Faber and Schiff: Inflation Inevitable (So Here's What to Do)

Two of the most renowned investors and market commentators in the world are concerned about inflation. The money printing mechanisms of the Federal Reserve and all the bailouts will make the deficits balloon and force the United States to monetize its huge debt.

In his most recent comment, Marc Faber even said that inflation will eventually be higher than in the seventies.

“My view is that, eventually, we will see a much higher inflation rate than in the '70s. In the short term, because of the collapsing asset market and increased savings rate in the US, we will see deflationary pressures. But in the long run, we'll have a much higher inflation rate. That will be negative for US bonds and equities.” MARC FABER

Peter Schiff wrote recently that the only weapon the Fed has to fight this crisis is pure undiluted inflation. In his words,

“This week the Federal Reserve finally made clear what should have been obvious for some time - the only weapon that the Fed is willing to use to fight the economic downturn is a continuing torrent of pure, undiluted, inflation.” PETER SCHIFF

Schiff`s fear is that the Chinese, the Japanese will no longer buy our bonds and we will have to print the money the foreigners won`t lend us. This has a major inflationary impact. How can we protect ourselves from inflation? What should we buy? Jim Rogers thinks that agriculture commodities and silver (still 50% below its all time high) offer the best inflation hedge and profit potential. Marc Faber likes some commodity producers like Newmont (NEM), Novagold (NG), Freeport McMoran (FCX).

I think the best way to play an inflationary scenario is to short long term government bonds. You can do this buying an ETF like TBT or short the CBOT 30 Year Tresuries Futures. Regarding treasuries, Marc Faber recently wrote, "Government bond market is a disaster waiting to happen".

Let's try to make a profit from that impending disaster.

Disclosure: no positions

Comments

[Dave Wrixon:]

<I think the best way to play an inflationary scenario is to short long term government bond>

No Brainer!

Apr 05 06:11 AM

[Crude Oil T...:]

Earlier this year I claimed TBT as my pick of the year, not for the short term, but summer of 2009 it will play out.






crudeoiltrader.blogspo...

Apr 05 09:27 AM

[The Geoffster:]

I've been playing GLD, SLV, GDX and TBT. It seems that things are heating up and summer may bring more bad news in the form of inflation, exploding deficits, higher casualties in Afganistan and North Korean nukes. In other words, with all the talk of a market bottom, things are getting worse. Gold and currency manipulation by central banks will hold in the short term but sooner or later the butcher's bill comes due.

Apr 05 09:40 AM

[rdondamike:]

You can't go wrong with agriculture futures ! Gov bonds are safe bet for sure need to watch rate carefully.

Apr 05 09:50 AM

[NoFiatMoney:]

Yes, you're right, Government bonds is a disaster waiting to happen. The problem is that you may have to wait beyond your financial capacity.
Imagine insider traders knowing when the FED is going to buy the debt, they buy it before the FED and then they sell it to them with a profit. This game may last a lot of time and the prices are not going to go down soon.

Apr 05 09:52 AM

[pickaroonwyo:]

A couple quotes and a TBT recommendation. Sorry guy, that's not much content.

FWIW, BGT is a good inflation play, there are many others too.

Apr 05 10:20 AM

[curious cat:]

i'm curious. why do things, like stocks, have to go down in an inflationary environment? it seems as if anything of value will be worth more dollars. doesn't that include companies? even if you think our dollar buys less gold and silver, isn't there room for companies charging more, too. that's not even considering the currency differentials that large internationals will translate into more dollars from their profits overseas, nor the increased competitiveness of our corporations as we sell into their markets. furthermore, in an inflationary environment, won't houses be worth more dollars? someone please explain the thinking on this issue.

Apr 05 11:14 AM

[fireball:]

silver, gold and land seem the best bets to me for retaining value. oil stocks and maybe something like bhp should help componsate, maybe.
i don't really trust slv and gld to be able to cover the shares they have sold.

Apr 05 11:28 AM

[robert99:]

In an inflationary environment, one must take into account the destructive effects of inflation in order to determine real gains or losses on assets. In nominal terms, your assets *may* hold their value or even increase in value due to a weaker currency, but in real terms, your assets (unless they are precious metals, which, ostensibly, everyone is flocking to) will almost certainly decline. A highly inflationary environment is an uncertain environment, and uncertainty sucks the confidence out of markets, which results in economic malaise or panic (if inflation becomes bad enough), and thus lower real profits.


