Dear Friends and Family,

DEFLATION is a decrease in the general price level of goods and services. Sorry this is not about football. Deflations, defeat, default, are all “de” words and all with negative connotations.

Are lower prices negative? 99% of Americans would love lower prices. The other 1% calls themselves economists or politicians. Humans are blessed with intelligence, inventiveness, and an entrepreneurial spirit, all of which combine to give us an inalienable right to better products at lower prices. So where did falling prices get such a bad name? The Great Depression.
There were multiple private enterprise and government actions and weather factors that combined to create the Great Depression.

Prominently were stock market and bank customs, drought, regulations, trade wars and tax increases, accounting rules, central bankers’ missteps, and the failure of the small Bank of the United States. (The bank served New York’s garment industry). John Maynard Keynes suggested that deflation was the major cause of the depression. Keynes postulated that this deflation was caused by individuals who saw declining prices and therefore postponed purchases in expectations of even lower prices.

This explanation hit a chord with economists and politicians. The theory shifted the blame away from governments and the finance industry and onto the public. Keynes suggested that the solution to deflation was more government spending supported by increased debt and fiat money. (Money not backed by any assets). Both the finance industry and the governments found Keynes’ theory very attractive.

It did not matter that evidence to support this theory was weak. Before the Depression businesses were producing better products and services at lower prices each year and sales were expanding. This continues to date. Think computers or Costco or Turbo Tax. Also, the greatest growth in the United States occurred in a deflationary period. Perhaps the depression was caused by some of the other factors listed above.

Investment conclusion: Every time you hear the word deflation, think “Inflation is coming! Inflation is coming!” Sell fixed income, Buy assets that will benefit from inflation. Our suggestion is fast growing quality companies at great prices.

Sincerely,

Katz Family Financial

In the case of a discrepancy between Fidelity Investments monthly statements and Katz Family Financial monthly portfolio statements, Fidelity Investment statements should be deemed as the correct and accurate reporting source.