In Investopedia reflation is a fiscal or monetary policy, designed to
expand a country's output and curb the effects of deflation
Reflation
policies can include reducing
taxes, changing the money supply and lowering interest rates. The term "reflation"
is also used to describe the first phase of economic recovery after a period of
contraction …
Contraction is defined as decline in national
output as measured by gross domestic product. That includes drop in real
personal income, industrial production and retail sales. “Towards the
middle of a contraction, they start laying off workers, sending unemployment
rates higher. It's one of the four phases of the business
cycle, also known as the boom
and bust cycle.
[[ contraction is also used as synonymous of crash or beginning
of recession. Kimberly suggest: “A contraction is caused by a loss in
confidence that slows demand. It's usually triggered by an event,
like a stock market correction or crash”. The true
cause of contraction is preceded by “an increase in interest rates that
decreases the capital.”
]] (Open:
What Is an Economic Contraction with Examples By Kimberly
Amadeo: https://www.thebalance.com/economic-contraction-4067683)
See also “11 Causes of Economic Recession “ Here
only extracts
This is the dynamic contraction-crash
and the causes of recession.
“Economic recessions
are caused by a loss of business and/or loss of consumer
confidence. As confidence recedes, so does demand. This is the tipping point in the business
cycle where the peak, often accompanied by irrational
exuberance, moves into contraction.
“This loss of
confidence makes businesses and/or consumers stop buying and move into
defensive mode. Once a critical mass moves toward the exit sign, panic sets in
and creates a destructive downward.
“In short
order, you get mass layoffs and rising
unemployment, which create a slowdown in retail
sales. Manufacturers cut back in reaction to falling orders, further
increasing layoffs. To restore confidence, the Federal government, and the
central
bank must usually step in.
“Please note: a
decline in GDP
growth is a sign that a recession may be underway, but it is
rarely a cause. That's because GDP is only reported on after the quarter is
over. By the time GDP has turned negative, the recession may already be
underway.
What you want to do is identify
the causes, and signs, before the recession occurs. Here are the seven
most important causes of recession:
1.
High-interest
rates. When rates rise, they limit liquidity,
or the amount of money available to invest.
2.
A stock
market crash. The sudden loss of confidence in investing can create a
subsequent bear
market, draining capital out of businesses. Here's how a
stock market crash can cause a recession.
3.
Falling
housing prices and sales. As homeowners lose equity, it forces a cutback in
spending as they can no longer take out second mortgages. Over time, it
will cause foreclosures.
4.
A
slowdown in manufacturing orders. Orders
for durable
goods started falling in October 2006, before the 2008 recession
actually hit.
5.
Massive
swindles. The 1990 recession was caused by the Savings
and Loans Crisis. More than 1,000 banks (total assets of $500 billion)
failed as a result of land flips, questionable loans, and illegal
activities.
6.
Deregulation.
The seeds of the S&L crisis were planted in 1982 when the Garn-St.
Germain Depository Institutions Act was passed. This removed restrictions
on loan-to-value
ratios for these banks.
7.
Wage-price
controls. Fortunately, this only happened once, when President
Nixon kept prices too high, cutting demand. Employers laid off workers
because they weren't allowed to lower wages.
8.
Slow down
after a war. This caused both the 1953 recession, following the Korean War, and
the 1945 recession, following World War II.
9.
Credit
crunch. This occurred when Bear
Stearns announced losses thanks to the collapse of two hedge funds
it owned. The funds were heavily invested in collateralized
debt obligations. When Moody's downgraded its debt it, banks who
were in a similar over-invested condition panicked. They stopped lending to
each other, creating a massive credit crunch.
10.
Asset
bubbles: This is when the prices of internet companies, stocks or houses
become inflated beyond their sustainable value. The bubble itself sets the
stage for a recession to occur when it bursts.
11.
Deflation,
which encourages people to wait until prices are lower. This aggravated the Great
Depression.
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Read also: What
Causes the Boom and Bust Cycle? At: Causes of the Business Cycle 3 Ways Monetary and Fiscal Policy Change It https://www.thebalance.com/causes-of-the-business-cycle-3305804
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What is a Bull and a Bear Market? http://content.moneyinstructor.com/693/what-bull-bear-market.html
A Bull Market
This is when the market is showing confidence. Indicators of confidence are prices going up, market indices like the NASDAQ go up too. Number of shares traded is also high and even the number of companies entering the stock market show that the market is confident.
This is when the market is showing confidence. Indicators of confidence are prices going up, market indices like the NASDAQ go up too. Number of shares traded is also high and even the number of companies entering the stock market show that the market is confident.
Technically though a
bull market is a rise in value of the market of at least 20%. The huge rise of
the Dow and NASDAQ during the tech boom is a good example of a bull market.
