恋曲1980...

词 曲:罗大佑

你曾经对我说你永远爱着我
爱情这东西我明白但永远是什么
姑娘你别哭泣我俩还在一起
今天的欢乐将是明天创痛的回忆
啦……啦……
亲爱的莫再说你我永远不分离

什么都可以抛弃什么都不能忘记
现在你说的话都只是你的勇气
春天刮着风秋天下着雨
春风秋雨多少海誓山盟随风远去
啦……啦……
亲爱的莫再说你我永远不分离

你不属于我我也不拥有你
姑娘世上没有人有占有的权利
或许我们分手就这么不回头
至少不用编织一些美丽的藉口
啦……啦……
亲爱的莫再说你我永远不分离
啦……啦……
亲爱的莫再说你我明天要分离

2 roads ahead for A shares?

Who is behind this run?

During my trip back to China last week, one of the questions that I was particularly interested in asking (mostly to retail investors like my friends who is not in this industry and their family members) was whether or not they had participated in this run of A share market's O/P show. The answer was indeed quite surprising, at least to me, that they are not if not at all. Reasons being, simply put, lack of either willingness or ability.

A) Most of them, regardless of whether or not making money in the past 3 years, are scared of the nose dive jump last year and are now much less confident to put their saving to the share market during such a hard time. B) Quite a large % of them are still having their positions hanging above 4000 level of Shanghai Composite index.

You might argue that we are now witnessing again a record number of new account opening in the past few months. True, it is the case but not the whole picture. A better figure to watch, is the active trading account number, which is much less promising compared with the former one.

So intuitively, you might want to ask who has been and still is the major participant behind this run up then?While there is no obvious answer to this question, one thing catching my attention is the share holding level for mutual funds in China.

After the sell off in Aug last year, the stock holding level for A Share mutual funds had been quite steady, around 65%, which is the minimum stock holding level for them. However, according to the latest report from Tian Xiang Investment Research, this number last week was 81.42%, rising from the week before's 78.04%. Mind you, for the most part of the bull market between 2006 and the beginning of 2008, this figure was well within a band of 74-80% and we are now surpassing the high end of that range already. As a result, we can quite safely assume that domestic institutional player as a group, both public and private, are the major participants behind this current run up; and more importantly they are now not having too many bullets left.

That being said, while QFII is now still relatively a small portion of the whole game (Around 7-12%), from the perspective of market participants analysis, 2 possible scenarios ahead are:

1. Retails are mostly not enticed and we had the institutional guys only playing the game, but they are now at or very close to a stage of running out. Then we got a top here.

2. Despite the possible near turn pull back we might have, retails (call it greed of human being or wishful thinking on the macro picture improvement or over-optimism about Chinese Government's ability)can not help jumping into the water again to take over the torch , and make it shine brighter. Then another 2007?

2 roads ahead, which way will we go?

Even though I dislike this, but a good note after all...

余则成教你办公室生存二十条 

《潜伏》并不是间谍片，而是一部不可多得的职场教程。余则成的经历，有绝对的现实意义，他用亲身体验，教导我们如何在险恶的职场生存。 
而现今的职场，比余则成面临的环境更糟糕，我们都是在狂涛骇浪里潜伏的小人物。 

所以，研究专家“余则成”是怎么说，怎么做的吧。 



1、办公室里只有两种人，主角和龙套。 
在《潜伏》里，每个角色都有个性。只龙套非但没性格而且还专业送死。 

职场上也一样，想要过的轻松，不想往上爬，那就只能做一辈子的龙套。 
作龙套的坏处就是：送死你先去，功劳全没有，裁员先考虑。 
现在的职场绝不是养懒人的地方，你要比别人生存的好，就唯有当主角，让别人去做龙套。 
你不能踩着别人肩膀，就只能做他人垫背。 



2、每个人都要有大志，就算要毁灭世界也可以。 
胸怀大志是做主角的首要条件。 
譬如余则成的信仰，站长的贪钱，马奎和陆桥山要当副站长，李涯为了党国事业，这些都是大志，而有理想存在才能为此奋斗。 

