Slightly higher Initial Jobless Claims, lower Wholesale Inventories and lower Wholesale Sales pointing to stagflation slowly changing to deflation – how will markets react
Alan Hershey
Feb. 8, 2007

The data is showing very little effect on unemployment as of now but, the underlying fundamentals are weakening very sharply.

Slightly higher Initial Jobless Claims lower Wholesale Inventories and lower Wholesale Sales pointing to stagflation slowly changing to deflation. In 1920’s first stagflation took control over the economy. During the years of stagflation, businesses were buying each other up to boost their sales. The speculative mania reached new highs in most of the asset classes. As stagflation changed to deflation, the Employment and Wholesale Inventories showed no significant changes. People were complacent till the day of the stock market crash.

Soon after January 1930, things changes abruptly. The deflation accelerated in every sector of the economy. The unemployment rose sharply. The stock market had a steady drop for many years with sporadic but fierce rallies (called bear rallies).

The data today confirms such scenario. There is one little difference. In 1929 the budget deficit was not this high. This time the budget deficit will be the killer.

The stock market actually will act positive if history is any guide to the future. Initially inflation shows itself as mild disinflation. Stock market rallies with mild disinflation till the companies realize they have revenue shortages and lack of pricing power.

Slightly higher Initial Jobless Claims, lower Wholesale Inventories and lower Wholesale Sales pointing to stagflation slowly changing to deflation – how will markets react
Alan Hershey
. The speculative mania reached new highs in most of the asset classes. As stagflation changed to deflation, the Employment and Wholesale Inventories showed no significant changes. People were complacent till the day of the stock market crash.
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