while offering additional interest payments. On the deflation side, bonds bought today will will pay at least face value upon maturity (just like buried cash would if held for the full duration).

This isn't investment advice. It's simply an observation.

If you believe that our economy and our standard of living cannot stand the strains being imposed on it long-term such as I do, then a "Not Losing" investment strategy may just beat the historically highly leveraged "Gamble More" strategy. I will grant you that the latter strategy worked out exceptionally well from 1980 to 2000. However, the former strategy has been the clear winner since 2000 (and that includes the most recent stock market rally).


Californians face another tax hike — thanks to deflation

Earlier this year, the governor signed a budget proposal that included more than $10 billion in temporary tax hikes to help erase the state's colossal deficit.

That's probably worth reading twice too.

The government gets first dibs on any extra money the tapped out consumer may be holding. There are roughly 37 million people in California. $10 billion represents $270 per man, woman, and child. It is also worth mentioning that California's unemployment rate is currently a whopping 12.1%. A good chunk of those men, women, and children don't have jobs to pay those additional taxes.

The additional "temporary tax hikes" represent $810 to a family of three. That's a high end washing machine. No worries. China has that missing demand covered.


Even China faces meltdown

From the excesses now seen in the Chinese economy, that meltdown appears now to be impending. Companies have more liquid assets than they can usefully invest and have been gambling with them in the stock market, a phenomenon last seen in size in Japan in the late 1980s. Shipments to retailers have increased by 15% in the first half of 2009, an increase reflected in the gross domestic product statistics but not necessarily in sales to final consumers, although households without electricity or running water have reportedly been dragooned into buying washing machines.

9 comments:

  1. More taxes from less workers, I mean, what could go wrong?

    ReplyDelete
  2. GYSC,

    "More taxes from less workers, I mean, what could go wrong?"

    Murphy's Taxation Law? ;)

    ReplyDelete
  3. he and she reviews,

    I see in your profile that you like video games, anime and food.

    As a video game addict, a former computer game programmer, and one who retired off of a gaming investment, I must say that I can relate to your priorities! :)

    I'm currently playing Rogue Galaxy on the Playstation 2. We've got a Playstation 3 but there aren't that many good RPG's yet.

    As for your interest in Star Trek, you might also get a kick out of the following post of mine.

    http://illusionofprosperity.blogspot.com/2009/07/sound-financial-advice.html

    ReplyDelete
  4. sounds like fun. I'm going to check it out right now. yeah food and video games... not a good combo ^_^ though the wii fit and stuff are helping out on this. hehe.

    ReplyDelete
  5. Weekly unemployment claims continue well north of 500K. Sooner or later the financial wizards will need to resolve this lagging indicator, should make interesting times.

    ReplyDelete
  6. ronald,

    Believe it or not, average weekly initial claims for unemployment insurance (inverted) actually is considered a leading indicator. Apparently, the drop TO north of 500k is a sign we should all put on our party hats!

    The only coincident indicator in the red was employees on nonagricultural payrolls.

    One of the negative lagging indicators was the average duration of unemployment (inverted). Another was the change in labor cost per unit of output.

    http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1

    "After having fallen steadily since reaching a peak in July 2007, The Conference Board LEI for the U.S. has increased sharply in the last four months, amid widespread strength among its components. As a result, the six-month growth rate in the index has accelerated to its highest rate since the middle of 2004."

    Funny. The middle of 2004 was exactly when I turned bearish. Go figure.

    The stock market is supposed to be a leading indicator too of course. I remember back when the DJIA was pushing 14,000+. Since it was a leading indicator, that could only have meant that a new permanent wave of prosperity was about to hit us. Well, that or a near total collapse of the banking system. You make the call!

    ReplyDelete
  7. WASHINGTON—Despite ongoing economic woes and a jobless rate that has been approaching 10 percent, U.S. unemployment projections drastically improved Monday after the consumption of five beers.

    "It's going up," leading economist David Singleton said confidently, indicating the predicted growth in jobs with an upward wave of a Bud Light bottle. "All the way up. By the end of the month. No problem."

    Singleton said the economy would begin its rebound once employers realized that there were many currently unemployed skilled laborers across the country who would "bust their asses" in a number of growing fields.

    "Whether it's manufacturing, finance, hospitality, or manufacturing, these dudes trying to reenter the workforce right now have awesome skill sets and, most of all, they really deserve it," he said. "They're great, great guys. All of them."

    http://www.theonion.com/content/news/nations_unemployment_outlook

    ReplyDelete
  8. Ronald,

    If 5 beers can improve things that dramatically, then I have no choice but to turn into a permabull!

    Hahaha!

    ReplyDelete