On Apr 05 11:14 AM curious cat wrote:

> i'm curious. why do things, like stocks, have to go down in an
> inflationary environment? it seems as if anything of value will
> be worth more dollars. doesn't that include companies? even if
> you think our dollar buys less gold and silver, isn't there room
> for companies charging more, too. that's not even considering
> the currency differentials that large internationals will translate
> into more dollars from their profits overseas, nor the increased
> competitiveness of our corporations as we sell into their markets.
> furthermore, in an inflationary environment, won't houses be worth
> more dollars? someone please explain the thinking on this issue.

Apr 05 12:32 PM

[hungrydweller:]

If the only meaningful buyer of treasuries is the Fed I don't see how the price goes down. The Fed will not demand a high interest rate from the Treasury and will soak up any and all supply if necessary.

Although I have a small position in TBT, I like the ag commodities and precious metals play better as a hedge against inflation. The Fed cannot control those markets.

Apr 05 12:46 PM

[henarl:]

curious cat: Only if people go back to work and wages keep up with rising prices in an inflation, will housing prices increase.
Nobody will be able to afford to buy a house if they don't have sufficient income. As for stocks; those without an income will be selling their stocks to pay rent and buy groceries. It's called stagflation.

Apr 05 12:52 PM

[B smith:]

Are we then looking at the difference between currency inflation and asset inflation? Seems like inflation in the past raised the currency value of everything and leverage was your friend, paying back later with cheaper dollars. So now currency inflates, and then the challenge is to pick sectors or assets that will have liquidity and rise with it or exceed it? Will the inflation hedges of the past not work, if its just currency inflation?

Should we start differentiating and label our discussions as currency inflation which leaves out most asset inflation?

I have a small TBT position and some agg, lots of energy exposure, and way too much illiquid land. I have noticed that some big players are buying land now at 75% discounts from the peak. Its hard to that the US economy can improve much if mortgage rates and the cost of business borrowing rises substantially.
Seems like that will put the big financials back into more trouble, cause home values to stagnate or drop some more, and push business costs up. Seems like a rather flat economy for the next 10 years then while dealing with currency inflation and asset values flat or lagging the inflation of the currency. Will we be flat or declining while the country decides if we are going to re-establish incentives to take risk in creating or expanding companies that make things and create jobs, rather than exporting our environmental, litigation, tax and other impairments to growth, and continue to import products from countries that do not have such a level of impairment within their borders.

The mixed Obama message. So Obama seems to get it that GM, meaning any industrial company in the US cannot survive and grow with its current level of impairment including union wages and benefits in excess of its competition, and at the same time is for Card Check? Is the market rally based in part about his first 60 days being very Socialist, and now showing an understanding of the mathematics of manufacturing? He seems to be very talented at poker.

I can see that ag and energy, ore and copper will be re-priced at whatever the currency value is, I am unclear about other fixed assets such as land and equities that are not energy or resource based. Seems like higher long term rates will suck the life out of business growth due to operating costs and competition for capital, unless they have pricing power and can follow the currency inflation. As business grapples with the inflation can companies that provide efficiencies such as some tech be winners?

Real estate. Seems like if you can buy now with a fixed rate loan might be a good buy. But selling it later with high rates seems to be a problem unless it is median or lower price rental housing with a positive cash flow. Even then the new purchaser would have to pay the higher mortgage rates coming, so you are illiquid unless you can sell on contract. Will wages rise with inflation? so that purchasing power stays constant?

It seems like this inflation scenario is the single largest thing to plan for.

Will cash assets flip from desirable to a liability?
What about large cap stocks with big cash assets.
Will leverage become the friend again?
Cash flow, pricing power, and an asset class ability to stay equal with the price of our currency seem to be the things to look for. Resource stocks priced in Canadian or Australian dollar?

So if a company issues bonds or preferred’s now and currency inflation hits, they have purchased the money at cheaper rates and so their cash is valued lower and they can pay it back or use it and benefit.

Recent announcements of some large companies raising cash. Are they doing it for acquisitions or just to lock in rates now before they go up.

If TBT is good how about High yield corp bonds.

Apr 05 03:08 PM

[NoFiatMoney:]

If prices go up due to inflation of money supply, the FED, sooner or later, has to increase the rate of interest. In that case, the financial costs go up, but even in the case that the company is able to mantain the level of profit, the market demands a higher return (because government debt returns have increased),so stock prices have to decrease.
If rate of interest increase is more difficult to finance a big buy as a house, so its price must to fit to the buying power of the buyer.