在职场上，你若没有一个奋斗目标，就不可能进取的往上爬，到最后只能沦为龙套，成为别人的牺牲品。 
所以不管毁灭世界，还是成为第一首富，你都必须心存志向，以此为目标。 



3、别被理想忽悠，理想是需要的，但不是别人的理想，而是你自己的。 
当提起大志时，有人会想到企业目标，想到企业文化，想到老板慷慨激昂的演说。 
忘了那些吧，老板的理想只是老板的，而职场上，你是毒力的。要保持清醒头脑，不能被轻易忽悠。 

《潜伏》里，不管站长还是戴笠，甚至是余则成自己都会提到党国的事业。而实际上，他们心里都清楚的很，一切都该以自己为先，自己的大志才是可奋斗的目标。 
不管别人有什么理想，要牢牢记住自己的大志，这才是立命之根本。 



4、如果真的没大志，那就为钱奋斗。 
《潜伏》里，站长说过一句话。每个人都有解甲归田的时候，如果不是为了钱，谁要当这个官呢。 
所以赚钱是人最主要的追求。职场上很危险的局面，就是老板用理想笼络人，想让人不拿钱白干活。 
但真的肯不要钱干活，那你就是没价值的，既然没价值，还有什么存在的必要呢？ 
金钱是唯一衡量你价值的东西。你真的一无所求的话，那就为赚钱而奋斗。 



5、你可以不聪明，但不可以不小心。 
《潜伏》里似乎每个人都聪明，其实翠平也很聪明，可为什么她就状况不断，最后还暴露身份。 
就因为她不够小心。 

职场与此一样，你可以不聪明，但不可以不小心。 
不聪明的人，最多笨拙一些，事情做的差一些。而在职场上，这不是很大的罪过。 

但不小心就随时会触犯到别人的利益，犯下得罪人这个职场大忌。 
到那时，穿小鞋都不晓得是为什么穿的。 
管牢嘴，能风花雪月的时候就少议论同事，能说人好话时就别说坏话。 
这就是余则成的生存之道。 



6、你说的每句话，老板都会知道。所以要好好想想该说什么，不该说什么。 
别奢望你私下说的话老板就听不到。老板能知道一切，这是真理。 
就像余则成给左蓝写信，自以为夹在书里没人知道，而实际上，他落下的每个文字，每句话都有人注意。 

在职场上完全相同，只要你不是一个人自言自语，就得担心谈话对象会把话传出去。 
而经验告诉我们，每一句对公司的议论，最后都会传到老板耳朵里。 
所以你跟任何人说话时，都要好好想想，该说什么，不该说什么。 
不该说的绝对不能说，可说可不说的也闭嘴。 



7、偶尔对老板交心是必要的，但要有的放矢。 
余则成和站长关系亦师亦友，可谓是站长的铁杆亲信，两人之间时不时有促膝长谈。 

记住，促膝长谈是种手段，而不是真的让你什么都说。偶尔的交心，说些无关紧要的私己话，能让老板觉着你贴心。 
而事实上，从没一个上司会对你真的交心。 
切忌一热泪盈眶，就把心窝子都交出去。 
被出卖的，永远是交心的那个。 



8、不管什么时候，装傻总是最不易犯错。 
在《潜伏》里，余则成看起来傻傻的。当别人问起一些紧要问题时，都会装傻，罔顾左右而言它。 
这实在是很高明的生存术。 

金庸也曾经说过，他年迈耳背后，该听见的话就能听见，不该听见的话就听不见。 
当有人要你当面表态站队，要你选择事情的方向，不管你怎么选都是错的。 
那么装傻就是最好的选择，这是没选择时最不易犯错的方法。 

