#1 Best Investments During Inflation11-07-2012, 10:19 PM
This is a two year old article, but it's applicable today. With Obama's re-election, I suspect inflation will spiral out of control within the next few years. He will continue spending and adding to our deficit. Our dollar will continue to devalue along with our national credit rating. If today's volatile market performance is any indicator of the future, I suspect traders will start dumping stocks and tanking the DOW. I guess I will start investing in overseas and emerging markets and take my money out of US companies, with the exception of some blue chips.
Here are the best investments during inflation:
Avoid Cash/US Dollars: Inflation typically results in domestic currency devaluing. You can fight this by simply not holding it and allocating the capital into other assets and investments. Nowadays, cash is most certainly part of the asset allocation picture. During inflation, you want to have as little of it on hand if possible. Since it devalues during inflation, those of you wishing to press your bets against the US dollar can buy the PowerShares Bearish US dollar index fund (UDN).
Buy Gold & Precious Metals: If you'll think back toward the end of the crisis, gold was all the rage. As the Federal Reserve's printing presses worked overtime to churn out US dollars to resuscitate the economy, many became very worried about inflation. Their number one investment to protect against this? Gold. While precious metals in general are a solid bet, gold in particular is seen as a hedge against uncertainty and a store of value. For an in-depth thesis as to why you should buy gold during inflation, we turn you to out post on successful hedge fund manager John Paulson's gold fund. He launched this vehicle last year as a means of betting against the US dollar. Another option is the stocks of companies that mine the metal. One hedge fund recently opined that gold is good, but gold mining stocks are better.
We've detailed how countless other prominent investment managers favor yellow bricks. John Burbank's Passport Capital outlined the rationale for owning physical gold. David Einhorn's hedge fund Greenlight Capital also owns physical gold. Those of you who don't have access to physical bars can invest via the SPDR Gold Fund (GLD). Practically all of the hedge funds that are not investing in physical gold use this investment vehicle for their gold exposure. If gold doesn't tickle your fancy, legendary investor Jim Rogers sees opportunity in silver and palladium which can provide you with precious metals exposure. PALL is the ticker for playing palladium while SLV is a way to play silver.
Buy Crude Oil: Going long oil ties into the whole 'buy commodities' theme as protection. In a truly inflationary environment, oil is supply inelastic; any increase or decrease in price would not result in a corresponding increase or decrease in supply. In the past we've outlined how to invest in crude oil, as there are many investment vehicles out there, each with pros and cons. These funds include USO, DBO, & USL and are examined in-depth via the link above.
Short Fixed Income: Bonds should be avoided due to a weak domestic monetary system. In particular, avoid US Treasuries as they will underperform. As yields start to rise, bond prices will fall. A plethora of prominent investors have gone this route in order to gain inflationary protection. Seth Klarman has purchased out of the money puts on bonds. He's acquired tail risk insurance against a sharp rise in interest rates that protects him should rates skyrocket to 10%. Legendary hedge fund manager Julian Robertson had previously put on a curve steepener trade and then shifted to a constant maturity swap (CMS) trade. These are more advanced trades and typically are reserved for institutional investors. Retail investors can buy puts on or short the iShares 20+ Year Treasury (TLT).
Buy Emerging Markets: A weak domestic currency (US dollar) implies higher returns can be found abroad in other countries. A monetary system in trouble in the home land means your dollars should be invested abroad (especially consider commodity producing nations such as Australia and Brazil). You can invest in either emerging market currencies, equities abroad, or investment funds denominated in those foreign currencies. For broad emerging market equities exposure, one can purchase iShares Emerging Markets Index (EEM). For the Australian Dollar, consider FXA and for Brazilian exposure, consider EWZ.
Read more: http://www.marketfolly.com/2010/08/b...#ixzz2BacU8GBu
11-07-2012, 10:24 PM
Sheep.The difference between pigs and people is that when they tell you you're cured it isn't a good thing.
11-07-2012, 10:26 PM
While this inflation won't strike overnight -- it's likely at least a year away -- some economists believe it will be double-digit and uncontrollable when it does hit.
Borrow long: About one-third of the typical family budget is dedicated to keeping a roof over your head. That means you can reduce your personal inflation rate by one-third by locking in a 30-year fixed-rate mortgage. With good credit, conforming loans (those under $417,000) currently cost between 3.5% and 4% annually. That translates to monthly payments of just over $450 per $100,000 borrowed. Never borrow more than you can pay back, of course. But stretch out any loan this cheap for as long as you can.