On Apr 05 11:14 AM curious cat wrote:

> i'm curious. why do things, like stocks, have to go down in an inflationary
> environment? it seems as if anything of value will be worth more
> dollars. doesn't that include companies? even if you think our dollar
> buys less gold and silver, isn't there room for companies charging
> more, too. that's not even considering the currency differentials
> that large internationals will translate into more dollars from their
> profits overseas, nor the increased competitiveness of our corporations
> as we sell into their markets. furthermore, in an inflationary environment,
> won't houses be worth more dollars? someone please explain the thinking
> on this issue.

Apr 05 03:32 PM

[Barryyes:]

How come Gold and Silver prices on COMEX are so much lower than the local price for physical? With the premium, you can't fnid Silver for less than $18 per ounce. Why should the COMEX price be less? Is this a sign of market manipulation?

Apr 05 07:46 PM

[Gigem77:]

Barry, gold and silver are sold on the comex in large bars. You can buy a contract and take delivery, availing yourself of the relatively low price. As with many commodities you get a break for buying in bulk. Coins and rounds require fabrication from these large bars. Fabricators mark up their end product. Distributers and mints buy in bulk from the fabricators and sell to the small shops which sell to you and me. That distribution chain adds to the retail costs.

Why haven't the fabricators expanded their production of rounds for retail and planchets for the mints? Perhaps they enjoy the larger spreads and are in no hurry to knock the price down. Buy the contract and take delivery or just buy the GLD and SLV etf shares.

Frankly, I'm amazed at the prices people will pay. Check out ebay and see the highest premiums paid for gold and silver.

Apr 05 10:14 PM

[Mauiwalt:]

Stocks are priced for future earnings. --P/E--- If you Pay hard dollars now for a stock that pays you back in six months with Earnings in soft dollars, you lose. That is why stocks fall in an inflationary environment.


On Apr 05 11:14 AM curious cat wrote:

> i'm curious. why do things, like stocks, have to go down in an
> inflationary environment? it seems as if anything of value will
> be worth more dollars. doesn't that include companies? even if
> you think our dollar buys less gold and silver, isn't there room
> for companies charging more, too. that's not even considering
> the currency differentials that large internationals will translate
> into more dollars from their profits overseas, nor the increased
> competitiveness of our corporations as we sell into their markets.
> furthermore, in an inflationary environment, won't houses be worth
> more dollars? someone please explain the thinking on this issue.

Apr 06 03:08 AM

[Chezfrederick:]

I am entirely in agreement that inflation will be unavoidable in the near future and will be with us for some time to come.... I have held TBT for a period of time, and came to the realization that timing is everything... The experts have couched their comments using words such as "eventually", "not too long from now".. etc.

The question is how long? especially when you are betting against the Fed whose objective is to keep interest rates low. Also liquidity injected into the economy is beeing locked up by banks in the form of reserves, and by consumers in the form of savings... rather than stimulating economic activities... Government intervention makes this a risky proposition for the next 2 years, regardless of where inflation stands, unless we see a convincing pick up in economic activity.

Apr 06 07:42 AM

[SymS:]

Not 100% sure it is a no brainer. The bonds yields will have to go up, but the dollar could have collapse.

TBT is an inverse leveraged ETF and those seem to lose value overtime. There are many Short ETF that went down even though the index they (inversely) tracked also went down.

On Apr 05 06:11 AM Dave Wrixon wrote:

> <I think the best way to play an inflationary scenario is to short
> long term government bond>
>
> No Brainer!

Apr 06 08:27 AM

[johnmorrison9:]

I was a little sadden for the lame answer to the question. I do agree that commodities such as gold, gas, and eggs, and most necessities with supply or pricing power will do well, but it won't be a straight line.
Timing is everything, particularly with the TBT, don't fight the Fed. The Democratic Central Bank.

Apr 06 09:23 AM

[capitalisth...:]

dca and dbc wiil give you great commodity exposure!

