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Non-Tech : Deflation -- Ignore unavailable to you. Want to Upgrade?

To: Maurice Winn who wrote (96)	2/24/2002 12:12:28 PM
From: ild	Read Replies (2) \| Respond to of 621

I've read that disinflation (very low inflation) may pose the same risks as deflation. I like this article: zealllc.com

To: Maurice Winn who wrote (96)	2/25/2002 11:17:51 AM
From: Davy Crockett	Respond to of 621

Deflation… “A fall in the general price level or a contraction of credit and available money.” Corporate credit squeeze has been accelerating in North America & Europe. And Japan has finally admitted recently that "falling prices" are a concern. nationalpost.com ------------------------------------------------------- Japan dampens global returns Economy will stall until consumers begin spending Eric Kirzner Financial Post The Financial Post FPX Indexes are coming up on their fourth year of publication and sixth year of compilation. Relative to the April 1, 1996, base period, the FPX Income, Balanced and Growth Indexes have recorded overall gains of 64.24%, 63.53% and 62.64%, respectively. These numbers are equivalent to 8.6%, 8.5% and 8.4% respective returns when expressed on an annual compounded basis. These returns are relatively representative of what Canadian investors would have earned with these conservative, balanced and aggressive asset allocations as represented in our passive indexes. The largest contributions have come from our North American exchange-traded index funds --the Canadian i60s and the U.S. SPDRs -- and from our government bonds. The most dampening effect has come from our iShares Japan, which are indexed to the Morgan Stanley Capital International (MSCI) Japan Index. Japan represents, at book values, 6% of the FPX Balanced Index and 8% of the FPX Growth Index. In fact, since we started publishing the Indexes, our Japan investment is the only one with a negative return. Japan's market performance reflects the state of the Japanese economy. Since the economic miracle burst in 1989, Japan, the world's second-largest economy, remains mired in what is now about a 12-year recession and there are still no signs of recovery. Economic reports have consistently cited five areas of weakness, namely industrial output, corporate profitability, business sentiment, employment and housing construction. Furthermore, prices are falling in Japan, a phenomenon often associated with severe recessions. This deflation phenomenon has only recently been admitted by the Bank of Japan. The huge volume of bad debts held by Japanese banks has also been a major impediment to economic growth. The 225-share Nikkei index is the most widely followed benchmark of Tokyo market performance. The index soared in the 1980s, dramatically outpacing the Dow Jones industrial average and other major market indexes. However, the bubble burst in 1989. How bad has it been for Japanese investors? From Jan. 1, 1990, to Dec. 31, 2001, the Nikkei average dropped by more than 60% and it has fallen further this year. The index, which stood at over 40,000 in 1989, is now at 10,295. In the 12 years since the 225-share Nikkei index collapsed, the market has had seven losing years and five winning years. A buy-and-hold Japan investor would have lost capital at an annual compounded rate of 7.3% per annum. The MSCI Japan index has recorded equally dismal results. Over the past 10 years, the annual compounded loss for the index is 3.9% per annum. Japan and Austria (a loss of 0.4% a year) are the only countries in the MSCI 23-country developed markets index to have recorded losses over the 10-year period. There have been some good trading opportunities. If you jumped in at the start of 1999 you would have recorded a 43.6% return if you bought an index product. However, you had to be nimble -- the 32.7% loss in 2000 would have more than erased the 1999 gains. The two-year compounded return was 3.4%. The situation today in some ways is worse than a decade ago. Industrial production is at its lowest level in more than a decade and unemployment is at its highest level ever. This week was another bad one in Japan. The U.S.-Japan summit ended on Tuesday without any new initiatives on the Japanese economy. There is a curious seasonal pattern -- Japan monetary authorities allegedly try to prop up stocks in advance of their March 31 fiscal year-end. This so-called March Madness period was anticipated this year and stocks had rebounded by nearly 7% from an 18-year low on Feb. 6. However, Junichiro Koizumi, Japanese Prime Minister, failed to provide any indication a bank bailout was coming and stocks staged a 2.4% slide on Tuesday. Moody's Investor Services downgraded the credit ratings of Japan's two largest brokerage houses. With near-zero interest rates, there is little in the monetary policy arsenal that will really work. Some major Keynesian-style economics are probably necessary to really get the economy jump-started. The country needs real employment-creating projects, not the pork barrel spending that marked the previous so-called economic stimulus plans. The key is to get the consumer sector going. We, in North America have entered a deflationary environment in some sectors. Hopefully it will be contained or otherwise we will enter a painful deflationary cycle ie: like Japan... or worse. Regards, Peter