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alstry (35.90)

Wages CRASHING!!!!!!!! Deflation is HERE!!!!!

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December 21, 2008 – Comments (4)

From the NYTimes:

Companies eager to conserve cash are trimming their contributions to their workers’ 401(k) retirement plans, putting a new strain on America’s tattered safety net at the very moment when many workers are watching their accounts plummet along with the stock market.

When the FedEx Corporation slimmed down its pension plan last year, it softened the blow by offering workers enriched 401(k) contributions to make up for the pension benefits some would lose. But last week, with Americans sending fewer parcels and FedEx’s revenue growth at a standstill, the company said it would suspend all of its contributions for at least a year.

“We will have to work more years and retire with less money,” said Lee Higham, a 44-year-old senior aircraft mechanic at FedEx, who has worked there for 20 years. “That’s what we are up against now.”

FedEx is not the only one. Eastman Kodak, Motorola, General Motors and Resorts International are among the companies that have cut matching contributions to their plans since September, when the credit markets froze and companies began looking urgently for cash. More companies are expected to suspend their matching contributions in 2009, according to Watson Wyatt, a benefits consulting firm.

For workers, the loss of a matching contribution heightens the pain of a retirement account balance shriveling away because of the plunging stocks markets.

http://www.nytimes.com/2008/12/21/your-money/401ks-and-similar-plans/21retire.html?_r=2

Remember, if you have to take more of your salary and apply it to your retirement account to stay even, you are actually earning less. 

If you earn less, you can afford less.  If you can afford less, demand goes down.  Decreasing demand usually leads to decreasing prices.  You don't even have to take a course in Alstrynomics to understand this.

Gold DECREASING in price.

Oil DECREASING in price.

Transportation DECREASING in price.

Rents DECREASING in price.

Wages DECREASING.

Clothing prices DECREASING.

Toy prices DECREASING.

Electronic prices DECREASING.

I know.... in 1980 Gold's price was an anomoly......but in 2008 it was real.  I guess there is a sucka born every generation.  Quite frankly I am not sure where the price of gold is going.....but if you are thinking it is a hedge against inflation........you many want to change your thinking about inflation if reality means anything to you.....price inflation that is.........

4 Comments – Post Your Own

#1) On December 21, 2008 at 12:33 PM, saunafool (98.41) wrote:

Alstry,

I don't know if you've noticed, but gold has held up better than almost any other asset class over the past year. Sure, it's down 18% or so from its high, but compared to oil, houses, or almost any stock,  that's pretty good.

I don't think it is a hedge against inflation, per se. After all, there was a ton of inflation between 1981 and 2001 and gold basically went down continuously for 20 years. So, I think it is more a hedge against uncertainty. When people lose faith in the financial system, they buy gold.

Right now, it is really difficult to find a safe haven for money. Treasuries or other cash vehicles stink because they pay 2% or something pitiful, and governments is printing money at full speed and handing out trillions all over the world. I feel OK with some high dividend yield stocks right now, but there is clearly widespread risk in the economy raising the risk premium on equities. And houses still need to fall another 20-30% in price before they start to become attractive compared to rent.

So, I hold my gold position, just because it seems to be the only thing that zigs when everything else zags.

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#2) On December 21, 2008 at 12:40 PM, starbucks4ever (99.51) wrote:

Fedex is the most muddled company ever. I was shocked to find that when you send a letter abroad through them and pay by credit card, they actually put your label the credit card # on the outside of the envelope. 

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#3) On December 21, 2008 at 3:44 PM, djemonk (< 20) wrote:

Okay, if gold isn't a good place to be ... what is?  Alstry, I've been trying to get you to answer that question since I started reading your blog (and I read every post).

I believe that you're basically right with your sitrep, but unless you have another suggestion it seems that you're basically recommending that people panic, which is the worst possible thing that people could do.

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#4) On December 21, 2008 at 7:31 PM, DemonDoug (99.02) wrote:

alstry is bullish on dollars.

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