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This chapter is from the book

This chapter is from the book

The Deflation Bear Market

Deflation, you'll remember, is the opposite of inflation. It occurs when prices fall dramatically because of outside factors such as the flood of cheap products into our markets. While it is unlikely we will face deflation anytime soon, the results would be devastating on the stock market. In the worst-case scenario, prices fall because of competitive pressure or some other factor. Corporate profits drop because costs don't fall along with prices. This squeezes profits, and investors flee to other investments.

A deflation bear market is more likely to occur in industry sectors than the total market. International trade agreements are constantly forged and revised to prevent this type of shock from foreign competitors.

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