Deflation (unexpected) is a bitch

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Watch out these days when entering any long positions; as Cathy Woods and Elon so aptly tweeted a number of times DEFLATION is the most likely scenario in the coming months! WHY? 👇

all leading indicator prices incl. PCE Deflator are dropping like rocks from post-COVID price peaks: - lumber -60% - copper -35% - oil -35% - iron ore -60% - DRAM -46% - corn -17% - Baltic freight rates -79% - gold -17% - silver -39% - used cars prices -50% (YoY) 👇

Unexpected (by FED, Gov and Industry) DEFLATION is a bitch because it increases the real value of debt. not only yours or mine but whole nations' debts too. Proper wiki explanation of Deflation: en.wikipedia.org/wiki/Deflation 👇

Now you know that #deflation is the opposite of #inflation. So why you don't want it? 1/ Deflation brings a continuous fall in the general level of prices and it can encourage households to postpone their purchasing decisions as they wait for further price declines 👇

2/ Consequences of such "postpone" can be devastating as overall consumption slumps. Then, companies that can no longer sell their products reduce production and investment. 👇

3/ Deflation can cause borrowers' financial situation to deteriorate. That's because the real, or inflation-adjusted, cost of debt increases because loan repayments generally aren't indexed to inflation. That's it. Nothing nice coming out of unexpected deflation. 👇

4/ Technology progress typically brings deflationary pressure to prices (but that's an expected situation, not a shock) Stay safe 👇