Sightings of references to the term "deflation"

[jk]

i'd like this thread to be dedicated to observations of the word "deflation" in the writings of financial journalists, MSM, speeches of politicians, and so on. i would exclude well known deflationista's like mish. on these grounds i'm also leaving off kevin depew at minyanville, who's been writing about deflation for some time.

my goal is to see if my prediction of a "deflation scare" comes true. as the deflation meme spreads, we can expect commodities to bottom. when and if the word "deflation" is on the cover of time or newsweek, we'll know we've nailed the bottom.

fred, if you find this worthwhile, perhaps you'd make this a sticky.

for my first example, randall forsyth of barron's has begun mentioning deflation lately. today's example:

The Desperate Dash for Cash

By RANDALL W. FORSYTH

As deflation takes hold, debt is out and cash is king. That means everything but Treasuries is for sale.

[Tulpen]

Re: "deflation" sightings

we can expect commodities to bottom. when and if the word "deflation" is on the cover of time or newsweek, we'll know we've nailed the bottom.

Yes but I am not at all convinced we will see any deflation in the USA, I think inflation is what is happening and accelerating. Just look at the food and energy prices!

It is an illusion IMHO for the USA to be able to run a responsible federal budget and manage its debts. There is simply no political will for that, the "iPod" population is too spoiled and will not voluntarily lower its standard of living.

So the only way this "problem" that the USA is having is going to be solved is the hard way, namely with skyrocketing inflation.

Anyway, that is my take on it.

[Jim Nickerson]

Re: "deflation" sightings

Yes but I am not at all convinced we will see any deflation in the USA, I think inflation is what is happening and accelerating. Just look at the food and energy prices!

It is an illusion IMHO for the USA to be able to run a responsible federal budget and manage its debts. There is simply no political will for that, the "iPod" population is too spoiled and will not voluntarily lower its standard of living.

So the only way this "problem" that the USA is having is going to be solved is the hard way, namely with skyrocketing inflation.

Anyway, that is my take on it.

I don't wish to divert jk's intention here, but it is my opinion that markets do not always behave the way pundits, observers, small (or for the matter large) investors or you think they should. You may be 1000% correct, and I tend to agree with you, but as to when you can profit on your correctness is another thing. With an unlimited time frame, perhaps you'll do okay, but I think the recent downtrend in commodities, PM's has apparently resulted in losses for a lot of individuals because they may have stood there thinking or saying this cannot happen: the downturn.

[nitroglycol]

Re: "deflation" sightings

Well there's this article:

Rejoice, don't despair, at looming deflation

NEIL REYNOLDS reynolds.globe@gmail.com

• E-mail Neil Reynolds
• | Read Bio
• | Latest Columns

September 5, 2008

OTTAWA -- Henry Ford produced his first Model T in 1913 and sold it for $575 (U.S.). Fifteen years later, in 1928, Ford sold Model Ts for $290. Technological advances explain some of the drop in price, but persistent deflation - in the midst of a great economic boom - explain part of it, too. From 1920 through 1929, the average annual U.S. inflation rate was precisely 0 per cent. (Inflation fell from 23.6 per cent in 1920 to minus 14.9 per cent in 1921, a recession year, and then levelled off, posting perfect 0-per-cent scores for three successive months in 1924 and 1925.) Care to sense the kind of economy deflation can produce? Look to the Roaring Twenties.
Ford's Model T and the U.S. Federal Reserve Board got started the same year. In the intervening years, as calculated by the folks at InflationData.com, the Fed has presided over cumulative, compounded inflation of 1,929.9 per cent, most of it in the past 35 years. Across 95 years, the Fed has averaged an inflation rate of 3.4 per cent a year - a rate that doubles prices every 20 years.
Had the Fed managed a zero-inflation economy, a brand new Ford Focus, technologically transformed from the Model T, would sell now (all other factors aside) for roughly the same $290 sticker price as in 1928. Suppose that the Fed had managed deflation exactly as it managed inflation - at an average rate of 3.4 per cent a year. In this case, the Ford Focus would sell now for $30. Average per capita U.S. income ($48,000 in 2007 dollars) would be $2,500 and people would buy Ford Focuses for just over 1 per cent of average per capita income - rather than 40 per cent or more in the Inflation Option economy. (The Focus sells for $20,000.) Deflation rewards people who save and invest. In the same way that inflation has cut the worth of people's savings in half every 20 years, deflation doubles the worth - an automatic bonus paid on top of wages, capital gains and dividends. Nowadays, many economists advocate increases in consumption taxes strictly on the basis that these taxes encourage people to save. But this is a patronizing argument. A gentle deflation accomplishes the same objective without the need to tax anything - and without the price distortion that accompanies sales taxes and value-added taxes.