Apr 06 09:25 AM

[Colin C:]

I've seen a lot of articles about inflation in the US and UK but very little to nothing about Canada (or Australia)...was wondering what people thought about it? Traditionally Canadian inflation has tracked closely with US inflation but this is most likely since the causes were similar. Assuming that the Canadian government doesn't start printing money (it looks like they will have no need to do so, certainly not for bank bailouts anyway), can Canadian inflation levels stay low (perhaps even light deflation) while in the US and UK inflation rates soar to 70s level rates? If it is stagflation in the US and UK then Canadian commodities (primarily oil) would not increase in value in real terms (obviously it would in US currency terms) so I wouldn't see the Canadian dollar strengthening much either (with my assumption being if the Canadian dollar did strengthen that the BoC would want to decrease its value either by lowering rates, which they can't do much more of, or by printing money to decrease the value). Of course if the Canadian manufacturing sector is decimated anyway perhaps they wouldn't care that much if the Canadian dollar strengthened a lot and all we were exporting was oil.

I live in Canada and still can't decide if I should lock in my Canadian mortgage now at 4% for 3.5 years (the remainder of my current mortgage term) or stay at 1.6% (I'm on a prime -.9% variable rate mortgage). I'd feel like a fool if I went to the higher fixed rate now just to see that over the next 3.5 years Canadian interest rates stayed low.


On Apr 05 03:08 PM B smith wrote:

> Are we then looking at the difference between currency inflation
> and asset inflation? Seems like inflation in the past raised the
> currency value of everything and leverage was your friend, paying
> back later with cheaper dollars. So now currency inflates, and then
> the challenge is to pick sectors or assets that will have liquidity
> and rise with it or exceed it? Will the inflation hedges of the past
> not work, if its just currency inflation?
>
> Should we start differentiating and label our discussions as currency
> inflation which leaves out most asset inflation?
>
> I have a small TBT position and some agg, lots of energy exposure,
> and way too much illiquid land. I have noticed that some big players
> are buying land now at 75% discounts from the peak. Its hard to
> that the US economy can improve much if mortgage rates and the cost
> of business borrowing rises substantially.
> Seems like that will put the big financials back into more trouble,
> cause home values to stagnate or drop some more, and push business
> costs up. Seems like a rather flat economy for the next 10 years
> then while dealing with currency inflation and asset values flat
> or lagging the inflation of the currency. Will we be flat or declining
> while the country decides if we are going to re-establish incentives
> to take risk in creating or expanding companies that make things
> and create jobs, rather than exporting our environmental, litigation,
> tax and other impairments to growth, and continue to import products
> from countries that do not have such a level of impairment within
> their borders.
>
> The mixed Obama message. So Obama seems to get it that GM, meaning
> any industrial company in the US cannot survive and grow with its
> current level of impairment including union wages and benefits in
> excess of its competition, and at the same time is for Card Check?
> Is the market rally based in part about his first 60 days being very
> Socialist, and now showing an understanding of the mathematics of
> manufacturing? He seems to be very talented at poker.
>
> I can see that ag and energy, ore and copper will be re-priced at
> whatever the currency value is, I am unclear about other fixed assets
> such as land and equities that are not energy or resource based.
> Seems like higher long term rates will suck the life out of business
> growth due to operating costs and competition for capital, unless
> they have pricing power and can follow the currency inflation. As
> business grapples with the inflation can companies that provide efficiencies
> such as some tech be winners?
>
> Real estate. Seems like if you can buy now with a fixed rate loan
> might be a good buy. But selling it later with high rates seems
> to be a problem unless it is median or lower price rental housing
> with a positive cash flow. Even then the new purchaser would have
> to pay the higher mortgage rates coming, so you are illiquid unless
> you can sell on contract. Will wages rise with inflation? so that
> purchasing power stays constant?
>
> It seems like this inflation scenario is the single largest thing
> to plan for.
>
> Will cash assets flip from desirable to a liability?
> What about large cap stocks with big cash assets.
> Will leverage become the friend again?
> Cash flow, pricing power, and an asset class ability to stay equal
> with the price of our currency seem to be the things to look for.
> Resource stocks priced in Canadian or Australian dollar?
>
> So if a company issues bonds or preferred’s now and currency inflation
> hits, they have purchased the money at cheaper rates and so their
> cash is valued lower and they can pay it back or use it and benefit.
>
>
> Recent announcements of some large companies raising cash. Are they
> doing it for acquisitions or just to lock in rates now before they
> go up.
>
> If TBT is good how about High yield corp bonds.

Apr 06 11:08 AM

[dcollis24:]

SymS, since this thread pertains specifically to TBT (and not SKF/UYG, DIG/DUG), do you have any data/evidence that indicates TBT's value has eroded over time relative to its benchmark? Based on my topical, though admittedely not exhaustive, anaysis, it appears that TBT tracks much better than do the other ultra ETFs.


