What Leno Layoffs Say About Deflation

You know times are tough when the number one rated show in its time slot is firing people.

Not only does the Tonight Show consistently win its time slot, it also rakes in buckets of cash from advertisers. So why are they firing people?

Because the show simply doesn’t need them anymore.

If video killed the radio star (to borrow a line from the ’80s hit song), then technology is killing the video operator, among others… and this is acting as a supercharger in our current deflationary spiral.

Remember when video was hard to do?

Well, it’s not hard to do anymore. Now anyone with a couple hundred bucks can buy a medium-quality camera, shoot a video and share it on YouTube in a matter of minutes.

No longer is lighting as important as it was years ago. Today, the camera compensates. Sound tracks are easy to bring in and you can edit the video on the camera itself thanks to a slew of pre-loaded effects.


And these changes aren’t just in small cameras. I do a fair amount of live television with our local Fox affiliate. In the past six years, I’ve watched their production staff dwindle as the station moved to remote-operated cameras that seem to glide over the floor by themselves. They practically don’t need cameramen anymore.

The message is clear. Technology is moving at light speed, and people have a choice to make – adapt or be kicked out of the way.

In a global economy marked by slack demand and high unemployment, this unpleasant reality can only worsen.

For the last several years, a large part of our message has been deflation. Yet, regardless of how many times we talk about it, people still find this concept difficult to grasp. Part of the problem is the generally-accepted idea that inflation means rising prices. So deflation must mean falling prices. And that’s good, right?

Not so fast…

The Pain of Deflation

While that view is partially correct, it is not the entire story. A large part of inflation or deflation has nothing to do with prices, but instead has to do with wages. This is where the Tonight Show, cameras, cameramen and the current economy meet at the cornrner in a bad part of town.

Right now there is a general glut of workers in the U.S., and not just the “do you want fries with that”-type of uneducated workers. There are millions of college-educated adults that have years of work experience and can’t find a job.

These people come from many different fields, and by and large are suffering through one of the bad outcomes of falling demand – a lack of work required for the amount of goods and services being purchased.

In this environment wages remain flat or even fall. Since 2008, real wages – meaning adjusted for inflation – have fallen by 7%. That means the average person’s paycheck buys 93% of what it used to buy.

Even though prices for food, energy, education, healthcare, etc. have moved higher, people are not earnrning a commensurately higher income. There are simply too many people looking for work, so employers can pay less.

At the same time, technology marches on. What once took three people now takes two… or one… or none. This means even fewer employees are necessary, which adds more downward pressure on wages.

So, if the economy employs fewer people simply due to lack of demand and technology puts even more people out of work, what happens to the remaining aggregate demand?

For those of you thinking the answer is NOT positive, you are correct. The knock-on effect is less income and less demand.

Add to this a greater claim on social services and it paints a grim picture.

This is why we keep insisting you remain diligent. Don’t be fooled into thinking all is well, no matter what the talking heads are blathering about on TV.

If wages continue to decline under pressure, and unemployment remains stubbornrnly high, then cash flow and defensive positions are the way to go.


P.S. Many of the positions in our Boom & Bust portfolios focus on adding income streams to an investor’s portfolios. This, along with cash flow and defensive positions, is an important component of an investment strategy in the Economic Winter Season. To see what investments we’re making to survive and prosper.



Ahead of the Curve with Adam O’Dell

A Technology Sector “Triple Bagger”

It’s been a good year for the technology sector. Today’s chart shows how the SPDR Technology Sector ETF (NYSE: XLK) has outperformed the S&P 500 since the start of the year.



Rodney Johnson

Rodney’s investment focus tends to be geared towards trends that have great disruptive potential but are only beginning to catch on to main-stream adapters. Trends that are likely to experience tipping points in the next 5 years. His work with Harry Dent – studying how people spend their money as they go through predictable stages of life and how that spending drives our economy – helps he and his subscribers to invest successfully in any market.