"Glinda the Good" Deflation Isn't Looking So... Good

By Elliott Wave International

When 2015 began, the mainstream financial experts were certain of one thing: Even if the United States economy were sliding into deflation (which, they said, was open to discussion) that particular kind of Glinda the Good deflation, characterized by plunging energy and food prices, was going to be a boon for consumer spending:

"Good deflation a tax cut for working families," affirmed a February 2 Huffington Post. "Cheaper gas means more flying, more driving, more hotel occupancy, more use of restaurants and leisure facilities. In short, deflation driven by the rapid decline in oil prices is good news for America."

So, what's happened since?

Well, according to an April 16 article in the Chicago Tribune, the sharpest annual decline in oil prices since 2008 somehow translated into not more, but less non-essential consumer spending. In March, U.S. retail sales clocked their third straight monthly decline -- which doesn't make sense, said the Tribune:

"This is puzzling. Why would consumers spend less when the economy picks up steam, and why haven't consumers gone shopping with the 1% extra income that collapsing oil prices have handed them?"

The piece then offers a few possible reasons -- such as cold weather, stagnant wages, business cuts, and so on. But none of them feel adequate, leading back to the initial shock:

"Consumers have defied expectations. Investors who anticipated purchasing-power gains would lead to greater consumer spending must be sadly disappointed."

We absolutely agree. Consumers have defied expectations -- those of the mainstream experts, that is. But they have completely complied with our long-standing expectations of a shift toward thrift, as laid out in chapter 9 of Bob Prechter's business best-seller Conquer the Crash.

There, Prechter explained how, in times of deflation, the trend toward non-spending is not a rational decision; it's an emotional one:

"The psychological aspect of deflation cannot be overstated. When the social mood trend changes from optimism to pessimism... consumers change their primary orientation from expansion to conservation. As consumers become more conservative, they save more and spend less. These behaviors reduce the 'velocity' of money, i.e. the speed with which it circulates to make purchases, thus putting downside pressure on prices."

Then, in November 2014 Elliott Wave Financial Forecast, we showed definitive proof that deflation -- not the "good" kind -- was set to arrive in the United States:

In other words, the conservatism called for in Conquer the Crash arrived in 2006-2008, and it continues to restrain consumers and corporations.

For years now, the Fed along with most economists have anticipated the imminent return of inflation, but it continues stubbornly subdued. This long-term chart of the CPI shows a succession of lower highs since the early 1980s, as inflation turned into disinflation, which is on the cusp of leading to outright deflation. Some argue that the CPI is rigged to show milder levels of inflation, but the bottom graph shows the same steady move toward the zero line in the Personal Consumption Expenditures Index, an alternate inflation measure favored by the U.S. Fed.

As it approaches, deflation will introduce itself to people in subtle and not-so-subtle ways.

The first way was consumer spending. Now, our brand-new May 2015 Elliott Wave Financial Forecast shows you an equally compelling chart of U.S. consumer credit since 1980 that confirms: deflation is now "playing catch up" to debt.

What You Need to Know About Deflation

What You Need to Know NOW About Protecting Yourself From Deflation

Get this free report about the unexpected but imminent and grave risk to your portfolio. You can read this special 10-page report -- with highlights from Robert Prechter's New York Times bestseller Conquer the Crash -- You Can Survive and Prosper in a Deflationary Depression. You'll get 29 specific forecasts for stocks, real estate, gold, cultural trends and more.

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This article was syndicated by Elliott Wave International and was originally published under the headline "Glinda the Good" Deflation Isn't Looking So... Good. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

10 thoughts on “"Glinda the Good" Deflation Isn't Looking So... Good

  1. People are not upbeat at all. Look at the policies out of coming out of Washington! Over regulation taxes, Obama care, EPA and the politicians can't agree on how to run the country. ( They are not doing there jobs!) Every person should be vary concerned the we have a 18.1 trillion debt to pay and if interest rates go up that will increase the debt even faster. I spent time in China over a period of 5 years. They are beg borrow and steal our technology. They don't care about environment or safety issues for there people either. All you have to do is venture away from business district any you see there polluted canals, garbage piled up on the side streets etc. We need some real leadership for our country before its too late.

    1. Already is too late. Has been for some time. For there is no way $20 trillion in debt can ever be paid off, not counting unfunded liabilities. Our kids and grandkids won't have to worry about being saddled with it, as they won't be able to pay it off either and at some point it will be the undoing of western nations. At some point they will have decided that yes, property and improvements are equal to $500 trillion in the nation as equity, but nothing is being generated from it.

  2. I guess all the "experts" forget that we have more people out of work than ever before. The claimed unemployment rate of around 5.5% is totally bogus. Not counting people who have given up looking for a job is not an accurate way to calculate the unemployment rate. It is very likely in the ~20% range, if not higher. With that many people out of work (i.e. not much disposable income), these so called "experts" are now surprised that people aren't spending like there's no tomorrow? LOL. This is what an ivy league college education (brainwashing) will get you nowadays. All the hype about the supposed "recovery" in the economy is just that...hype...not the truth. The vast majority of people are hurting, more people on food stamps than ever before, etc. There simply isn't enough buying power left in the economy to "spend our way out" of this mess.

    1. D2,
      You summed up the situation perfectly in my mind. We have a liberal press and media and they will do nothing. Lead story on NBC last night was Tom Brady and soft footballs. 13 minutes into the broadcast NBC reports the story that the King of Saudi Arabia was boycotting the meeting that was arranged by the White House.

      What's more important Tom Brady or Iraq getting a nuclear bomb?


      1. Iraq is not getting a nuclear bomb, neither is Iran at least not yet. North Korea and Pakistan do have them however, and are far worse problems as a result. Made so by BOTH the left and right.

  3. Just look up the name "Prechter" and when you are done wondering if his dow to 1,000 call is still on the table from the 90's (the answer is yes) and when you are done uncontrollably laughing then followed by sitting in stunned silence when presented a view of his track record, you will realize that you know all you need to know about "Elliott" and how it has been pushed into prominence by Prechter. At the expense of actual legitimate other analysis.

    1. Thank A Veteran,

      I think it is worth noting that R.N. Elliott who discovered the Wave Theory and who the theory is named after died practically broke.

      The problem most people have with the Elliott Wave Theory is the count. This can be really difficult with extensions on extensions, plus ABC counts and so on and so forth. In other words it is more of an art than a science.

      Thank you for your input into the blog much appreciated.


  4. Yes, globalization started off with a bang as Congress told us they were subsidizing offshoring of US jobs b/c we just didn't want or need them any more. The income losses were replaced with debt growth as a result of "financial engineering" so now that bubble has popped they claim to not understand what happened.

    They must think we're stupid, they sure act that way.

  5. Besides Obama-care, there is the problem of Demographics.
    There is starting to be more older people than younger people, Older people do not spend as much as they have all their capital expenditures behind them. The younger people do not have jobs with salaries that keep up with inflation. And there are more low wage , part time jobs than high wage full time jobs.

    It is people less than forty that do the most spending and borrowing. They are tapped out credit wise, and can't spend like the baby boomers did.

  6. this is what I call the obamacare recession. cheaper gas is insignificant here. if I am forced to spend money on an ACA policy, that is less money I have available to spend on a car repair, or a home improvement, or tuition for my kid. the ACA takes money out of my monthly budget and forces me to spend it on something I don't need and don't want. this reduces all my other spending.
    this gives bigger bonuses to healthcare CEOs at the expense of everyone else.

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