## Why Investors Should "Fear" Deflation? How to Profit During an Economic Contraction

**Deflation (Deflation)** occurs when the prices of goods and services decrease continuously. It is the opposite of **inflation**, which many people are experiencing. During this period, cash becomes more valuable, but the economy will enter a severe downturn. If you do not understand its mechanisms, you may miss many opportunities.

### What is the difference between deflation and inflation?

A simple equation is:
- **Inflation** = Increase in money supply → Prices rise → Money shrinks
- **Deflation** = Decrease in money supply → Prices fall → Money expands

When deflation occurs, consumers have more purchasing power with the same amount of money. It seems like good news, but it is actually problematic because when people expect prices to fall further, they delay purchases in anticipation of lower prices. This reduces demand and causes prices to continue falling.

### Current Thai Economy: Is it Approaching?

From April 2020 data:
- **Headline CPI**: -2.99% (Year-over-Year) — the sharpest contraction in 10 years and 9 months
- **Core CPI**: 0.41% — still normal compared to core
- **PPI**: -4.3% (YoY)
- **CMI**: -4.0% (YoY)

However, the Bank of Thailand warns that Thailand has not yet entered deflation according to the definition because:
1. Prices of goods are not falling continuously (70% remain stable or increase)
2. Inflation forecast for the next 5 years is 1.8% (within a 1-3% range)
3. GDP is expected to recover to 5.0% in 2021

**But the global LEI trend** shows continuous downward signals. The risk of a recession in 2023 remains high.

### What causes deflation? 4 main reasons

**1. Supply Side: Economic Contraction**
- Reduction in supply of goods
- Decreased production, increased costs without raising prices
- Advances in technology and efficiency, but not aligned with demand

**2. Demand Side: Consumers Stop Buying**
- Increasing household debt burdens
- Reduced net income
- Rising unemployment rates
- Tightening credit

**3. Government Policy Failures**
- Raising interest rates too high → liquidity problems
- Excessively high taxes → less money for people
- Financial liquidity issues

**4. External Factors**
- Capital outflows
- Exchange rate volatility
- Crises leading to recession (such as COVID-19)

### Chain Reaction of Disaster: The Great Depression

"The Great Depression" (1929-1932) is the most terrifying example:
- **Stock Market** plummeted to record lows since Black Tuesday (4 Sept 1929)
- **Global GDP** declined by over 15%
- **Unemployment rate** in the US soared to 23% (some countries 33%)
- **Crop prices** fell below 60%
- **International trade** decreased by over 50%

The long-lasting effects led up to World War II.

### Is this downward cycle correct?

First, understand the process:

1. **Recession** → GDP declines for 2 consecutive quarters
2. **Consumers reduce spending** → Lower demand
3. **Businesses produce less** → Want people to save money, clear inventories
4. **Price cuts to move products** → Want to sell for cash
5. **People see lower prices** → Delay purchases in anticipation of further drops (Deflationary Spiral)
6. **Employment decreases** → Less money for people
7. **Cycle repeats** → Economy worsens continuously

This is why **deflation** is a nightmare for the economy.

### Winners and Losers

**Winners:**
- Those with fixed income (less impact from price drops)
- Creditors (money repaid gains value)
- Cash holders (can speculate by buying assets at lower prices)

**Losers:**
- Entrepreneurs (profits decline, sales drop)
- Debtors (debts are valuable, but income decreases)
- Stock investors (bear market)

### What to Invest in During Deflation? 5 Channels

#### **1. Cash + Speculative Planning**
In deflation, cash is valuable, and purchasing power increases. Consider holding cash and waiting for good opportunities, such as assets priced below fair value.

#### **2. Bonds (Bonds)**
When the Bank of Thailand cuts interest rates, bond prices rise. Choose reliable bonds to reduce risk.

#### **3. Strong Company Stocks**
- Select companies with good fundamentals (still profitable even in a downtrend)
- Essential industries like food, beverages, utilities
- Wait for fair value or lower

#### **4. Real Estate**
During price drops (some sell in urgency), opportunities include:
- Long-term speculation
- Choosing promising locations
- Suitable for those with "cold money" (transactions take time)

#### **5. Gold + CFD Trading**
- Gold prices may plunge during deflation → buy at lower prices
- **CFD** allows speculation "both up and down" without holding physical gold
- Minimum deposit as low as (50 USD)
- Use leverage if aware of risks

### Do government measures help?

**Expansionary Monetary Policy (Expansionary Monetary Policy):**
- Lower interest rates
- Reduce reserve requirements
- Asset purchases to increase liquidity

**Fiscal Policy (Fiscal Policy):**
- Reduce utility bills
- Cut taxes (to put more money in people's hands)
- Increase public investment
- Support employment

**Ultimately**, simultaneous measures on both sides are necessary.

### Summary: How to do it wisely?

Deflation is not a death sentence; there are many opportunities if you know how to play:

1. **Hold cash** → Wait for asset prices to fall
2. **Choose strong stocks** → Lower risk but still profitable
3. **Buy real estate** → Long-term speculation
4. **Try CFD trading** → Profit from both rising and falling markets
5. **Follow data** → Recognize signals early, different from the crowd

Successful investors are not those who avoid crises but those who understand and profit from them.