On Apr 06 08:27 AM SymS wrote:

> Not 100% sure it is a no brainer. The bonds yields will have to go
> up, but the dollar could have collapse.
>
> TBT is an inverse leveraged ETF and those seem to lose value overtime.
> There are many Short ETF that went down even though the index they
> (inversely) tracked also went down.
>
> On Apr 05 06:11 AM Dave Wrixon wrote:

Apr 06 11:49 AM

[ff4444:]

It makes me cringe when TBT is offered as an inflation hedge for these reasons:

1) Un-tested hedge strategy - this type of product has not been through a serious inflationary environment. The investment thesis may not pan out, or the product could explode.

2) The government may not allow the price of bonds to tank, regardless of what inflation indices show.

3) Reliance on derivatives and shaky counter-parties (look at the top holdings...)

4) Constant leverage product means that there are serious on-going tracking costs associated with holding the product for the entire time the hedge may be required.

5) Questionable investment thesis: Borrow and sell US bonds, and then buy back dollar denominated assets from issuers with lower credit ratings???

6) Maximum downside exposure if the US or broader global economy tilts into deflation.

7) Better tested strategies abound.

TBT is an interesting doodad, feel free to read up on it. However if you think this is the answer to protect your portfolio during blistering inflation, you should probably sit quietly for a few minutes and consider if you are out of your mind.

Apr 06 12:23 PM

[carey_jim:]

Louis Ruckheiser proved, on his television program Wall Street Week in Review, that the world's best financial experts can't predict the performance of financial markets from one year to the next.

But people don't want to hear that.

In fact, Ruckheiser's program was canceled even though its ratings were good.

But the TV ratings of Jim Cramer's Crazy Money beat even Ruckheiser's good ratings seven days a week.

This is true even though Cramer provides evidence almost every day for The Ruckheiser Law of Financial Experts.

In fact, if it hasn't already been done, someone ought to start a Jim Cramer Contrarian Fund that shorts everything Cramer recommends. It would probably make a fortune.

As for economic wisdom, have you ever met an economics Nobel Prize laureate who got rich from his market investments?

We know the answer already and maybe that's why economics is called 'the dismal science.'

'The markets will fluctuate.' J.P.Morgan

Apr 06 01:25 PM

[Carousel:]

The San Francisco Chronicle had an article on Sunday about the lack of prosecutions and an assertion that this credit crisis is not real. The writer said that it's a deep recession from too much debt and too much debt-financed consumption but that the idea that it's because consumers and businesses can't borrow more is a lie devised by the banks to justify handing them a lot of money that they aren't going to lend to consumers and businesses anyway.

Check it out: www.sfgate.com/cgi-bin...

Apr 06 02:45 PM

[User 358547:]

TIPS haven't been mentioned

Apr 06 04:11 PM

[mac.barron:]

On Apr 06 04:11 PM User 358547 wrote:

> TIPS haven't been mentioned

A while back in another thread Bearfund made the following observation regarding TIPS:

"TIPS are unique among asset classes in that they are guaranteed to lose purchasing power if held to maturity. As you know, the accretion (the portion of the TIPS value that increases with the CPI) is taxed, and it is taxed yearly, not at maturity or sale. It is also taxed as ordinary income just like the interest portion (if there is any). Even if you assume that the CPI accurately tracks your cost of living (probably laughable), you are guaranteed to lose purchasing power due to taxes. These instruments do not have enough absolute yield to compensate for the taxation of CPI-derived accretion. You might argue that you can hold TIPS in a sheltered account and turn a profit, but it's probably not true unless you really believe that the CPI overstates your cost of living. I'm sure there's someone whose lifestyle and purchasing patterns make this true, but for the other 99.99% of us, it's a sure thing: TIPS are a loser. And why should this surprise us? If you were the Treasury, selling TIPS is almost an ideal scam: you get to tax both the accretion and the interest, and you get to decide what the accretion factor is going to be! It's as if I could issue you a bond and then decide each year how much interest I want to pay you, also knowing that I'm going to get 1/3 of it back from you no matter what. Madoff had nothing on these guys for the sheer brass of it all."

TIPS are never going to be my thing but i clipped it anyway. A few others tried to shoot it down but nothing really convinced me that Bearfund was too far wrong.

Apr 06 04:41 PM

[Pink Panther:]

The markets expectations of inflation are already rising since end ov Nov. 08:
stockcharts.com/h-sc/u...

I'd not be surprised if it's right around the corner...