别担心装傻的样子很拙劣，即使每个人都看出你在装傻，可他们依旧拿你没办法。 
真正倒霉的是那些明确表态的人，有这些龙套牺牲，怎么也轮不到你。 



9、把自己当成最聪明的人，往往是最笨的。 
在刚开始时，余则成向左蓝隐瞒自己是军统特务，向吕宗芳隐瞒左蓝是激进分子。余则成觉得自己能掌控大局，可实际上，他才是对方棋盘上的棋子。 
左蓝和吕宗芳早就决定把他发展成贡厂档了。 

在职场上，总把自己当最聪明的人，一定是做龙套的命。 
真正聪明的高手，是大智若愚，该精明时精明，不该精明时装傻。 



10、一定要有靠山，但比靠山还可靠的，是让自己有价值。 
余则成向来是有靠山的人，一开始的吕宗芳，后来的站长，甚至是戴笠。正是这些靠山的存在，才让余则成多次转危为安，不引人怀疑。 
但比靠山更重要的，是余则成本身的价值。 
如果没有军统背景，吕宗芳绝不会拉拢他。如果没有立下大功，戴笠也不会青眼相加。如果他不能帮站长弄钱，也不可能获得庇护。 

所以在职场中，和上司们搞好关系是一门必须的功课，为自己找好靠山很重要。 
而比此更重要的，是让自己有足够的价值，以致于每个上司都必须拉拢你。 



11、你是上司的人，上司却不一定是你的人，这层意思一定要明白。 
当一个上司对你说，你是他的人时，心里一定要清楚，上司并不是你的人。 
你是他的，他是他自己的。 

在潜伏里，马奎曾经是毛人凤的侍卫，按说有此大靠山该有恃无恐才对。但马奎一出事情，毛人凤立刻就躲了。 
当你的事情与上司的利益有冲突时，他们会毫不犹豫的出卖你。 

无论何时都要记住，你是你自己的，只有你才能对自己负责。 
别相信上司故作亲近的话，那随时都会是陷阱。 



12、上司说他对你很放心，事实可能正好相反。 
站长经常对余则成说，我对你很放心。可事实上，站长对余则成的试探调查从没停过。 
如果上司真的对你放心，他根本不用经常提及。 

真正的信任，是通过行动表现的。当上司愿意把害人的事情，把职场斗争的事情和你一起做，那才是信任的表现。 
而上司口头说对你放心，则反而要当心了，很可能你做了什么，让上司产生你不忠的怀疑。 



13、站在上司立场上想问题，站在自己立场上办事情。 
当上司相信你，让你做一些事情时，心里必须要有本帐，别傻兮兮的什么都做。 
你要站在上司立场上去考虑问题，了解上司为什么要做，能达到什么目的。然后再以自己的立场抉择，有些做，有些推脱。

就算是象余则成这样看似对站长忠心耿耿的人，也不是什么都会做的。 
选择符合自己利益的事情去做，不符合利益的想法推搪。 
用做了的事情取悦上司，而不做的事情则让上司知道，你已经完全尽力了。 



14、上司突然垮台，不要惊慌，独自完成任务，然后借此再找到新的靠山。 
《潜伏》里，余则成和吕宗芳被派去南京刺杀叛徒。而吕宗芳突然牺牲，余则成并没有慌张，反而毒力完成任务，成为军统大功臣，完成了事业转折。 

在职场里，经常发生上司突然垮台的事情。 
如果你不幸遇见，千万别惊慌，独自完成手上的工作，而且要做的漂亮精彩。 
而这就是你将来安身立命的资本，你可以借此找到新的靠山。 

还是那句话，必须要让自己有价值，这比有人罩着你还重要。 



15、做事做的好，干活干到老。 
余则成并非总是聪明的，他与党组织相比就是弱者。余则成不懂得“做事做的好，干活干到老”这个道理，所以他从一开始做潜伏工作，一直到大陆解放后还必须做下去。 
甚至与翠平生离死别，没有得到个人最佳结局。 