A Bear Market
A bear market is the opposite to a bull. If the markets fall by more than 20% then we have entered a bear market. A bear market is a market showing a lack of confidence. Prices hover at the same price then go down, indices fall too and volumes are stagnant. In a bear market people are waiting for the bulls to start driving the prices up again. However, a bear is a very tentative bull or a bull that is asleep.
A bear market is the opposite to a bull. If the markets fall by more than 20% then we have entered a bear market. A bear market is a market showing a lack of confidence. Prices hover at the same price then go down, indices fall too and volumes are stagnant. In a bear market people are waiting for the bulls to start driving the prices up again. However, a bear is a very tentative bull or a bull that is asleep.
Market Timing
Some people believe that by recognizing the different kinds of markets you can make money on stock trading and investing. The basic idea behind buying stocks is to buy low and sell high. This will give you a profit. So to make money you buy stocks in a bear market when stock prices are low and sell stocks in a bull market when stock prices are high. However, knowing when is the best time to buy and sell is not that simple.
Unfortunately, most investors are often too emotional and they
sell in a bear market because they are scared to lose money and they buy in a
bull market because they don’t want to miss the big gains. You can make some
money that way but it also explains why many
investors lose money by trying to time the market. The safest
way to help prevent yourself from making these mistakes is to buy stocks
and invest in the market by regularly making fixed size investments, and
holding your investments for a long period of time.
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More bibliog on this topic:
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Market
trend - Wikipedia A secular market trend is a long-term
trend that lasts 5 to 25 years and consists of a series of primary trends. A
secular bear market consists of smaller bull markets and larger
bear markets; a secular bull market consists of larger bull
markets and smaller bear markets.
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What
is “Bearish” and “Bullish”? | NinjaTrader
After entering a bearish
position in the market, you're what is called "short". ...
After entering a bullish position in the market, naturally, you
are what is called "long".
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WARS AND MARKETS
www.latimes.com/business/la-fi-trump-market-20170115-story.html
Jan 15, 2017 - The
longevity of the current bull, and stocks' high prices relative to
company ... and spending policies trigger unexpected or dangerous consequences,
stocks could react violently. A new bear market — meaning a drop of 20%
or more in the Dow ... The result could be “a trade war that would
plunge the U.S. ...
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March 24, 2016 by: John
Authers
Have equity markets
escaped the bears yet again?
Global stocks started 2016 with a swift fall of more than 10 per cent — the worst start to a calendar year in history — but have regained all of it.... The effect of the stronger dollar on overseas earnings would be a very big deal, ... On each of the eight occasions since the second world war when joblessness has ...
Global stocks started 2016 with a swift fall of more than 10 per cent — the worst start to a calendar year in history — but have regained all of it.... The effect of the stronger dollar on overseas earnings would be a very big deal, ... On each of the eight occasions since the second world war when joblessness has ...
…
In the shorter term, debate hinges on the economy. As long as there is no clear evidence of an imminent recession in the US, it is harder for stock markets to turn decisively down. James Breech, head of Cougar Global Investments, says: “Bull markets don’t die of old age. It’s always recessions that kill bull markets. And we have zero per cent chance of a recession in the next 12 months.”
James Paulsen, chief
investment strategist at Wells Capital Management, says the market behaviour of
the last year can be “characterised not by a bull nor by a bear, but rather by
a bunny”. He suggests that such a market “hops about a bit but really doesn’t
go anywhere”, characteristics that often dominate the stock market during the
latter stages of recoveries. Bunny markets require nimble and opportunistic
behaviour by investors.
In the short term, traders refer to a cyclical bear market when a fall of 20 per cent from peak to trough is registered. On that basis, large US stocks, as measured by the S&P 500 index, have avoided the bear. They have never been down more than 15 per cent from their record set in May last year.
See chart Outside the US the
bears rule, at: https://www.ft.com/content/92829326-f0d6-11e5-9f20-c3a047354386
But industrial and transport stocks, and smaller US companies, all seen as leading indicators of where the rest of the market is heading, were down more than 20 per cent from their highs during the worst of the action in February.
Even if the S&P
500 did not fall by as much as 20 per cent, it may therefore make sense to call
this a cyclical bear market. Scott Minerd, head of investment, says: “You can make a good case that there was a bear market in the
first quarter — but it needs to be better defined.”
The critical variable is the US economy. John Higgins, chief market strategist at Capital Economics in London, suggests that US stocks can continue to muddle along if the country can avoid a recession. He notes the dollar has started to weaken, flattering the overseas profits of large US companies.
See chart “A good gouge of
valuations?” At https://www.ft.com/content/92829326-f0d6-11e5-9f20-c3a047354386
“To see a bear market, we have to be wrong about the US economy, and to see a stronger dollar. The effect of the stronger dollar on overseas earnings would be a very big deal, and the structural forces that pushed up the market — globalisation — could be seen to go into reverse.” Mr Higgins says the key is unemployment. On each of the eight occasions since the second world war when joblessness has dropped below the “Nairu” — the rate higher employment begins to drive accelerating inflation — the labour share of the economy began to rise at the expense of capital, squeezing profits.