Apr 06 04:48 PM

[yellowhoard:]

Absolutely!

Ag and metals will boom as the Fed uses QE to artificially keep rates low. TBT will be a casualty of QE, not a beneficiary.


On Apr 05 12:46 PM hungrydweller wrote:

> If the only meaningful buyer of treasuries is the Fed I don't see
> how the price goes down. The Fed will not demand a high interest
> rate from the Treasury and will soak up any and all supply if necessary.
>
>
> Although I have a small position in TBT, I like the ag commodities
> and precious metals play better as a hedge against inflation. The
> Fed cannot control those markets.

Apr 06 05:52 PM

[Tom Colangelo:]

Inflation will happen when private demand for goods and services begins to compete with public demands for the same.

Private demand from U.S. consumers is likely to remain very weak through 2010 with still more housing mortgage defaults, credit card bankruptcies, and job losses.

Unless someone can tell me that consumers are going to start spending while :
home values are still sinking (at a slowing pace but years from recovery) and
job losses are still at a record pace (pace slowing, but jobs never coming back) and
business real estate defaults are just getting started and
the dollar is getting stronger against other currencies thus limiting our exports and
we don't make anything anymore so spending stimulus dollars boosts Chinese mfg. activity, NOT OURS, and
we are still dependant for oil from nations that are not our friends so future price inflation will come soon.

Apr 06 06:06 PM

[Sudhakar2k:]

There is too much warning of inflation going around. I mean is inflation really a bad thing right now? Yes inflation will be a problem down the road like in 5 or 7 years (if we are lucky). Right now were are in the middle of the greatest deflationary cycle in 80 years. I welcome some inflation. It'll help fix the banks balance sheets and overly debted consumers, which have been the underlying problem for our declining economy. So you want to plan for inflation now, basically ignoring the deflation that going on for the next year or two or longer?

Apr 06 09:10 PM

[sickofthehype:]

Who said ANYTHING about 'hyperinflation'?

Rising inflation is a byproduct of what the Fed campaign is right now, this second.


On Apr 06 10:47 PM Cetin Hakimoglu wrote:

> Hyperinflation is the least of concerns according to recent economic
> data. Deflation is a bigger threat, actually. Also, rising inflation
> is a byproduct iof economic growth.

Apr 07 01:20 AM

[lbsterling:]

@Colin

Take the 4 pct and be happy with having financed at one of the best rates seen by your generation.

Spend your time thinking about other things and don't worry about getting the 'perfect' rate (which will require a mix of luck and perfect timing).

My 2 cents.

Apr 07 04:34 AM

[venividivici:]

I think you need to have some sort of exposure to gold in this environment but I don't think you will ever make a killing by investing in the large cap gold stocks Faber recommends. I have made a significant investment in a junior gold stock, Kingsgate because it is a low cost producer and has significant exploration potential.

Apr 07 05:17 AM

[Carlos Lam:]

On Apr 06 09:10 PM Sudhakar2k wrote:

> There is too much warning of inflation going around. I mean is inflation
> really a bad thing right now? Yes inflation will be a problem down
> the road like in 5 or 7 years (if we are lucky). Right now were
> are in the middle of the greatest deflationary cycle in 80 years.
> I welcome some inflation. It'll help fix the banks balance sheets
> and overly debted consumers, which have been the underlying problem
> for our declining economy. So you want to plan for inflation now,
> basically ignoring the deflation that going on for the next year
> or two or longer?

Inflation punishes savers and rewards spenders. It destroys the purchasing power of our savings because the same quantity of goods costs more to purchase. It discourages savings and encourages spending; why wait to purchase something if it will cost more in the future? Sure, inflation rewards debtors (assuming that wages go up too), but that merely creates even more problems by encouraging persons to take on more debt.

Apr 07 12:03 PM

[optionsgirl:]

Consider that inflation is a rise in the general price level that results in a decline in the purchasing power of money. With inflation, everything gets more valuable-- except money! There was a time when German citizens ( during the Weimar Republic) needed a wheel barrel full of DM's just to buy enough food to put dinner on the table- that is an example of the damage inflation does. The same is true in Zimbabwe today, the country where inflation is at its worst. You need boatloads of currency just to buy basics. I hope this explanation helps!


