Deflationary Indicators

La-Z-Boys earningsThose that have been keeping up with this site knows that I am a big believer in a deflationary movement hitting our economy. I know that it seems with all of the recent trillions that have been spent, that inflation should be the worry, which it is, but, in my opinion, not at the current moment. Recently, we have seen a rather large bubble in commodities and energy as well as losses in the dollar, however, I do believe here in the short term, we are going to see the dollar gain value again, as well as declining commodity prices, due to deflation.

Tomorrow's PPI report will be a strong measure of where we are heading, especially in regards to deflation. Last month, we did see minor improvements in the CPI and PPI readings, however, that is expected due to the massive amounts of bailouts that were issued. Also, Spring usually brings about inflated prices, as it is a higher spending season. When we look back at prior deflationary recessions, there are times when CPI and PPI do bounce back periodically, but the overall trend remains downward pointing. So I will not necessarily be looking at its move from month to month, but much more on its move from year over year.

If indeed we start to see some strong deflationary signals, that could easily open the doors for a capitulation in the markets, which would spawn a violent spur of selling. I still expect to see capitulation and feel that our recent lows were not the critical mass for this recession. So many reliable macro moving charts are just beginning to show a strong downward trend, so this recession could last much longer than many of these optimistic economist think.

crash market stocks podcastA few months ago, I discussed the worries I had for credit card companies, due to continuing large amounts of job losses we were experiencing, as well as the bite getting taken out of consumer's income from increasing energy and commodity prices. Reports showed record high defaults for credit card companies in May, which is usually considered as a forward looking indicator for the economy. Some are saying the big increases are largely due to the recent tax season, which cut into many consumer's savings. Whatever the reason, a 2-5% increase in credit card defaults from just one month prior is definitely something to be worried about. I continue to be bearish on the credit card companies and feel that as jobs continue to get cut, credit losses will build up.

Finally, I can enjoy a rather rewarding day for the shorts that I do have. My SDS performed well, as did the options that I continue to hold (SRS Call, FAS Put, Pru Put). Considering that many of the options I still hold do not expire until Sep-Nov, they have not suffered too strong of losses. Plus, if VIX levels continue to rise, options should enjoy a nice premium like what we saw back in November.

Tomorrow, I will look to see the sustainability of today's sell off and whether or not it has some wind behind it. There are many saying that bulls are waiting for a pullback to push more funds into, however, I'm not so sure.

La-Z-Boy announced higher than expected profits, which sent the stock soaring after hours. I know several owners of La-Z-Boy buildings, in which they have received requests anywhere from 10-30% decrease in their rent. Due to desperate times for many landlords, they are approving such requests. So, I don't know how much increasing sales is affecting their bottom line or if it is just cutting their costs. At any rate, I'm pretty sure they're not soaring through this economic downturn. This is something we're seeing for many retailers across the country, which in turn has helped their bottom lines in recent months. However, the numbers still look dismal.

I came across a new online broker for stock trading that looks to have some pretty competitive trading rates as well as pretty good analysis tools. I always on the hunt for good firms, as I like to spread my accounts around. Firstrade is a brokerage firm, specializing in the online trading of mutual funds, stocks, etf accounts, etc. They look to be committed to their clients and seem to have a pretty solid customer service department. I will keep you posted on my experience with them.

I have some more data to report, that I will be doing on tonight's premium podcast (subscribe here). As we head deeper into summer months, it is looking that the market is going to make a strong move. Happy Trading.


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