Reply #10: Sorry you claims are false. [View All]

In deflation assets & prices decline.

Rent:
Say you buy a house today for $200,000 and you rent it for $1,200 a month. 5 years of deflation the house (or similar property) is worth $120,000. Now you claim rent will stay high because people need somewhere to live. That is a strawman. Of course people need somewhere to live but you ignore two factors trading down and new landlords. Some people will trade down. Wages will crash in a deflationary cycle so people will have no choice. They simply will trade down or they will get evicted. Also it isn't like all property is fixed and never sold. 5 years into a deflationary cycle I could buy a house similar to yours for $120,000. I can then rent it for more profit than you are making and only charge $1,000 a month. That action on a macro-economic level will cause rental rates to decline (just like they rise in an inflationary cycle).

Dividend paying stocks:
Dividend paying stocks are only paying dividends because they have stable cashflow from sales. As deflation grips the country prices on goods & services decline. Companies will respond by cutting wages & labor, downsizing, and using cheaper materials but inevitably margins will be squeezed. Companies facing uncertainty combined with falling margins will cut dividends. Falling dividends will put downward pressure on stock prices (which are priced at a multiple of earnings & yield both of which are declining).

There is no historical evidence that either rents or dividends remain stable in deflationary environment.

Bonds are a fixed promise. They rate is set in advance thus it can't be changed (except by default) hence bonds will continue to pay interest and that means they remain protected in deflation. The downside is many corporate bonds will default because deflation is very hard on balance sheets of companies. The other issue is increased demand will drive yields down (bad for slow reacting investors). The exception is callable bonds. Callable bonds provide no protection because they will be called. Companies can simply re-issue debt at the new lower rates.