“做事做的好，干活干到老”和“让自己有价值”这两句话间并没有矛盾。 

价值是体现在关键处，是一个至关重要的地方才要突然爆发的。而无关痛痒时，尤其是做些没功劳只有苦劳的活，别做太好。 

永远干得好，就会一直干下去。若让人觉得，你只有做庸碌工作的才能，就算干到累死，你也没有爬上去的那一天。 



16、一定要有缺点。 
在职场，一定要有缺点。即使象余则成这样，也并非完美，他会故意暴露一些缺点给人看，譬如感情，譬如贪财等。 

一个完美而毫无缺点的人，为遭人嫉恨，会被人敬而远之。如果连上司都对你敬而远之，那职场之路就危险了。 
所以聪明人会故意暴露些缺点，尤其是无关痛痒的缺点，让上司以为他能拿捏住你，那才是最安全的境地。 

但缺点绝不可致命，却不能是你真正的短处，只可以是风花雪月时谈起的余兴节目，和人套近乎有余，想以此要挟则没门。



17、高你半级的人，往往是最危险的，同级的是天然敌人。 
如果已经有一官半职，那对这句一定感同身受。 
象余则成那样，比他高半级的马奎、陆桥山甚至李涯都十分危险，处处拿他当假想敌。 

因为高你半级的人会有危机感，怕你随时都可能与他们平起平坐，所以有机会他们就会打击你。而不管高半级还是一级，都是上司，他们给你穿小鞋就危险万分了。 
而同级的人是必然的敌人，只要你们的上司不是傻瓜，就一定会挑拨手下争斗。 
这是中国五千年来的帝王术，是国粹。 



18、十句里要有九句真话，这样说一句假话才有人信。 
这是《潜伏》里很明显的情景。余则成说话并不总是假的，反倒有九句是真话。正是这样，他才能得到站长的信任，以致于连去抬碗都要带着他。 

职场中，九真一假也是最佳法则。一个满嘴跑火车的人是得不到上司信任的，只有忠心耿耿，几乎不说谎的人，才能够在最关键的时刻骗到所有人。 

你要当老实人，老实人才能取信于人，没有别人的信任就没有关键时的谎言。 
说谎只需要在最最关键的时刻，能少说一句就少说一句。 
狼来了的故事，大家都应该听过。 



19、把每个慌话都当成性命攸关，这样说谎就不会内疚。 
职场上很关键的难关，就是怎么过自己心理关口。有些人天生不会说谎，一说谎就内疚。 
这时候，就需要想起你的大志了。当一个人有志向，有理想，有信仰的时候，他就可以做任何事情。 

余则成为了完成任务说过谎，杀过人，也做过很多坏事。这完全因为他有信仰在支撑，所以并不会内疚。 
而你也要记住，每个谎言都可能是性命攸关，如果过不了自己的心，就可能实现不了自己的理想。 

如果这么想了，你还会内疚么？ 



20、每个人都站在恶的那一面，因为各人有各人的善。 
最后讲一句关于理想的道理。每个人都有自己的理想，而有利于自己理想的则是善，不利于别人理想的则是恶。 
因人们各有各的立场，有不同的需求。所以在别人眼里，你必然站在恶的那面。 
你永远都是自己的善，别人的恶。 

但怎么样才是真正的大善，怎么样才是大恶呢？ 
为实现理想说一句谎，这是恶，但不是大恶。 
而如果你的理想是毁灭世界，那才是大恶。 
譬如你以事业红火，同事幸福为理想，那么就算为这个理想做了坏事，也不过小恶。 
行大善而为小恶，历来被圣人们不齿。 
可圣人自己也这么做。如此的圣人可以从孔子、孟子、王阳明一直排到更近更近。 
儒教里有知行合一的法门，就是要你明白，只要理想大善，便可无所不为。 

然而， 
你必须真的确信自己的志向是善的。 
就像余则成一样善。

Quarterly Review and Outlook - First Quarter 2009

Quarterly Review and Outlook - First Quarter 2009 by Van Hoisington and Dr. Lacy Hunt