The US jobless rate
is at 4.9 per cent, and a strong rise in hourly earnings for December helped
drive the early-year sell-off. It has since fallen back.
A sharp rise in
inflation would force the Federal Reserve to abandon the low interest rates
that have helped to finance the boom in stock markets, and could also push up
bond yields. Historically low rates have been critical in supporting the equity
bull market.
See chart: “Different
characteristics on Display” at https://www.ft.com/content/92829326-f0d6-11e5-9f20-c3a047354386
David Bowers, head of research at Absolute Strategy Research, agrees: “The core risks are around where unemployment is going. If the unemployment rate is going down, it’s still an environment where stocks can do well, certainly relative to expensive Treasuries.”
Outside the US,
which accounts for 43 per cent of global stock market value according to
Datastream, the story is clearer. Stocks rose to a post-crisis peak in 2011,
and have been mired in a bear market ever since.
Here, markets are following a familiar pattern seen after previous crashes that followed speculative bubbles, such as the Wall Street crash of 1929, the Japanese bubble that peaked in 1989 or the dotcom bubble that peaked in 2000. In all cases, markets shed about 60 per cent, and then moved sideways for many years before bottoming out.
See chart “US profits’ share of output looks very high” at https://www.ft.com/content/92829326-f0d6-11e5-9f20-c3a047354386
In the US, where stocks
are far above their pre-crisis highs in 2007, the question is how they managed
to avoid this pattern. Some financial historians question whether market cycles
are linked to the economy. Rather, they tend to see markets
following longer secular — not cyclical — bull and bear trends,
influenced by social mood, economic and profit cycles and, most importantly,
swings in valuation.
Russell Napier, a
stock market historian and author of Anatomy of the Bear, says both bull and
bear markets are long, drawn-out affairs. The bottom of bear markets, which see
a steady collapse in equity valuations, is only hit when all hope in equities
has been lost, and there were only four such low points throughout the 20th
century. “Very high and low valuations can’t just be attributed to the business
cycle because they are too rare,” he says.
See chart “Secular bear market
cycles” at https://www.ft.com/content/92829326-f0d6-11e5-9f20-c3a047354386
Long view
“There is some parallel between what’s happening now and 1937,” he says. “We haven’t seen America attacking business yet, like both Roosevelts did. You have to reach a change in policy — anything that reverses the changes of the Thatcher-Reagan era, and causes returns on corporate capital to decline.”
On this reading, the
populist mood in the US presidential primaries, and in various European
countries, could spark the kind of sentiment that leads to the bottom of a bear
market. Once governments start taking a more dominant role in the economy
again, he says, then “the ideologues in the market will overreact and not
notice it’s cheap enough on the way down”.
Ed Easterling, founder of Crestmont Research, agrees that the bear market that started in 2000 is still going on, and says the market grew so overextended during the dotcom bubble that it will take many years to correct.
“The bubble bear since 1999 is
different, and it’s not driven by time but by magnitude. The multiple has come down as much as it
usually falls during a secular bear, but we started higher — that’s why we
still have a lot further to fall,” he says.
Japan, where stocks are barely half their level at
the end of 1989, might be a good indicator of what to expect.
How then to explain
the rally since 2009? “That’s because the Fed has been successful, and worked
to raise the wealth effect. It’s amazing what $5tn can do. But I don’t think it’s plausible that we’re starting a
secular bull.”
To do that, Mr
Easterling says, earnings multiples need to fall so low that they can double or
triple over time — a shift that might come with inflation.
“The stock market is about fair
value now. In reality we’re
not very overvalued because rates and inflation are so low. What we could talk about is a bear in hibernation. We
would keep valuations high, but in a decade from now
we are about where we are now and our returns have been a lot below average.”
===
....
Other lexicom on
current economics:
stagflation :
a portmanteau of stagnation and inflation, is a situation in which the
inflation rate is high, the economic growth rate slows, and unemployment
remains steadily high.
===
Lets go back to REFLATION
Investopedia define Reflation
as fiscal or monetary policy, designed to expand a country's output and curb
the effects of deflation. Deflation
is a decrease in the general price? (or value) level of goods and services. Deflation
occurs when the inflation rate falls below 0% (a negative inflation rate).
This should not be confused with disinflation, a slow-down in the inflation rate
(i.e., when inflation declines to lower levels).
Vs. Wikipedia on inflation n deflation
Inflation reduces
the real value of money over time; conversely, deflation increases the
real value of money – the currency of a national or regional economy.
This allows one to buy more goods and services than before with the same amount
of money.
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