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Monday, April 14, 2014

Deflation: Is it a "Bad" Thing?

Many mainstream Economists state that deflation is a bad thing, and deflation should be avoided at all costs. This also includes economists from the Chicago School(Milton Friedman for example) and even Keynesian Economists(Paul Krugman) They believe that it should be avoided to the extent of printing more money and expanding the money supply. However, the writer of this article takes a different position.

Here is a quote from the article:

"But we know from experience that, even in the face of falling prices, individuals and businesses will still, at some point, purchase the good or service in question. Consumption cannot be forever forgone. We see this every day in the computer/electronics industry: the value of using an iPhone over the next six months is worth more than the savings in delaying its purchase."

If people choose to save versus consume, is that really a "bad" thing? As the quote states, consumption will occur, as savings is simply deferring consumption into the future.

Feel free to read the article here.

Getting Dazzled by Glitter

Here is an excellent write up on how investors can get fooled by following the "hot" stocks.

Key excerpts:

"A stock that doubles and then loses just 50% is right back where it started. No fewer than 18 highfliers have lost at least 50% from their peak so far this year,"

"For many people, the sight of stocks doubling and tripling or more in a matter of weeks is too great to resist. But in order for a stock to possess “momentum,” as defined by academic researchers and leading investment firms, it needs to have been going up faster than average over the past two to 12 months or so. If it has been on fire for just a few days or weeks, there’s no reason to believe its hot returns will persist, experts say."

Check out more from this article here:

Sunday, April 6, 2014

Quote of the Day:Price Stability

This quote speaks to the notion of stability. Politicians seek to make the economy stable or the Federal Reserve seeks to "stabilize" prices. This objective, prima facie, sounds plausible. However, it really is not as Ludwig Von Mises states here from his epic work, "Human Action" pg 224:

"Human action originates change. As far as there is human action there is no stability, but ceaseless alteration. The historical process is a sequence of changes. It is beyond the power of man to stop it and to bring about an age of stability in which all history comes to a standstill. It is man's nature to strive after improvement, to beget new ideas, and to rearrange the conditions of his life according to his ideas."