“It took us three years to find someone to manage our wealth, and we can now sleep at night! ”

Darren and Ruth Johnston (Semi-retired entrepreneurs) (N Wales) (2011)

But we haven't had sustained Deflation for decades!

Posted by jdavis on December 24, 2014

The Government and the Bank of England (helped by the media) keep telling us Deflation is bad for us.

Think about that.

We don't want lower business and living costs.  You really couldn't make it up.  How surreal and Orwellian.

They say we need inflation as otherwise people won't buy stuff and the economy will suffer.

And yet... has anyone ever stopped themselves buying a TV or anything electronic, like a computer or a tablet, even though they KNEW the item will be much cheaper months later?  No, noone.

Will cheaper food stop us buying groceries?

Exactly.  It's that daft and, I am afraid to say, entirely self-serving.  Governments and civil servants love inflation.  Their own pensions are entirely index-linked so they could care less if inflation was 5% or even 500%.  Inflation reduces the real value of govt debt...

The Bank of England loves inflation as it helps achieve their goals of stock markets for ever rising, the banks never failing again and people will borrow.

 

The people love deflation as our costs of living and running our small businesses fall.  And we don't have index-linked pensions.

 

The people are getting our wishes for Christmas it would seem.

CPI was just announced at just 1.0%.  Not deflation but not soaring prices either.  And the trend in prices' inflation is down.

Then you see the price of Oil since the Summer...

A huge fall of a half  and largely in one fell swoop from this Summer is NOT INFLATIONARY!

As everyone knows oil is (after labour costs) the next biggest cost of businesses.  Thus businesses have had a big cost cut.

We too have had a big cost of living cut as our fill-up cost has gone down some 15%.  (Some people ask me why only 15% when the price of oil has gone down 50%?  Tax...).

We should have a big cut in our household heating and lighting charges but I doubt we will due to the cartel that supplies us as well as all the Green energy charges Brussels has decided we should pay.

However, if businesses cut their selling prices to stay competitive then we should have a somewhat smaller grocery bill.

1% CPI was without much of the fall in oil prices.  Like 2009, it could go negative i.e. actual falls in the costs of living.  Gosh, wouldn't that be absolutely dreadful Prime Minister and Governor (of the Bank of England)?

Can oil prices go lower?  Yes.  Will they?  Who knows but we suspect we have not seen the bottom yet.

Globally, the bulk of modern economies are experiencing the same trend in very low inflation, bordering on deflation.

And this was at the end of October, prior to much of the oil price falls.

It seems to us that Deflation is something we will all get used to.  We haven't experienced it sustainably for decades. And THAT is the issue.

Everyone assumes that what has been will be always.  And THAT is what we have been trying to get people to see as nonsense for years.

THIS will impact investing, retirement planning etc.  If you are investing as you have always done, you might want to reconsider.

We have been heavily invested in US Treasuries all year (Government Bonds in the US.  The UK equivalent are Gilts).  Generally, when these fall it smacks of rising inflation and vice versa - rises smack of falling inflation.

This is what has happened in 2014:

Long term US Ts up over 20% (25% taking into account income from these) this year - from what we are aware, the 5th biggest annual gain since 1926!

Deflationary!  That's what global markets' participants are saying.  Not just us.

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