Amy,
re: "How would deflation be more worrisome than inflation for equity owners?"
You have a slowdown where less goods are being bought, companies compete for a piece of a smaller pie by lowering prices, yet they have to maintain all their fixed costs. Margins shrink, profits go down, earnings go down, stock prices go down. As stock prices go down companies can't borrow against their assets to expand, the companies do layoff's to control cost, but the folks that are laid off don't have dollars to buy goods. And a cycle developes.
That's all a worst case scenario. But if we had a whacko at the head of the FOMC, that felt that now was the time to sit back and watch, you could have that type of thing playing out. We have Mr. Greenspan, the most open minded and "liberal" Fed head we have had, at least in my memory.
Off to golf, have a good weekend.
John |
