Coming Price Deflation (3 Viewers)

[BLReed]

No!! I can fire my clients.

Well, at least they will be eligible for Unemployment Insurance. If you just terminated a business
relationship, they'd get nothing.

 

[PanzerAce1944]

Ignoring stock markets in free fall for a moment , there are reasons to be optimistic about toy soldier prices! China is aggressively devaluing its yuan amidst meager economic growth, raw materials prices are down worldwide and the US dollar is strengthening. The combination of decreasing labor and materials costs for TS manufacturers, and currency moves that make their exports "more competitive", i.e., cheaper, means that the only pressure on toy soldier pricing is DOWN -- at least for the moment, here in the US.

Production prices are slower to respond than financial markets because of their existing pipelines. Nevertheless I believe toy soldier offerings in the coming months are more likely than not to see price decreases. At minimum TS prices should remain flat.

As the "China miracle" of the past years unwinds there may be well be general deflationary trends in other places too. As with all things, though, the cure for low prices is low prices, just as high prices cure high prices.

Some very good points made, let's see what evolves from this all for the Hobby.

Wayne

 

[nmrocks]

Just don't think you understand what your hoping for, a reduction in wages to the extent that would lower wages back to poverty levels in China would be a disasterous collapse that would economically reverberate around the globe. Think your neighbors out of work, unemployement back to the heights of the bad old days.
Another interesting little fact is I believe I heard around 30% of all junk bonds, basically non secured, high interest paying bonds were issued by start up and small time oil exploration and petroleum producing companies. the default point is supposedly around 30 dollars a barrel which we are south of now and still diving. You default on around 30% of the junk bonds issued and your going to see some REAL problems right here in River city.
Ray

 

[Rutledge]

From Fortune Mag today:

"...The phenomenon of negative interest rates, long thought of as impossible for practical purposes, is now becoming widespread. The BoJ joins the European Central Bank, Switzerland, Denmark and Sweden in having a negative interest rate on at least one of its official credit facilities. All five central banks are struggling with chronically low inflation, and are anxious to stop a destructive spiral from forming in which wages and prices chase each other lower.

That task is becoming ever harder as oil prices hit 12-year lows and the deflationary pressure out of China intensifies. Chinese producer price inflation is officially running at an annual rate of -5.9%, and many economists believe that the real figure may be even worse. Moreover, the yuan’s decline since October (4% in official terms against the dollar) has allowed Chinese factories to undercut those in the developed world still further. Japanese data earlier this week had showed a sharp slide in both industrial output and household spending. Inflation was stuck at 0.2% year-on-year in December, far from the BoJ’s 2% target...."

 

[hotel3alpha]

From Fortune Mag today:

"...The phenomenon of negative interest rates, long thought of as impossible for practical purposes, is now becoming widespread. The BoJ joins the European Central Bank, Switzerland, Denmark and Sweden in having a negative interest rate on at least one of its official credit facilities. All five central banks are struggling with chronically low inflation, and are anxious to stop a destructive spiral from forming in which wages and prices chase each other lower.

That task is becoming ever harder as oil prices hit 12-year lows and the deflationary pressure out of China intensifies. Chinese producer price inflation is officially running at an annual rate of -5.9%, and many economists believe that the real figure may be even worse. Moreover, the yuan’s decline since October (4% in official terms against the dollar) has allowed Chinese factories to undercut those in the developed world still further. Japanese data earlier this week had showed a sharp slide in both industrial output and household spending. Inflation was stuck at 0.2% year-on-year in December, far from the BoJ’s 2% target...."

Saw that Rut,

Plus, I read the report on Japan's negative interest rate proposal. Interesting stuff.

John from Texas

 

[Rutledge]

Just don't think you understand what your hoping for, a reduction in wages to the extent that would lower wages back to poverty levels in China would be a disasterous collapse that would economically reverberate around the globe. Think your neighbors out of work, unemployement back to the heights of the bad old days.
Another interesting little fact is I believe I heard around 30% of all junk bonds, basically non secured, high interest paying bonds were issued by start up and small time oil exploration and petroleum producing companies. the default point is supposedly around 30 dollars a barrel which we are south of now and still diving. You default on around 30% of the junk bonds issued and your going to see some REAL problems right here in River city.
Ray

Not hoping Ray. Just making observations about what I see and submitting my thoughts on likely outcomes. Anything is possible and what I might or might not want to happen matters nought.

 

[Empire MM]

From Fortune Mag today:

"...The phenomenon of negative interest rates, long thought of as impossible for practical purposes, is now becoming widespread. The BoJ joins the European Central Bank, Switzerland, Denmark and Sweden in having a negative interest rate on at least one of its official credit facilities. All five central banks are struggling with chronically low inflation, and are anxious to stop a destructive spiral from forming in which wages and prices chase each other lower.