On Apr 05 11:14 AM curious cat wrote:

> i'm curious. why do things, like stocks, have to go down in an
> inflationary environment? it seems as if anything of value will
> be worth more dollars. doesn't that include companies? even if
> you think our dollar buys less gold and silver, isn't there room
> for companies charging more, too. that's not even considering
> the currency differentials that large internationals will translate
> into more dollars from their profits overseas, nor the increased
> competitiveness of our corporations as we sell into their markets.
> furthermore, in an inflationary environment, won't houses be worth
> more dollars? someone please explain the thinking on this issue.

Apr 07 04:03 PM

[Chris B:]

Take a look back and imagine what your analysis would yield if you were in Japan and it was 1990. All of the same rationales for inflation that are being presented here were present in Japan 1990: massive government spending and debt, near-zero interest rates, and massive expansion in the supply of yen (or "printing" if you prefer antiquated terms).

Yet, any Japanese investor who bet on the yen falling or inflation occurring ended up being financially demolished as deflation, near-zero rates, and the strong yen persisted for over a decade. Even as Japan suffered the "lost decade" its currency was the most robust in the world.

This educational experience suggests that there is something wrong with simplistically linking the above factors with "inevitable" inflation.

Nonetheless, I'm sitting on unrealized TBT gains because recent PPI/CPI indicators show a return to inflation that is increasingly not factored into the prices of long-term bonds.

Apr 07 05:27 PM

[igggy:]

Even though I am still holding it, I hate TBT because it's eroding so quickly due to the daily leverage. Just look at TBT vs TLT over the last 6 months:
finance.yahoo.com/q/bc...
TLT is up about 3% but TBT is down 20%. Over 3 months, TLT is down 10% but TBT is up only 10% instead of the expected 20%. TLT actually pays a dividend too.

Apr 07 06:37 PM

[bhu:]

the difference is that Japan was the world's number one creditor at the time. The US is the world's biggest debtor at this time.


On Apr 07 05:27 PM Chris B wrote:

> Take a look back and imagine what your analysis would yield if you
> were in Japan and it was 1990. All of the same rationales for inflation
> that are being presented here were present in Japan 1990: massive
> government spending and debt, near-zero interest rates, and massive
> expansion in the supply of yen (or "printing" if you prefer antiquated
> terms).
>
> Yet, any Japanese investor who bet on the yen falling or inflation
> occurring ended up being financially demolished as deflation, near-zero
> rates, and the strong yen persisted for over a decade. Even as Japan
> suffered the "lost decade" its currency was the most robust in the
> world.
>
> This educational experience suggests that there is something wrong
> with simplistically linking the above factors with "inevitable" inflation.
>
>
> Nonetheless, I'm sitting on unrealized TBT gains because recent PPI/CPI
> indicators show a return to inflation that is increasingly not factored
> into the prices of long-term bonds.

Apr 07 09:44 PM

[HipHoption:]

Thank you igggy. You saved me having to write that. TBT has negative gamma characteristics which means that the more the underlying instruments (in this case, 20+ year treasury prices) move, the more value erodes from it - regardless of actual direction. Two-times leveraged ETFs, while esoteric, are really terribly ineffective products ...


On Apr 07 06:37 PM igggy wrote:

> Even though I am still holding it, I hate TBT because it's eroding
> so quickly due to the daily leverage. Just look at TBT vs TLT over
> the last 6 months:
> finance.yahoo.com/q/bc...;t=6m&amp;l=on&...
>
> TLT is up about 3% but TBT is down 20%. Over 3 months, TLT is down
> 10% but TBT is up only 10% instead of the expected 20%. TLT actually
> pays a dividend too.

Apr 07 10:49 PM

[dawase@gmai...:]

If you pull up a 6 month relative performance chart of TBT vs TLT, TBT has returned around 5-6% while the TLT is down around -23-4%.

Looks like a significant performance hit to me.


On Apr 06 11:49 AM dcollis24 wrote:

> SymS, since this thread pertains specifically to TBT (and not SKF/UYG,
> DIG/DUG), do you have any data/evidence that indicates TBT's value
> has eroded over time relative to its benchmark? Based on my topical,
> though admittedely not exhaustive, anaysis, it appears that TBT tracks
> much better than do the other ultra ETFs.

Apr 08 01:59 AM

[epeon:]

Refinance your house immediately. Interest rates are low and, if inflation does come along, you pay back with inflated dollars.

Apr 08 09:03 AM

[Moresby:]

Forgive me if I show signs of financial ignorance here but -
The Fed - US government
The Treasury - US government
How can taking money from your left pocket an putting it in your right pocket make sense?


