Faber and Schiff: Inflation Inevitable (So Here's What to Do) 52 comments
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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
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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.
> 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.
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.
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.
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.
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.
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&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.
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.
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.
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.
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?
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
seekingalpha.com/insta...
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.
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.
WL