That task is becoming ever harder as oil prices hit 12-year lows and the deflationary pressure out of China intensifies. Chinese producer price inflation is officially running at an annual rate of -5.9%, and many economists believe that the real figure may be even worse. Moreover, the yuan’s decline since October (4% in official terms against the dollar) has allowed Chinese factories to undercut those in the developed world still further. Japanese data earlier this week had showed a sharp slide in both industrial output and household spending. Inflation was stuck at 0.2% year-on-year in December, far from the BoJ’s 2% target...."

The problem in this equation is that, for UK based manufacturers at least, the dollar is at a worse rate against Sterling for a long time now and all Far East transactions are completed in USD. Chinese factories are not lowering their prices, freight prices are going up, not down.

 

[BLReed]

..........all Far East transactions are completed in USD.

...............................................................Bingo.

 

[Rutledge]

The problem in this equation is that, for UK based manufacturers at least, the dollar is at a worse rate against Sterling for a long time now and all Far East transactions are completed in USD. Chinese factories are not lowering their prices, freight prices are going up, not down.

Chinese companies are clearly lowering their prices in some industries as the article points out. I'm at a loss as to why toy soldiers wouldn't be similarly impacted. .

 

[Martin Tabony]

Although I make figures in the UK, I do deal with people that do have things made in China. So two things occurred to me. First, toy soldiers don't make anywhere near the kind of mark up other products make, e.g. clothing. So any possible drop wouldn't be as obvious. Second, the amount of ranges that manufacturers make, that don't make much profit (if any). Then some makers will be only to glad that they are actually making some money, never mind thinking of dropping prices!
I wonder though, all the art work that has been sold to China recently. Do we expect that to come back at a discount?

Martin

 

[emilio]

I completely agree to Martin. Of course we also manufacture in Europe and deflation of the Chinese prices theoretically not affect us, but unfortunately, most firms are producing their figures in China, and that forces us to adjust our prices to them. I am the first to consider collecting toy soldiers as a relatively expensive hobby, but also end customers must consider that behind each figure, not only is the foundry work and paint .the most of us do not carry on the sales price the cost of creating each figure, research, spending on books and documentation, years of experience etc. If they did, I assure you that prices would have to be much higher.
Note that on most occasions, our figures are not best sellers, and imagine a figure with a final sale of hundred copies (over a certain period, say one year) The raw metal cost is 1 € (more or less) we add the impact of mold cost, labor foundry, assembly and painting. To this we must add the price of the box and protective materials. I can assure you that we have tried to adjust our cost of production, but we could not lower it below € 12. Again, without loading on each figure the value of modeling.
this has to be offered to your dealer with a margin that allows maneuver. And also the final prices must be competitive with Chinese manufacturing.

 

[Empire MM]

Chinese companies are clearly lowering their prices in some industries as the article points out. I'm at a loss as to why toy soldiers wouldn't be similarly impacted. .

They may do so in other industries and in those industries we are talking big bulk manufacturing of items. Plus, there are many factories in China that I could use but not that many that are professional enough to guarantee consistancy of painting and production times. You pays peanuts you gets monkeys!

I prefer to pay a little more and ensure consistancy and quality of product for my customers. Plus, if I were to get a lower price, I can tell you that the quality of service and paint would fall. Why would I do this? M&S have a history of doing this to manufacturers and many, many have gone bust as a result.

Like I say, my philosophy is, a fair price paid for good service and quality at all ends of the spectrum. You pay your money and take your choice.

 

[Rutledge]

They may do so in other industries and in those industries we are talking big bulk manufacturing of items. Plus, there are many factories in China that I could use but not that many that are professional enough to guarantee consistancy of painting and production times. You pays peanuts you gets monkeys!

I prefer to pay a little more and ensure consistancy and quality of product for my customers. Plus, if I were to get a lower price, I can tell you that the quality of service and paint would fall. Why would I do this? M&S have a history of doing this to manufacturers and many, many have gone bust as a result.

Like I say, my philosophy is, a fair price paid for good service and quality at all ends of the spectrum. You pay your money and take your choice.

No one would dispute what you say. Of course. But that's not my point. The issue is that much of the developing world is in an economic downward spiral, led by China. This will have implications for currencies, wages, commodity prices, et all all of which feed into final price levels. Think about the housing crisis. What happened there? Prices fell across the board. Not predicting the same level of carnage but downward pressure will be felt for a while.

If you can produce toy soldiers in the developed world for a competitive price, by all means, keep up the good work. I just didn't think that possible. You may discover competitors lowering their price points, however.

 

[Empire MM]

No one would dispute what you say. Of course. But that's not my point. The issue is that much of the developing world is in an economic downward spiral, led by China. This will have implications for currencies, wages, commodity prices, et all all of which feed into final price levels. Think about the housing crisis. What happened there? Prices fell across the board. Not predicting the same level of carnage but downward pressure will be felt for a while.

If you can produce toy soldiers in the developed world for a competitive price, by all means, keep up the good work. I just didn't think that possible. You may discover competitors lowering their price points, however.

I, for one, really hope they do not. This may sound greedy / crazy but it isn't. Oil is through the floor worldwide yet energy companies prices are not falling, same argument maybe? It is temporary.