Slash variables: If you have a home equity loan that "floats" above prime rate, pay it off. Also pay off credit card debts and any other variable-interest loans that you can. If and when inflation rises, so will interest rates, making borrowing far more costly in the future. In 1980, for example, prime rate - the rate banks charge their best customers - hit a high of 21.5%. You do not want to get caught with a variable-rate loan that costs more every month, making it increasingly difficult to pay off.
Build reserves: If you need to finance a business, buy a house or a car in an inflationary environment, you can be in a world of hurt. The best way to mitigate that risk is to build cash reserves now so you'll improve your ability to pay cash, if necessary, later. Cash reserves are also likely to yield more in an inflationary world, so if you don't end up needing the money for purchases, you're likely to be able to invest it in relatively safe securities at historically high rates of return.
Buy commodities & REITS: Holding a portion of your investments in commodities, like oil and agriculture products, and Real Estate Investment Trusts that generate much of their income from rents that are likely to rise with inflation, can help your investment portfolio keep pace with the rate of inflation. Of course, commodities and REITs should only make up a small portion of your portfolio -- somewhere between 5% and 20% of your long-term assets. And, ideally, you want these assets to be widely diversified, so its best to invest through mutual funds and exchange traded funds, such as Vanguard's REIT ETF or Power Shares Commodity Index ETF.
Invest in well-capitalized companies: While inflation can make it harder to finance business, a number of companies have been paying off their debts and building up huge hordes of cash reserves -- the same smart strategy that can work for you. Apple, for example, has roughly $100 billion in cash; Microsoft is sitting on a stockpile worth more than $50 billion. Assuming that these companies produce unique products that people will pay for, even when prices rise, they should prove to be great investments for the coming decades.
Go green: One of the areas where inflation hits the hardest is at the grocery store, where the cost of everything from meat to vegetables is likely to rise. If you've got a backyard, think about defraying your grocery expenses with a garden. One fruit tree can keep you in oranges or plums all season and provide the makings for preserves for the rest of the year. Squashes, and root crops, like potatoes and carrots, are also easy to grow and many reseed themselves when you compost.
11-07-2012, 10:53 PM
unimaginable as it may seem Real estate , energy sector & agricultural products is what will likely keep the economy pluggin along. If the Govt can resist further involvement.The 21st century. The age of Smart phones and Stupid people.
It is said that branches draw their life from the vine. Each is separate yet all are one as they share one life giving stem . The Bible tells us we are called to a similar union in life, our lives with the life of God. We are incorporated into him; made sharers in his life. Apart from this union we can do nothing.
11-07-2012, 11:20 PM
As long as unemployment remains high, home values are not going to 'come back'. And I expect it to go much higher now that we have a lame duck marxist. And with the war against drilling and frackin and the coal industry its now 'hands off' this countrys natural resources.
Get your 'beanie copter hat' stocks while you can.
Liberalism is just communism sold by the drink.
11-08-2012, 01:45 AM
- Join Date
- Mar 2010
There is lots of advice out there. Some good, and some, well, maybe not good.
The article was dated March 15, 20012. Apple sold for $585.56. Today it closed at $559.25. There was profit in the interim, but will there be in the future?
I don't buy into the idea of 30 year mortgages. We fixed a 15, got lucky and made some money and paid it off in 10. Glad we did.
Oil is now at $85/barrel. There are many oil wells that cannot make money at $85, but the trend for right now is downward, not up. Energy companies are sucking air.
Gold fund (GLD) on March 12: $161.08........Today: $167.41. Not much profit, and in the meantime it has been as low as $147. I don't want it.
I'm a short term trader, so I'm triple short the energy sector (ERY); triple short the financial sector (FAZ); triple short the small caps (TZA), and triple short the Dow (SDOW). I'll stay short a few days, but then I will clean up these leveraged positions, and probably go with a more conservative 1-to-1 short on the Dow (DOG) or S&P (SH) probably for months to come. But maybe not.
I think for most people buying into an ETF which pays dividends monthly is a good idea. That way your money comes in monthly and you'll see if there is any change. Look to PFF, PPT, GDF, and PHT (they were all up today while the market tanked) for a 6 - 8% yield.. There are lots more and if anyone is interested I can give you my list of monthly payers. It's a GREAT way to establish a fund you cannot outlive.
|« Previous Thread | Next Thread »|