On Apr 05 12:46 PM hungrydweller wrote:

> If the only meaningful buyer of treasuries is the Fed I don't see
> how the price goes down. The Fed will not demand a high interest
> rate from the Treasury and will soak up any and all supply if necessary.
>
>
> Although I have a small position in TBT, I like the ag commodities
> and precious metals play better as a hedge against inflation. The
> Fed cannot control those markets.

Apr 08 11:52 AM

[Moresby:]

Your are probably right here, and for anyone with credit and are brave, may be get into real estate..... become a landlord or flip those houses when inflation hits.


On Apr 08 09:03 AM epeon wrote:

> Refinance your house immediately. Interest rates are low and, if
> inflation does come along, you pay back with inflated dollars.

Apr 08 11:54 AM

[mac.barron:]

The Federal Reserve is no more federal than FedEx.


On Apr 08 11:52 AM Moresby wrote:

> Forgive me if I show signs of financial ignorance here but -
> The Fed - US government
> The Treasury - US government
> How can taking money from your left pocket an putting it in your
> right pocket make sense?

Apr 08 01:20 PM

[FMIC:]

SAD DAY FOR THE PEOPLE OF THE DRC

Minister Martin Kabwelulu recently accepted a payoff of 1.8 million in USD from CEO Richard Adkerson of Freeport McMoran Copper and Gold. This is a horrible travesty for the poor people of the Democratic Republic of Congo. Anyone familiar with Freeport McMoran Copper and Gold's global misconduct, is aware of how Freeport McMoran Copper and Gold provides bribes to homicidal dictators and military officials. FMI's illegal activities in the DRC and Indonesia have caused the deaths of millions of woman and children. Freeport McMoran Copper and Gold's blatant toxic waste dumping and other environmental atrocities, will leave the DRC and Indonesia as uninhabitable toxic waste dumps. As of this date, Freeport McMoran Copper and Gold is responsible for over 5 million deaths in the DRC

Join in our outrage and write a letter to Minister Kabwelulu

Apr 08 03:05 PM

[Alan Young:]

Faber and Schiff are fundamentally right in their premise. However, Mr. Simoes' recommendation is flawed. I explain in detail:
seekingalpha.com/insta...

Apr 08 11:39 PM

[Eric in IL:]

I think TBT is the way to go. Not just a pure inflation play, it wins in inflation and in market recovery. I think you have to wait a while for gold.

Apr 09 03:38 PM

[Cliff Wachtel:]

Yes, inflation is on the way. Perhaps it will take some time as the deflationary pressures of a still worsening economy and failing banking system work themselves out, but you can't print the equivalent of the GDP's worth of new dollar bills and not have serious inflation (unless we get government imposed price and wage controls?)

As one strategy, consider the hard asset based high dividend stocks I present in my current series on SA"The High Dividend Stock Investor's Collapsing Dollar Survival Guide". You get paid with high dividends, some very safe, some less so but with more upside as energy recovers. Most are based in another currency too and all have strong pricing power, thus giving a USD hedge and income too. Worth considering, since you always have cash coming in regardless of the market fluctuations.

Apr 10 08:09 AM

[Steve W fro...:]

The difference is that everybody is now tuned into the perniscious effects of inflation, unlike the 70s when most people had no clue.
We also live in a world so radically different as to defy understanding. How many now get news of every kind instantaneously thru their cell phone or computer 24/7?
Thje game has changed and people will react much faster than in the past. We live in an age in which anyone with a clue will watch the monetization of the US debt in real time and react accordingly
The unintended consequences of government not realizing that things have changed have yet to be plumbed.

I remains to be seen whether it proves curse or opportunity to live in these "interesting" times.

Apr 10 10:39 PM

[jfkfan:]

Summary. Investing in Freeport McMoran is insane. Freeport McMoran has a long history of dishonest business practices all over the world, but the political climate has changed. The world is watching and little third world countries like the DRC and Indonesia, cannot afford to allow Freeport McMoran steal from their people, while bribing militaries and government officials to look the other way. When Freeport McMoran is forced to either honor legitimate and fair contracts in Indonesia and or the DRC, anyone owning FCX stock is going to feel like the people who were left holding Enron stock.

Apr 22 04:19 PM

[Lucassuckst...:]

Freeport is the cream of the crop as far as mining stocks go. The stock is headed to $80 by the end of the year. I bought 3 shares today and hope to be able to afford more when I get my next paycheck.

WL

May 28 04:59 PM