Good can come from deflation, says American financial analyst

“There is an important distinction between good deflation caused by excess supply and bad deflation created by deficient demand. Good deflation is the result of new technologies that power productivity and output as the economy grows rapidly and as supply outpaces demand. The bad kind stems from financial crises and deep recessions, which increase unemployment and depress demand below the level of supply,” A. Gary Shilling wrote in a article yesterday. Shilling continued, “The Industrial Revolution began in the late 1700s. But in the U.S. it didn’t achieve sufficient scope to drive the economy until after the Civil War. Value added in manufacturing and mining leaped. As bottle machines replaced glass blowers, the price of a dozen goblets dropped to just 40 cents in 1888, from $3.50 in 1864. At the same time, railroads connected the nation, enhancing productivity and supply. Real gross national product grew 4.5 percent each year from 1870 to 1898, an unrivaled rate for a period that long, and consumption per consumer jumped 2.3 percent a year. Good deflation reigned, with wholesale prices dropping 34 percent, a 1.7 percent annual rate of decline, and consumer prices falling 47 percent, or 2.5 percent annually. Good deflation also prevailed in the 1920s, when the new technologies were electrification of factories and homes and mass-produced automobiles. Electrification contributed to the development of other goods, such as household appliances and radio. Industrial production almost doubled in the 1920s, but prices fell as supply outran robust demand.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

Canada’s finance minister ushers in austerity budget

“Finance Minister Jim Flaherty intends to freeze or cut spending on programs, defer capital expenditures and eliminate some corporate-tax exemptions to help close the gap on a $2.1-billion shortfall in revenues for 2013, The Globe and Mail has learned,” John Ibbitson wrote for The Globe and Mail today. Ibbitson continued, “The new tax revenues and spending cuts are a fraction of a discretionary spending envelope that was more than $110-billion last year. But they reflect a revision downward of the Harper government’s economic growth forecast for the year ahead, to 1.6 per cent from an earlier estimate of 2 per cent. How the government plans to absorb the latest cuts while protecting spending priorities and eliminating the deficit by 2015 will be revealed Thursday, when Mr. Flaherty brings down this year’s budget. Long-term spending plans remain unaffected, with a reviving U.S. economy improving the fiscal outlook for the last half of the decade, according to several senior government officials who are not authorized to speak publicly. In an effort to focus attention on the most positive aspects of what is essentially an austerity budget, officials emphasized that the shortfall will not affect its major theme: spurring job creation while adjusting programs in order to better match workers to positions employers are trying to fill.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS  

Speculation rife as cardinals sit in conclave

“Cardinals heard a final appeal for unity Tuesday before sequestering themselves in the Sistine Chapel for the conclave to elect the next pope, as they celebrated Mass amid divisions and uncertainty over who will lead the 1.2 billion-strong Catholic Church and tend to its many problems,” Nicole Winfield wrote for the Associated Press, an article republished by the National Post today. Winfield continued, “A Gregorian chant wafting through St. Peter’s Basilica, the 115 cardinal electors filed in wearing bright red vestments, many looking grim as if the burden of the imminent vote was weighing on them. A few hundred people braved thunderstorms and pouring rain to watch the Mass on giant TV screens in St. Peter’s Square. In his homily, Cardinal Angelo Sodano, dean of the College of Cardinals, called for unity within the church, a not-so-veiled appeal to the cardinal electors to put their differences aside for the good of the church and the next pope. ‘Each of us is therefore called to cooperate with the Successor of Peter, the visible foundation of such an ecclesial unity,’ Sodano said. He was interrupted by applause from the pews – not so much from the cardinals – when he referred to the ‘beloved and venerated’ Benedict XVI and his ‘brilliant’ pontificate. Benedict’s surprise resignation – the first in 600 years by a pope – has thrown the church into turmoil and exposed the deep divisions among cardinals who are grappling with whether they need a manager who can clean up the Vatican’s dysfunctional bureaucracy or a pastor who can inspire Catholics at a time of waning faith. ‘Let us pray for the cardinals who are to elect the Roman pontiff,’ read one of the offertory prayers during the Mass. ‘May the Lord fill them with his Holy Spirit with understanding and good counsel, wisdom and discernment.’ Read the full article here.