Inflation/Deflation Over the next decade, the critical element in any investment portfolio will be the correct call regarding inflation or its antipode, deflation. Despite near term deflation risks, the overwhelming consensus view is that "sooner or later" inflation will inevitably return, probably with great momentum. This inflationist view of the world seems to rely on two general propositions. First, the unprecedented increases in the Fed's balance sheet are, by definition, inflationary. The Fed has to print money to restore health to the economy, but ultimately this process will result in a substantially higher general price level. Second, an unparalleled surge in federal government spending and massive deficits will stimulate economic activity. This will serve to reinforce the reflationary efforts of the Fed and lead to inflation. These propositions are intuitively attractive. However, they are beguiling and do not stand the test of history or economic theory. As a consequence, betting on inflation as a portfolio strategy will be as bad a bet in the next decade as it has been over the disinflationary period of the past twenty years when Treasury bonds produced a higher total return than common stocks. This is a reminder that both stock and Treasury bond returns are sensitive to inflation, albeit with inverse results. Economic Theory If inflation and interest rates were to rise in this recession, or in the early stages of a recovery, the expansion would be cut short and the economy would either remain in, or relapse into recession. In late stages of economic downturns, substantial amounts of unutilized labor and other resources exist. Thus, both factory utilization and unemployment rates lag other economic indicators. For instance, reflecting this severe recession, unused labor and other productive resources have increased sharply. The yearly percentage decline in household employment is the largest since current data series began in 1949. In March the unemployment rate stood at 8.5%, up from a cyclical low of 4.4%. This is the highest level since the early 1980s. The labor department's broader U6 unemployment rate includes those less active in the labor markets and working part time because full time work is not available. The U6 rate of 15.6% in March was the highest in the 15 year history of the series and up from its cyclical low of 7.9%. The operating rate for all industries and manufacturing both fell to their lowest levels on record in March. Manufacturing capacity was around 15% below the sixty year average (Chart 1). Given these conditions, let's assume for the moment that inflation rises immediately. With unemployment widespread, wages would seriously lag inflation. Thus, real household income would decline and truncate any potential gain in consumer spending. A technically superior and more complete method of capturing the concept of excess labor and capacity is the Aggregate Supply and Demand Curve (Chart 2). Inflation will not commence until the Aggregate Demand (AD) Curve shifts outward sufficiently to reach the part of the Aggregate Supply (AS) curve that is upward sloping. The AS curve is perfectly elastic or horizontal when substantial excess capacity exists. Excess capacity causes firms to cut staff, wages and other costs. Since wage and benefit costs comprise about 70% of the cost of production, the AS curve will shift outward, meaning that prices will be lower at every level of AD. Therefore, multiple outward shifts in the Aggregate Demand curve will be required before the economy encounters an upward sloping Aggregate Supply Curve thus creating higher price levels. In our opinion such a process will take well over a decade. Record Expansion of the Fed's Balance Sheet and M2 In the past year, the Fed's balance sheet, as measured by the monetary base, has nearly doubled from $826 billion last March to $1.64 trillion, and potentially larger increases are indicated for the future. The increases already posted are far above the range of historical experience. Many observers believe that this is the equivalent to printing money, and that it is only a matter of time until significant inflation erupts. They recall Milton Friedman's famous quote that "inflation is always and everywhere a monetary phenomenon." These gigantic increases in the monetary base (or the Fed's balance sheet) and M2, however, have not led to the creation of fresh credit or economic growth. The reason is that M2 is not determined by the monetary base alone, and GDP is not solely determined by M2. M2 is also determined by factors the Fed does not control. These include the public's preference for checking accounts versus their preference for holding currency or time and saving deposits and the bank's needs for excess reserves. These factors, beyond the Fed's control, determine what is known as the money multiplier. M2 is equal to the base times the money multiplier. Over the past year total reserves, now 50% of the monetary base, increased by about $736 billion, but excess reserves went up by