[jk]

Re: "deflation" sightings

paul krugman, today in his blog:

"So the core inflation guys (that includes me) were right: now that commodity prices are receding, it looks as if deflation, not inflation, is the real threat." [emphasis added]


http://krugman.blogs.nytimes.com/

[GRG55]

Re: "deflation" sightings

I think this is a classic example of the "deflation scare" you describe jk. After discussing nothing but inflation for the several paragraphs this article from todays Financial Times ends with:

"...Of course, politicians are today willing inflation lower and will, no doubt, take the credit when energy and food prices help their cause. But it may well be the threat of deflation, not inflation, for which governments will be blamed..."

To really put that in context here's the whole article:

Hold the headline

Published: September 12 2008 03:00 | Last updated: September 12 2008 03:00


Investors could do a lot worse than take opposite bets to Britain's institutions. Selling the pound as the Treasury defended it furiously in 1992 made George Soros a fortune.

Less than a decade later, the Bank of England sold its gold reserves when bullion was deep in the dumps. Yesterday, the UK government announced almost £1bn of measures to counter rising utility bills. Does this mark the top for energy prices and perhaps, therefore, inflation?

It may well do. Across many parts of the world, the 30 per cent drop in oil prices since July, as well as cheaper food, has already caused headline rates of inflation to cool.

Consumer prices in China for August rose at their slowest pace in 14 months. The growth in wholesale prices in Japan also moderated over the summer, as they did - by more than 2 percentage points - in Germany. Even the overheating economies of eastern Europe seem to be enjoying some respite.

Sure, headline numbers are still scarily high and inflation remains a real threat - as the European Central Bank president warned again yesterday. Even with falling oil prices, headline consumer price inflation in the US jumped to a high of 5.6 per cent in August. But the worst may well be over. What worries central bankers, however, is that even if fuel and food prices are softening, inflationary expectations, which have hitherto been surprisingly dormant, are now taking root in wage-earners' minds. Core inflation in the US (excluding energy and food) also jumped in August to 2.5 per cent. Meanwhile, in the UK, inflationary expectations are at their highest level since 1999.

That is why the odd recession may be helpful after all. As Smithers & Co points out, economic contractions are pretty effective in halting rises in inflationary expectations. Just look at Japan in the late 1990s.

Of course, politicians are today willing inflation lower and will,
no doubt, take the credit when energy and food prices help their cause. But it may well be the threat of deflation, not inflation, for which governments will be blamed.



Copyright The Financial Times Limited 2008

[GRG55]

Re: "deflation" sightings

Here's a few more headlines just for grins:

Could deflation cause a 1930s-style slump?

Britain spent years taming inflation, but falling prices are now a bigger worry. Economics editor David Smith looks at the implications


Left low by the spectre of deflation
If the consumer price index falls below zero, it could pay to consider gilts, says Kathy Foley


Slump in US prices fuels deflation fears


Deflation turns into biggest economic risk
America’s Federal Reserve raises fears of a downward spiral into depression. Dominic Rushe reports from New York


Fed tries to allay fears on deflation

Mr Greenspan sounded a warning that if deflation did emerge it would pose a grave threat with “very substantial” potential consequences. But he assured a congressional hearing that the Fed was on its guard against the danger. “We recognise that deflation is a possibility. It does require very close scrutiny and maybe, maybe action on the part of the central bank,” he said.

The Chairman made clear that if there were a real danger of deflation, he was confident that the Fed had ammunition to head it off. He said: “We believe that, because in the current environment the cost of taking out insurance against deflation is so low, we can aggressively attack some of the underlying forces, which are essentially weak demand.

“We see no credible possibility that we will, at any point, run out of ammunition to address problems involving inflation or anything similar to that which disrupts our economy.”

These are all from the second quarter of 2003, the last time we went through this contrived exercise. Greenspan's comments would be amusing if the results weren't so tragic...

[Jim Nickerson]

Re: "deflation" sightings

Thoughts from the Frontline Weekly Newsletter
Housing: Are We Near the Bottom?
by John Mauldin
September 12, 2008

With Europe and Great Britain central banks likely to cut rates, the dollar is going to get stronger (as predicted here long ago). That will also help hold inflation down. Consumer spending is going to continue to be under pressure, which will not be good for stocks, which means that those facing retirement are going to have to save more and spend less. I think this time next year we will start to see stories about deflation. I know, call me crazy, but given that we have seen two major bubbles burst in the last year (housing and credit), it is not out of the realm of reason. It is what SHOULD happen. Bursting bubbles are by definition deflationary events.

Within a few quarters the Fed will not be under pressure to raise rates, especially with rising unemployment and what is clearly an economy on the ropes. Further, banks need lower rates in order to re-liquify. Home buyers will need lower rates as well. I think, as I have written for a long time, that the Fed is on hold for a very long time. And I am not sanguine that the next move will be a rate hike. This time next year when inflation is seen as yesterday's problem and unemployment is rising, the drums may be pounding for a rate cut.