If toy soldier prices do drop, it will devalue a lot of collectors purchases and, I suspect, annoy and lose the faith of more collectors than it will win favour with. Not to mention the devaluing of retailers stock holding!

 

[Rutledge]

I, for one, really hope they do not. This may sound greedy / crazy but it isn't. Oil is through the floor worldwide yet energy companies prices are not falling, same argument maybe? It is temporary.

If toy soldier prices do drop, it will devalue a lot of collectors purchases and, I suspect, annoy and lose the faith of more collectors than it will win favour with. Not to mention the devaluing of retailers stock holding!

Energy prices are falling sharply in the US, as are the stock and bond prices of many energy companies.

I have no idea what TS prices will actually do. But price fluctuations, up and down, are pretty natural in most industries. Anyone counting on their TS collection as a store of value should reevaluate. Toy soldiers are subject to fads, whims, booms and busts like anything. There ain't no such thing as an asset that only and always goes up - as Bernie Madoffs investors discovered to their great dismay.

No one likes price wars. Ask the Saudis and the Iranians. But they still happen.

 

[RPZ]

China has an enormous real estate bubble. Additionally, they are not replacing themselves to sufficiently support their aging population (neither are we, Germany, and a number of other countries). An economic disaster that will likely surpass the 1930s could be triggered in many ways very soon, and no amount of money printing or bailouts will stop it. Cheap soldiers all round.

 

[Rutledge]

"The effects have been felt far beyond the US. The soaring dollar has put record pressure on China’s exchange rate peg, forcing Beijing to burn through its reserves with interventions amounting to $140bn-a-month in December to protect the renminbi.
Meanwhile, China’s capital outflows have accelerated to $676bn, according to the Institute of International Finance
This policy bind - known as the “Impossible Trinity” of managing a fixed exchange rate, maintaining independent monetary policy, and a open capital account - means a devaluation of some magnitude is all but inevitable.
• Has China lost control of its currency?
“It will definitely be in the double digits”, says Folkerts-Landau. “We will be lucky if the depreciation will be in the lower double-digits by the end of the year.”
“Once you anticipate that, and you are sitting in Indonesia or Latin America, it has an immediate impact on how you think about the world”.
A weaker renminbi would unleash a new wave of deflation in an already fragile global environment, and hasten the pressure on emerging market exchange rates as the world’s currency wars would renew apace. "

 

[hotel3alpha]

Gents,

Look, China IS their own worst enemy. As RPZ mentioned the whole population thing. Well, thats what happens when you have a "one child" policy for decades...yes decades. The ebb and flow of a natural crating population has been disturbed by a draconian law that limited the amount of children (and which sex) in China. Thus, creating a society that is imbalanced in gender. That in itself creates social stresses that affect generation past, present and future. I could go on and on about this one, but you get the picture.

China refuses to use sound judgement in regards to its populace and its place in the manufacturing world. Therefore, factories are built right next to neighborhoods. Factories are built with no pollution standards whatsoever and that is why you see the following more and more in China:



Are you kidding me? If this was to happen in the US there would be riots in the streets. But, it won't because the Government imposes strict rules on pollution and populace would not stand for it.

China's can't make up their minds! China has enjoyed the economic boom of the last 15 years or so via capitalism, yet they are a Communist regime. Well, you can't have you cake and eat it too. As I pointed out earlier in the thread the CEO's of China's bazillion dollar companies always get arrested and whacked out by the Chinese government. A bullet to the head is the end of the line for you if your corrupt...NOT legislative change, new laws or policy improvements. A shoot first and ask NO questions later is China's answer to any malfeasance.

Finally, the lack of innovation will be and always has been China's achilles heel. Tech companies are now putting out designs and instructions of their property (i.e. software, engineered plans, ideas) out there for the Chinese to hack. Why? Cause it's fake. They are so sick and tired of being ripped off that they are now baiting Chinese hackers with false information so that they can concentrate on innovation versus worrying about who will steal it. In fact, Chinese thievery is so bad, that if you see a person of Chinese decent digging in a Iowa corn field you better call the cops. Don't believe me? Research the stories of Chinese stealing seeds to take back to China to unravel the GMO seed technology.



So, China is on a one way ticket to self destruction if they don't stop the current train wreck they are on now. For if they don't they will crash and take a whole bunch of countries with them...and Toy Soldiers too I guess.

John from Texas

 

[RPZ]

John,

I believe China has changed their one child policy, but it is too little too late. I am also led to believe that they hold much U.S. debt as well. How that pans out if, when, they collapse is above my pay grade. But it is pretty certain things can not continue like they are and be fixed with a simple monetary "correction".

 

[hotel3alpha]

John,

I believe China has changed their one child policy, but it is too little too late. I am also led to believe that they hold much U.S. debt as well. How that pans out if, when, they collapse is above my pay grade. But it is pretty certain things can not continue like they are and be fixed with a simple monetary "correction".

Yes, the policy was changed last year...and waaaaay to late. The US has debts all around the world and it all started with a loan from the Dutch back in the day. Oh, no there is no simple fix to this one.

John from Texas