nearly as much, or about $722 billion, causing the money multiplier to fall (Chart 3). Thus, only $14 billion, or a paltry 1.9% of the massive increase of total reserves, was available to make loans and investments. Not surprisingly, from December to March, bank loans fell 5.4% annualized. Moreover, in the three months ended March, bank credit plus commercial paper posted a record decline. If this all sounds complicated you are right, it is. The bottom line, however, is that it is totally incorrect to assume that the massive expansion in reserves created by the Fed is inflationary. Economic activity cannot move forward unless credit expansion follows reserves expansion. That is not happening. Too much and poorly financed debt has rendered monetary policy ineffective. What about the M2 Surge? M2 has increased by over a 14% annual rate over the past six months, which is in the vicinity of past record growth rates. Liquidity creation or destruction, in the broadest sense, has two components. The first is influenced by the Fed and its allies in the banking system, and the second is outside the banking system in what is often referred to as the shadow banking system. The equation of exchange (GDP equals M2 multiplied by the velocity of money or V) captures this relationship. The statement that all the Fed has to do is print money in order to restore prosperity is not substantiated by history or theory. An increase in the stock of money will only lead to a higher GDP if V, or velocity, is stable. V should be thought of conceptually rather than mechanically. If the stock of money is $1 trillion and total spending is $2 trillion, then V is 2. If spending rises to $3 trillion and M2 is unchanged, velocity then jumps to 3. While V cannot be observed without utilizing GDP and M, this does not mean that the properties of V cannot be understood and analyzed. The historical record indicates that V may be likened to a symbiotic relationship of two variables. One is financial innovation and the other is the degree of leverage in the economy. Financial innovation and greater leverage go hand in hand, and during those times velocity is generally above its long-term average of 1.67 (Chart 4). Velocity was generally below this average when there was a reversal of failed financial innovation and deleveraging occurred. When innovation and increased leveraging transpired early in the 20th century, velocity was generally above the long-term average. After 1928 velocity collapsed, and remained below the average until the early 1950s as the economy deleveraged. From the early 1950s through 1980 velocity was relatively stable and never far from 1.67 since leverage was generally stable in an environment of tight financial regulation. Since 1980, velocity was well above 1.67, reflecting rapid financial innovation and substantially greater leverage. With those innovations having failed miserably, and with the burdensome side of leverage (i.e. falling asset prices and income streams, but debt remaining) so apparent, velocity is likely to fall well below 1.67 in the years to come, compared with a still high 1.77 in the fourth quarter of 2008. Thus, as the shadow banking system continues to collapse, velocity should move well below its mean, greatly impairing the efficacy of monetary policy. This means that M2 growth will not necessarily be transferred into higher GDP. For example, in Q4 of 2008 annualized GDP fell 5.8% while M2 expanded by 15.7%. The same pattern appears likely in Q1 of this year. The highly ingenious monetary policy devices developed by the Bernanke Fed may prevent the calamitous events associated with the debt deflation of the Great Depression, but they do not restore the economy to health quickly or easily. The problem for the Fed is that it does not control velocity or the money created outside the banking system. Washington policy makers are now moving to increase regulation of the banks and nonbank entities as well. This is seen as necessary as a result of the excessive and unwise innovations of the past ten or more years. Thus, the lesson of history offers a perverse twist to the conventional wisdom. Regulation should be the tightest when leverage is increasing rapidly, but lax in the face of deleveraging. Are Massive Budget Deficits Inflationary? Based on the calculations of the Congressional Budget Office, U.S. Government Debt will jump to almost 72% of GDP in just four fiscal years. As such, this debt ratio would advance to the highest level since 1950 (Chart 5). The conventional wisdom is that this will restore prosperity and higher inflation will return. Contrarily, the historical record indicates that massive increases in government debt will weaken the private economy, thereby hindering rather than speeding an economic recovery. This does not mean that a recovery will not occur, but time rather than government action will be the curative factor. By weakening the private economy, government borrowing is not an inflationary threat. Much light on this matter can be shed by examining Japan