[Guest]

Re: "deflation" sightings

paul krugman, today in his blog: "So the core inflation guys (that includes me) were right: now that commodity prices are receding, it looks as if deflation, not inflation, is the real threat." [emphasis added] http://krugman.blogs.nytimes.com/

DaFLATION SIGHTING

OK, it's not what you asked for JK, but it's all I could find! ( Collapsing CPI! :eek: Is this the outbreak of "Inde-unde-disde-flation? )

The incredible shrinking cereal box

The packaging may look the same but the amount inside has gone down, that's how companies try to pass on food inflation. But consumers are wising up.

Last Updated: September 10, 2008: 2:27 PM EDT

Pretty Photos




NEW YORK (CNNMoney.com) -- Consumers are starting to notice a few less snaps, crackles and pops in their Cocoa Krispies lately. That's because cereal boxes - and the amount of cereal inside - are shrinking along with most food packages in the grocery store.

As manufacturers cope with the rising cost of raw ingredients and fuel, downsizing their package sizes is one increasingly popular way to pass along a price increase without drawing too much attention.

"They're raising the prices a little, and shrinking the boxes a little," said Marcia Mogelonsky, consumer analyst with Mintel International, a consumer research firm in Chicago. "If you're running through the supermarket, you don't necessarily notice that your cereal box is an ounce or two smaller. That's how they're controlling the prices."

In June, cereal giant Kellogg (K, Fortune 500) slimmed down its cereal boxes (see photo gallery). Froot Loops, Cocoa Krispies, Corn Pops, Apple Jacks and Honey Smacks all decreased by about 2.4 ounces on average, according to Kellogg spokeswoman Susanne Norwitz.

But Kellogg isn't the only company downsizing, or charging the same price for a package that contains less food. Consumers are discovering more air in their bag of chips, fewer sheets of paper towels on the roll, thinner garbage bags and even smaller squares of toilet paper.

Unilever (UN) recently shrank bottles of Hellmann's Real Mayonnaise, Breyers Ice Cream and Skippy, among other consumer products.

"Like other companies, Unilever is working to mitigate the impact of these rising commodity costs through hedging, product reformulation and cost savings programs. We have chosen to reduce package sizes as one of our responses to these dramatic input cost increases," said Anita Larsen, a spokeswoman for the company.

But when a half gallon container of Breyer's no longer contained 64 ounces of ice cream, that's when some shoppers, like Beth Bastian, caught on. :cool:

"I noticed ice cream wasn't sold in the half gallon, although it looked like it was, and then I started to pay attention," said Bastian, mother of three. Now, Bastian said, she's aware that this is happening "across the board." But that doesn't make it any easier for her to stomach the trend toward smaller packaging.

"It almost feels insulting, like 'consumers are never going to notice,'" she said.
Talkback: Higher prices or smaller packages?

But consumers are noticing: 75% of those surveyed by Consumer Reports in July said they noticed packages are shrinking and 71% believed the main reason for downsizing was to hide price hikes from consumers. Yet half of those surveyed said they'd prefer that manufacturers keep the old package and raise the price.

That's not how manufacturers are seeing it. Many food companies say their customers accept, and appreciate, the choices they must make to maintain a quality product in the current economic environment.

In August, Hershey Co. (HSY, Fortune 500) announced an 11% price increase on its multi-pack and packaged candy linesbecause of the rising cost of cocoa, corn sweeteners, sugar and peanuts.

That company didn't say, however, that some price hikes had already been implemented in May by way of smaller packaging. For example, an 8-ounce bar of Hershey's Special Dark shrank to 6.8 ounces, a reduction of 15%.

When asked about the consumer response to the downsized bar, Kirk Saville, a spokesman for The Hershey Company said in an email: "they understand the reasons behind the change."

Orange juice drinkers are also getting squeezed. According to Tropicana, a division of PepsiCo (PEP, Fortune 500), consumers welcomed the new 89-ounce bottle of Tropicana orange juice, which will replace the 96-ounce jug by the end of this year.

"Our consumer research indicates that, despite the smaller size, there was no change in the perceived value of the product because of the benefits of the added features," said Karen May, a spokeswoman from Tropicana, referring to the new bottle's snap cap.

Like it or not, there's not much consumers can do to stop the downsizing in food packaging. But awareness goes a long way, according to Edgar Dworsky, editor of mouseprint.org, a consumer education Web site that aims to expose truth in advertising.

Dworsky suggests checking and comparing the unit prices in the grocery store and opting for the brand that offers the most value. For a less subtle approach, "complain to the company," he said. You may not save money on food, but at least you can express your distaste.

