70883018
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The release of US retail sales data and PPI on Wednesday further indicates that the economy is cooling down, with reduced inflationary pressure. While some may see a "Goldilocks" economy, others, such as Ark Invest's Cathie Wood and Walmart CEO, are cautioning about an upcoming period of deflation.
With the potential transition from inflation to deflation impending, many are questioning whether 2024 will be the year of significant change.
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With the potential transition from inflation to deflation impending, many are questioning whether 2024 will be the year of significant change.
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70883018 103902745 : Hint: In deflation, assets decrease in price.aybe $100 today will be as valuable as $90 in a year, maybe not. Whats a thing you can buy for $100 today and have someone promise to pay you $100 or more in a year?
70883018 103902745 : I don't think that banks really hold that much cash, but I like the way you think. Banks pretend to hold cash, but lend it to people on the promise that they'll be paid back the cash plus MORE cash in the future. That seems pretty powerful during deflation (the same way that financing everything during inflation can be profitable).
One risk for bank stocks is that deflation can depress the economy, leading to job instability and increased loan defaults. Also see "credit default swaps" and look at AIG, Bear Sterns, and Lehman circa 2008. If you are going to invest in banks, make sure you can read their balance sheets.