from 1988 to the 2008 and the U.S. from 1929 to 1941. In the case of Japan government debt to GDP ratio surged from 50% to almost 170%. So, if large increases in government debt were the key to economic prosperity, Japan would be in the greatest boom of all time. Instead, their economy is in shambles. After two decades of repeated disappointments, Japan is in the midst of its worst recession since the end of World War II. In the fourth quarter, their GDP declined almost twice as fast as that of the U.S. or the EU. The huge increase in Japanese government debt was created when it provided funds to salvage failing banks, insurance and other companies, plus transitory tax relief and make-work projects. In 2008, after two decades of massive debt increases, the Nikkei 225 average was 77% lower than in 1989, and the yield on long Japanese Government Bonds was less than 1.5% (Chart 6). As the Government Debt to GDP ratio surged, interest rates and stock prices fell, reflecting the negative consequences of the transfer of financial resources from the private to the public sector (Chart 7). Thus, the fiscal largesse did not restore Japan to prosperity. The deprivation of private sector funds suggested that these policy actions served to impede, rather than facilitate, economic activity. This recent Japanese experience mirrors U.S. history from 1929 to 1941 when the ratio of U.S. government debt to GDP almost tripled from 16% to near 50%. As the U.S. debt ratio rose, long Treasury yields moved lower, indicating that the private sector was hurt, not helped, by the government's efforts. The yearly low in long Treasury yields occurred at 1.95% in 1941, the last year before full WWII mobilization. In 1941, the S&P 500, despite some massive rallies in the 1930s, was 62% lower than in 1929, and had been falling since 1936. Thus, two distinct periods separated by country and considerable time indicate that stock prices respond unfavorably to massive government deficit spending and bond yields decline. The U.S. economy finally recovered during WWII. Some attribute this recovery to a further increase in Federal debt which peaked at almost 109% of GDP. However, the dynamics during the War were much different than from those of 1929 through 1941 and today. The U.S. ran huge trade surpluses as we supplied military and other goods to allies, which served to lift the U.S. economy through a massive multiplier effect. Additionally, 10% of our population, or 12 million persons, were moved into military services. This is equivalent to 30 million people today. Also, mandatory rationing of goods was instituted and people were essentially forced to use an unprecedented portion of their income to buy U.S. bonds or other saving instruments. This unparalleled saving permitted the U.S. economy to recover from the massive debt acquired prior to 1929. Bonds Still an Exceptional Value Since the 1870s, three extended deflations have occurred--two in the U.S. from 1874-94 and from 1928 to 1941, and one in Japan from 1988 to 2008. All these deflations occurred in the aftermath of an extended period of "extreme over indebtedness," a term originally used by Irving Fisher in his famous 1933 article, "The Debt-Deflation Theory of Great Depressions." Fisher argued that debt deflation controlled all, or nearly all, other economic variables. Although not mentioned by Fisher, the historical record indicates that the risk premium (the difference between the total return on stocks and Treasury bonds) is also apparently controlled by such circumstances. Since 1802, U.S. stocks returned 2.5% per annum more than Treasury bonds, but in deflations the risk premium was negative. In the U.S. from 1874-94 and 1928-41, Treasury bonds returned 0.9% and 7% per annum, respectively, more than common stocks. In Japan's recession from 1988-2008, Treasury bond returns exceeded those on common stocks by an even greater 8.4%. Thus, historically, risk taking has not been rewarded in deflation. The premier investment asset has been the long government bond (Table 1). This table also speaks to the impact of massive government deficit spending on stock and bond returns. In the U.S. from 1874-94, no significant fiscal policy response occurred. The negative consequences of the extreme over indebtedness were allowed to simply burn out over time. Discretionary monetary policy did not exist then since the U.S. was on the Gold Standard. The risk premium was not nearly as negative in the late 19th century as it was in the U.S. from 1928-41 and in Japan from 1988-2008 when the government debt to GDP ratio more than tripled in both cases. In the U.S. 1874-94, at least stocks had a positive return of 4.4%. In the U.S. 1928-41 and in Japan in the past twenty years, stocks posted compound annual returns of negative 2.4% and 2.3%, respectively. Therefore on a historical basis, U.S. Treasury bonds should maintain its position as the premier asset class as the U.S. economy struggles with declining asset prices, overindebtedness, declining income flows and slow growth.