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Wall Street Journal Piles on Deflation Bandwagon, Sounds the Alarm

by Brett on August 3, 2010

Seems like somebody at the Wall Street Journal has been diligently reading their Contrary Investing Report!

Today the Wall Street Journal piled onto the small but growing Deflation Nation Bandwagon, on the heels of warnings about deflation from Jeremy Grantham, Bill Gross, and others:

Bond-fund heavyweight Bill Gross, investment manager Jeremy Grantham and hedge-fund managers David Tepper and Alan Fournier are among the best-known investors who are bracing for a possible bout of deflation, a development that could cripple global economies and world stock markets.

The investors cite weak economic figures and a mounting consensus that global policy makers are reluctant, or unable, to take further steps to boost economic growth as reasons for their market positions.

Author Gregory Zuckerman also penned a sister article about deflation on the heels of “disappointing” personal income and spending reports:

Personal income and consumer spending were weaker than expected in June, according to the Commerce Department, underscoring the pressures consumers are under and the challenge companies will have to raise prices.

The June readings of both personal income and spending showed no change compared with May. Income was expected to rise 0.2% and spending was expected to increase 0.1%.

“Interestingly, wages and salaries fell 0.1% on the month, the first monthly decline since last September,” noted Lou Brien, strategist at DRW Holdings, a Chicago trading firm. Wages and salaries are part of income.

On a year-over-year basis, wages and salaries rose a weak 1.2%.

Brien said the data is an indication that the economy could be tipping toward deflation. “With stagnant wages and debt deleveraging there is no appetite to pay higher prices,” he says “Most people will find a discount or forgo the purchase.”

You can read the full article at WSJ.com.

Kudos to Zuckerman for writing these pieces.

Overall though there’s not too much new for us (using the royal We to include our astute community of readers and commenters). We’ve all been on the deflation beat for some time.  Interesting to see these stories creeping into the mainstream press with increasing steam.

As an aside – let me hop on my soap box for a minute, if I may – this is a great example of why mainstream publications are getting slammed as businesses.  Their business models and cost structures are outdated.

There is nothing groundbreaking about their coverage.  And today, you can get better information from any source you want – you’re not constrained to what’s offered on your newsstand.  You’ve got an entire internet at your disposal.

Furthermore, reading devices are improving by leaps and bounds.  While a hard copy newspaper or magazine is very comfortable to read, devices like the Kindle and the iPad will eventually rival print in terms of user experience (if they don’t already).

So another trend to watch – and it’s already happening – will be for news sources to drift out towards the long tail.  The cost of production is basically zero – anyone can setup a blog, with free hosting, and pay $10 a year for a domain.  Compare that with print media, and their out of control cost structure (thanks to physical printing, and inflated margins for decades thanks to little/no competition, especially in local markets).

Long story short – you, dear reader, are on the front end of a trend that will only accelerate – to the benefit of small publishers, bloggers, and readers – and to the detriment of traditional publishers.  Creative destruction at its best.  Kudos to you – and thank you as always for reading us!

More Mainstream Deflation Coverage: Toronto’s Globe and Mail on Deflation Investing (featuring us!)


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Europe and Deflation Paranoia
Are We Really Headed for Deflation?
Read more on Deflation at Wikinvest

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