A.GARY SHILLING – DEFLACTION

Since October 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 800-381-0266 The financial crisis in that part of the world is similar to the 1973 oil embargo in that it focuses and enhances the many forces already at work. For the last two decades, governments, corporations, and new technologies have promoted actions that will push prices down.

In his new book, Deflation, A. Gary Shilling points out the deflationary forces at work in the world, analyzes the impact of the Asian financial crisis, and predicts the kind of deflation that will likely result.

Governments have done their part by cutting spending. The US defense spending fell from 7.4% of GDP in the third quarter of 1986 to 4% in the first quarter of 1998. The unemployment rate for Continental governments is double-digit and they have a deficit of no more than 3% of GDP. Decreased prices are a result of deregulation among utilities and services. In the US, Citizens for a Sound Economy, a Republican think-tank, predicts that deregulation of the electricity market would lead to a drop in consumers’ electricity bills.

Central banks are fighting inflation with higher interest rates. The restructuring that started in the US and UK in the 1980s has spread to other English-speaking lands. Credit card processing and computer programming are some of the cheaper services provided by global outsourcing. Deflation is written all over computer and information technology. Hardware and software are prone to price cuts, and users buy the stuff to reduce their own costs.

Newly industrialized countries as well as countries recently freed from Communism are becoming major players in the export market. There is a global oversupply of products and no one to buy them. The US can only buy so much because Southeast Asia’s consumers are not much of a market. The countries that want to use exports to improve their economies are more likely to devalue their currencies. The dollar is appreciated by Washington and it is deflationary to the US. The drum-tight US labor market leads to rising labor costs as global surplus and weak US exports meet them. If a profit squeeze kills overpriced US stocks, what happens to individual investors who rely on their equity portfolios as their savings accounts suffer big losses?

People retrench. In a classic move that makes deflation a self-feeding phenomenon, they wait for prices to go even lower before spending a dime.

If the Asian crisis does not affect the US, the Federal Reserve will probably tighten credit and cause a bear market in US stocks. The effect on consumer behavior would be the same, and the result would be deflation.

We think of the 1930s when we think of deflation. Its images of soup lines and shanty towns are so vivid that any other idea of deflation pales by comparison. There was no deflation after the Civil War. The oversupply of the late 19th century is more likely to be the cause of deflation than the unemployment of the Depression.

Deflation will affect you in the final chapters. Is it better to keep your stock investments or switch to bonds? Will your company need to be restructured again? What should you do with your inventories? Are you personally saving enough? In the deflationary years ahead, Dr. Shilling gives you 13 investment strategies, 18 business strategies, and five personal strategies.

Be prepared. In the future, we may conclude that Asia triggered global deflation in the summer of 1997.

Get A. Gary Shilling.

A.Gary Shilling is a member of the Deflaction group.