Goldman Sachs chairman concerned stock market is getting expensive

“U.S. economic data has been improving notably. And the U.S. stock market is near its all time high. However, Goldman economist Jim O’Neill is getting increasingly concerned that the stock market is getting expensive,” Sam Ro wrote in a Financial Post article today. Ro continued, “In the near-term, he thinks momentum could drive stocks higher. But we warns that valuations are getting rich.” The Financial Post business insider later quoting O’Neill’s latest public ‘Viewpoints’ Goldman Sachs Asset Management news letter which stated, “The strength of last week’s US data is leading the consensus to revise upwards their forecasts for 2013 real GDP. Having been notably higher than the consensus since autumn 2012, GSAM is rather pleased about that as a number of investment strategies have prospered from it. Of course, and as I discussed last week and in recent Viewpoints, this is despite the ongoing and sometimes unchosen fiscal tightening in the US, and is a marked contrast to Europe. Not surprisingly, all of the US bond, equity and currency markets are reacting accordingly. I am not that confident about what happens next and as to whether all these trends are going to continue, not least because May is now less than two months away and the infamous ‘Sell in May and go away, come back on St Leger’s Day’ (which I am physically actually going to be doing post retirement, of course!). US equities seem set to strengthen further in the near term, given the momentum in the data, but as page 47 shows, they are hardly bargain basement these days from a CAPE perspective.” The Financial Post article can be found here. | Raymond Matt, CFP, CLU, TEP, CHS

New Suspect in Russian Ballet Acid Attack

“A Bolshoi Ballet soloist has been detained by police, suspected of ordering an acid attack on the company’s artistic director,” a BBC World News online article posted today said. The article continued, “Dancer Pavel Dmitrichenko is being held along with Yuri Zarutsky, who is suspected of carrying out the attack, Russia’s interior ministry says. Sergei Filin’s eyesight was badly damaged when a masked attacker threw sulphuric acid in his face in January. A third person, suspected of being the attacker’s driver, is also being held… …A spokeswoman for the Bolshoi Theatre, speaking before Mr Dmitrichenko was detained, said the company was hopeful that the crime would be solved. Katerina Novikova said she did not know of any dispute between the dancer and Mr Filin, Reuters reports. The mid-January attack shocked the arts world. It came after a period of infighting at the Bolshoi, one of Russia’s most prestigious ballet companies.”

Read the full article here.

Obama calls Republicans to ‘prevent a government shutdown’

“Tension over the fiscal crisis eased on Monday as President Barack Obama called more opposition lawmakers to find a way to stop $85 billion in damaging budget cuts and congressional Republicans announced a plan to prevent a government shutdown,” David Lawder and Richard Cowan wrote in a Reuters online article yesterday.

Lawder and Cowan continued, “Eager to resolve fiscal fights overshadowing his second term, the Democratic president called Maine Republican Senator Susan Collins and Oklahoma Republican Senator Tom Coburn after speaking to other Republican senators over the weekend. An aide to Collins, a moderate, told Reuters that the pair discussed the need for a bipartisan agreement on critical issues such as reining in the $16.7 trillion federal debt and dealing with the cuts, also known as sequestration. In telephone calls over the weekend, Obama raised the issue of cutting entitlement programs, which include Medicare, the healthcare program for the elderly and disabled, and Social Security retirement benefits. ‘I will continue to seek out partners on the other side of the aisle so that we can create the kind of balanced approach of spending cuts, revenues, entitlement reform that everybody knows is the right way to do things,’ he said at the start of a Cabinet meeting on Monday.” Read the full article here.

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