why japanes style deflation will not happen in U.S.

The Fed is worrying deflation like Japan. There are some similarities: 1. Housing market collapse. 2, population is aging (U.S. is much better than Japan); 3 Government is in serious deficit (Japanese people have lots of savings while Americans do not have). 3The labour market and wage are under pressure.

There are also differences: 1. U.S. is a consuming economy while Japan is an exporting economy. The importing prices will have a bigger impact on prices on U.S. than Japan. 2. China played a huge role for exporting lower prices goods in last 20 years which is being reversed now.

To me, the biggest reason why deflation won't happen in U.S. is simple: Japan experience huge inflation in 1980s. Even after 20 years of deflation and little inflation, Japanese consumer prices are still the highest in the world. It is the law of regressing to mean at work here. U.S. Prices are very reasonable and I will argue it is below the average in developed countries.

Fed should be very careful on printing more money. When inflation starts, it will spread quickly.

HP

HP is in the news and the resignation of CEO has put it in the spotlight. The GAAP earnings grew very slowly over last 5 years but none-GAAP is around lower teens. The revenue growth mainly came from acquisitions so it is difficult to say HP should exclude costs of acquisitions in its normal accounting. I will not buy HP today. I am more comfortable with Intel.

what did the employment number tell us

The employment in U.S. is worse than expected. What does that mean:

1. Fed is not going to tight for long term. It may increase its balance sheet again which is bullish for gold.
2. There is no labour shortage or wage pressure which is good for profit margin.
3. U.S. dollar will depreciate which will help export industry.

The market is at fair value and I still expect it trade in a tight range.

employment data

Tomorrow, employment data is coming and my expectation is it falls in the expectation range. I sold Bank of America (14.08) and Cicso (24) today.

Manulife's results are disappointing. It really depends on the stock market. The better performance in the third quater may reverse the loss. I would not sell at today's price.

I am interested in Brookfield property (BPO) which owns premium commercial real estate in New York, Toronto and Australia. The valuation is very interesting. I will buy some around 13.5 in Canada.

Corporate bond market

The yields on corporate bonds are dropping quickly, which is very good for big stable companies. The dropping in financing costs will boost earnings. In addition, it gives companies lots of flexibility to boost cash reserve at very low cost. The dividends are more secure for most companies. It is definitely bullish for dividend paying companies.

Can China control growth at its will?

The market is relieved yesterday that Chinese PMI is not fallen more. The market has a mistaken belief that Chinese government can slow down or bring up growth rate at its will. It is not true. On the surface, Chinese government has lot of power and tools to stimulus the economy or slow down it if necessary. But gradually, government's impact will diminish after ever larger intervention. Chinese people has a very high saving rates which gives government lots of rooms to direct bank loans. However, the risk on bad loans has increased dramatically over last two years. The banks are ordered to increased their common equities. Trillions new equities have been and will be issued. It is more difficult to finance new mega projects for banks. Real estates is the battle ground which will slow down the whole economy in China.

Europe is doing better

European crises is over and the actions from countries in Europe to cut their budgets so far have impressed the market. The credit spreads have narrowed between Germany and Spain. Germany is doing extremly well. Its economy probably is the best among developed countries. The low and stable Euro helped German exports. The better European economy has reduced the risk of global slow down. That's why stock market refused to go down despite worse economic data from U.S.