We’ll be honest. This falling stock market has us licking our lips.
The S&P/ASX 200 has dropped 6.2% in two weeks.
And yesterday the index had its first 100-point fall since 3 October last year.
The ASX Emerging Companies index has done even worse. It has dropped 17.1% in seven weeks.
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In today’s Money Morning, we’ll show a chart that could give you a sneak peek into the future.
When we showed it to our old pal, Sound Money. Sound Investments editor, Greg Canavan, he said, ‘That’s what outright deflation looks like. Savers’ purchasing power grows in terms of financial assets.’
In other words, the value of money rises as asset prices fall.
That’s deflation: The friend of prudent savers. The foe of over-leveraged borrowers…and banks.
In short, when deflation hits, make sure you’re a saver, not an over-leveraged borrower.
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Sometime in the next few weeks we’re going to find out if Greece can afford to stay in the euro. We’re also going to find out if Spain and Italy can afford to leave the euro. Access to credit markets is the key issue. The stigma of default will lock a country out of capital markets. If you don’t have a plan to replace your currency and then devalue it, you’re doomed.
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| All Ordinaries | 4206.100 | ||
| S&p/asx 200 | 4156.600 | ||
| Nzx 50 Index Gros | 3521.511 | ||
| Indu | 0.00 | ||
| NASDAQ | 2874.04 | ||
| S&P 500 | 1324.80 | ||
| Ftse 100 | 5405.25 |