Sorry!! The article you are trying to read is not available now.

Deflation Makes the Front Page

Print comment Post Comments
The LA Times moves deflation to the front of the public's consciousness.

Wait, is it possible this is a contrary indicator? After all, new home sales this morning beat expectations and stocks -- as measured by the S&P 500 (SPX) -- are  up nearly 5% since the July 20 low.

I don't think so, and to understand why I think it helps to consider the nature of deflation. A piece in the WSJ, "Deflation Defies Expectations -- and Solutions," makes the following observation: "After studying more than a decade of deflation in Japan, economists have slowly realized they have no idea how it works."

Indeed, that's a crucial point, as is this:
"If people believe inflation is going to rise a lot, they will demand higher wages and push up prices. If people believe prices won't move or they expect them to fall, they will act accordingly and create the environment they expect. Japan might be stuck in a slow deflation because over time it is what Japanese households and business became conditioned to expect. Even when the economy recovered between 2002 and 2007, prices kept falling."
POSITION:  No positions in stocks mentioned.