Japan-ification

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While we wait for StatsCan to release new national economic monthly data beginning September 1st and for the various Canadian metro real estate boards to publish their sales and price data later in the week, here are a few charts (above) tracking inflation data. Since the 1980's inflation highs in Canada, the U.S., Germany and Japan the inflation trend has been falling and now flirting with negative rates. The MIT  Billion Prices Project is indeed in a negative state Y/Y. 

Governments and the private sector want inflation to offset the cost of converting debt into equity, but Mother Nature is not obliging. As I reported last June "We are leveraging the lowest priced credit for the most expensive non-productive real estate at the worst possible time in history.

Over at Bloomberg, Tom DeMark talks about the outlook for the Chinese and U.S. stock markets. "...we're heading into that period of the year when the market is susceptible to market declines September and October."

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Chart Above: The biggest stock market declines since the 1980s:

How bad was Monday's stock market crash? 
by Timothy B. Lee (Vox.com) on August 24, 2015

On Monday, August 24, 2015 the stock market posted its largest decline in years, sparking fear that the US is on the verge of another recession. After initially plunging 6.4 percent in a matter of minutes, it recovered some ground and ended the day down 3.6 percent.

The chart by Javier Zarracina is dominated by October 19, 1987, when the stock market plunged by 22 percent. This huge drop wasn't followed by a recession, and the market recovered the lost ground within two years.

There were big declines in October 1997 and August 1998. Again, these proved not to have any broader significance, as the bull market would continue until 2000.

There were three big drops during the 2000-'01 bear market that preceded the recession of the early George W. Bush years.

The stock market suffered 11 big drops in the last four months of 2007, during the Great Recession that was officially under way by then.

In August 2011, the stock market panicked over the possibility that President Obama and congressional Republicans would be unable to resolve the debt ceiling fight, leading to three big declines.

So sometimes a big stock market decline is a sign of deeper economic problems. Other times, it's not. It's too early to say which category Monday's crash is in.