There are strong deflationary pressures out there:

• Rising unemployment
• Slowing consumer spending
• A credit crunch and associated deleveraging
• Falling real estate prices

It seems these are now being joined by falling commodity prices. This most recent bubble seems to have kept things going despite the other pressures. Is there another waiting in the wings, or do we finally get to the big D for deflation? Or are we going to see the last bubble in stocks, as in 1929?

I’m flat on the month because the markets are basically flat on the month. Not complicated. But soon we get to see whether or not the analyst forecasts for big earnings growth in the third and fourth quarters hold. Fat chance. Ninnies. More bear action to come, IMO.

Relative performance is based on Fidelity Magellan, FMAGX. Inception refers to reporting on the blog, and is based on the close of 2005.

7/31 portfolio.

Elizabeth Bailey has recently replaced Martin Feldstein as the chairman of the National Bureau of Economic Research (NBER). The Bush administration and the Republican party live in fear that the NBER will declare a recession. Mr Feldstein, who still serves on the recession dating committee, recently observed:

The U.S. may now be in a “very long” recession that will drive the unemployment rate higher, with little that the Federal Reserve can do to help.

An official recession would be a big negative for the Republicans in the fall elections, which is why every statistical and propaganda effort conceivable is being made to disguise the reality of recession. Paul Kasriel of Northern Trust lays out the evidence and sums up:

After the November elections, the National Bureau of Economic Research will tell us what we and the Fed already know - the U.S. economy currently is in a recession. Industrial commodity prices appear to have peaked, which will begin to moderate the trend in headline U.S. inflation in a couple of months. Businesses have little pricing power at the consumer level. There is no evidence of a wage-price spiral. The inflation-expectations’ anchor does not appear to be dragging. The dollar appears to have stabilized, in large part because of economic growth in the rest of the world appears to be slowing significantly. Losses continue to mount on the books of financial institutions, which will inhibit credit creation. Is the Fed going to raise its funds rate target over the remainder of 2008? Not bloody likely!

Investment Letters blog has uploaded Jeremy Grantham’s latest letter. The title is “Meltdown! The Global Competence Crisis.” Jeremy says “I for one am officially scared.” It deserves to be read in its entirety, as usual.

Jimmy Cramer, on the other hand, is calling a bottom. Let me see, who do I think is more than likely correct?

You can run, but you can’t hide. (Joe Louis). Everybody wants to know where they can hide their assets, their wealth, and come out of the economic turmoil and probable depression with them intact. The answer is, there is probably no such place. And if there is, it is probably knowable only in retrospect. Only economists, who know many things that aren’t so, have the gall to make long-term forecasts in this environment.

Any plan or strategy, or hiding place, can be thrown into confusion overnight. The biggest danger comes from powerful government actors, such as Mr Bernanke, who can wreak havoc with the stroke of a pen. They are dangerous because they don’t know what they are doing. They believe in an economic framework, a paradigm, that isn’t just broken, it is meaningless because it bears so little relationship to reality. They can shake markets and debauch money, although they can’t change the underlying problems. But they are not the only danger. Private players who have been concealing their troubles can, like LTCM, reveal losses, frauds or defaults that could impact any asset class. The economic future is basically unknown, in the sense that it is pretty clear where the destination is, but the path to get there could be long and torturous or short and catastrophic.

Like Joe’s opponent, Billy Conn, investors have to hit and run - we have to be speculators in speculative markets. The time to return to stability where investing makes sense will come, but not for some time. certainly not yet. We must watch for the punches, and react. We run, we duck - we move our assets out of harm’s way. We punch - we seize opportunities for profit when they are offered, without being lulled into believing that any asset class is safe. Each carries its own set of risks, some fewer then others but there is no risk-free asset.

Every day is a new attack on our wealth, but every day is a new opportunity.