First Published: September 10, 2008: 9:46 AM EDT

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[Chris]

Re: "deflation" sightings

Where are all these deflating prices the media keep talking about? In the UK I don't see them. In fact, the cost of a single journey on the London Underground has risen to $8. $8!

Food prices have gone through the roof and the supermarket figures show that prices are still rising. Anyone have any evidence of falling prices?

[we_are_toast]

Re: "deflation" sightings

Cramer called it last night. This is getting pretty close to the shoe shine boy.

"Despite falling oil and commodity prices, weakness in the dollar and gold, and rising unemployment, Cramer said the Fed still seems to be worried about inflation. The signs of deflation are all around us; inaction isn't going to cut it, he said."

Mad Money

[jk]

Re: "deflation" sightings

i don't think the "deflation" calls will be about consumer prices, except for those which are commodity related, such as gasoline. instead the "deflation" will be in asset prices, especially houses along with financial assets, in gross income [via unemployment - i.e. growing unemployment will be labeled a sign of deflation], rents, gross retail/consumption spending.

[GRG55]

Re: "deflation" sightings

i don't think the "deflation" calls will be about consumer prices, except for those which are commodity related, such as gasoline. instead the "deflation" will be in asset prices, especially houses along with financial assets, in gross income [via unemployment - i.e. growing unemployment will be labeled a sign of deflation], rents, gross retail/consumption spending.

Agreed. The "deflation" calls will come predominantly from FIRE economy interests and therefore, not surprisingly, will be pointing out "deflation" examples [and the dire consequences of allowing that to continue] that harm those interests.

This is exactly how Cramer is behaving. I can hardly wait for the next "tirade" video from CNBC headquarters.

[Jim Nickerson]

Re: "deflation" sightings

i'd like this thread to be dedicated to observations of the word "deflation" in the writings of financial journalists, MSM, speeches of politicians, and so on. i would exclude well known deflationista's like mish. on these grounds i'm also leaving off kevin depew at minyanville, who's been writing about deflation for some time.

my goal is to see if my prediction of a "deflation scare" comes true. as the deflation meme spreads, we can expect commodities to bottom. when and if the word "deflation" is on the cover of time or newsweek, we'll know we've nailed the bottom.

fred, if you find this worthwhile, perhaps you'd make this a sticky.

for my first example, randall forsyth of barron's has begun mentioning deflation lately. today's example:

The Desperate Dash for Cash

By RANDALL W. FORSYTH

As deflation takes hold, debt is out and cash is king. That means everything but Treasuries is for sale.

jk didn't link Forsyth's article written Friday 9/12/2008 For those who subscribe to Barron's it is http://online.barrons.com/article/SB...usives_weekend

Here are the last few paragraphs.

In actuality, Merrill Lynch chief domestic economist David Rosenberg points out that the benchmark 10-year Treasury note has returned 9.5% in the past 12 months (versus negative 13.3% for the Standard & Poor's 500) as its yield fell to 3.6% from 4.7% -- all in the face of rising concern over the consumer price index hitting a 5.5% annual rate. That shows the bond market is looking ahead to deflation.

Moreover, Rosenberg points out the Treasury 30-year long bond's yield is flirting with its record low, a mark that has gone unmentioned in the major media. Consider that sin of omission atoned for. The long bond ended Thursday in New York at 4.41%, a number that would cause anybody who lived through 14% long Treasury rates in the early 1980s to rub their eyes.

The deflationary trend is equally evident in gold, which has fallen more than $200 to $750 an ounce since mid-July, a span that saw the benchmark 10-year Treasury yield drop a half percentage point.

Bridgewater Associates, the highly respected institutional money manager, thinks a key turning point has been reached in the direction of deflation. Comparing the relative performance of stocks versus gold, the trend from 2001 until recently has been toward growth with inflation.

"This has turned to the downside to a significant degree, indicating market expectations of deflation and weaker growth globally," according to Bridgewater. "Published inflation rates and growth rates have not yet made such a turn," it added pointedly.

During periods of strong, inflationary growth, leverage pays off in spades. With the tide turns toward deflation, debt is a dead weight that drags you under. Deleveraging means raising cash; since most of the borrowing was in dollars, that's spurred a demand for greenbacks, evident in the currency market, where the dollar has been on a tear. Everything else, from Russian rubles to real estate to hedge fund assets -- along with the banks who make markets in them -- is for sale.

This dash for cash seems far from over.

Who knows at what the guys at Bridgewater are looking, perhaps one reads iTulip and follows Finster's Dollar Index.

If Forsyth's last sentence proves correct, then it should continue to influence the direction of PM's, commodities and of course the US$.

[don]

Re: "deflation" sightings

"But consumers are wising up"

Wising up consumers.

Isn't that an oxymoron?