Taming Inflation with ETFs

Despite few signs that prices are rising and inflation is a looming concern, now might be the time to protect yourself from when prices do start rising – don’t wait until it happens. The way to do it is through the utilization of exchange traded funds.

Some believe that inflation is a far cry with the Consumer Price Index running at negative -1.3% over the past 12 months, real estate prices continuing to drop and stable crude oil prices, states The Wall Street Journal. However, most prominent economists think that this trend will soon come to an end and inflation, if not hyperinflation, will emerge. The reason for this is the weakness of the U.S. dollar and the printing of money to fund our government’s spending habits.

So protecting oneself against rising prices is actually fairly simple. A good way to combat inflation is through Treasury Inflation-Protected Securities ((TIPS)). Another way to hedge against inflation is through the utilization of commodities, more specifically gold. The last way to protect yourself is by using futures contracts.

The following ETFs will help enable you to take out an insurance policy on rising prices – this is just a sampling, as a number of funds out there could prove to be useful as an inflation hedge:

• SPDR Barclay Capital TIPS (IPE): up 5% year-to-date.

• iShares Barclays TIPS Bond (TIP): up 3.7% year-to-date.

• SPDR Gold Shares (GLD): up 6.8% year-to-date.

• PowerShares DB Agriculture (DBA): down 1.8% year-to-date.

Kevin Grewal contributed to this article.

Comments

[Retired:]

Inflation? Can somebody name a period of time when you had inflation with a high unemployment rate ?

Jul 05 09:44 AM

[snoopyjc:]

With a sinking dollar, you are better off using WIP (international) instead of TIP!!
--joe

Jul 05 10:25 AM

[searcher:]

What continuing long term inflation protection can be provided by an ETF/ETN that is futures based when it must contend with contango anticipating higher prices yet to come? Are you not selling nearby for farther out at a dearer premium?

Jul 05 12:00 PM

[Retired:]

1982 inflation = 6.16%
1982 unemployment= 9.7%
1983 inflation = 3.22%
Note that in the year AFTER high unemployment, inflation FELL
The point I was trying make was as long as we have high unemployment inflation is not a concern.
Guess I should have been more specific. Please name a year when there was HIGH inflation coupled with HIGH unemployment.


On Jul 05 09:54 AM Freya wrote:

> 1982

Jul 05 12:56 PM

[Fred Swartz:]

WIP would be an answer if world inflation is greater than US inflation and/or the US dollar drops. Perhaps it's a good choice, but it addresses different issues than TIPs.

Jul 05 09:19 PM

[American in...:]

You will pay taxes on the inflation adjustment to the TIPS bonds. That undermine their attractiveness unless you can put them in a tax-protected account.

Jul 06 10:25 AM

[Doug "Digge...:]

Retired....

1933/1934
Unemployment rate over 20%
Inflation over 10% in 1933, and then in 1934 Roosevelt devalued the dollar by 60%. We've had nothing but "dollar" inflation ever since, exasperated by the 1971 decoupling. That's 38 short years of "history" without gold backing and now with more competition to the dollar (primarily the Euro and of course gold with the introduction of ETF's), the dollar has many strikes against it and the trillions of debt that backs it.

My future answer to this question will be:
Shadow Government Statistics has the current unemployment rate at 20% when you include those no longer looking for work and those who are working part time (not counted in current unemployment figures)
And as far as inflation goes: 2010/2011/2012 - pick one, it's coming. You don't think Helicopter Ben will let us down do you? His 2002 speech is the road map. But remember, in that same speech he also hinted that what Roosevelt did in devaluing the dollar by 40% was a good thing.

Here's what he said, and my last comment below that:

"Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation."

Notice that Bernanke said "enforced by a program of gold purchases?" Why didn't he mention that it was confiscation of the People's gold to bailout the bankers? The dollars given to the People for their gold were devalued by "40%" according to Bernanke. To these folks the People don't matter. The system must be maintained at all costs when in fact it is the system itself that causes the busts to begin with.

With the bailout of all of these integral parts of the system and what is to come, it is obvious to me Bernanke is practicing what he is preaching. Add GW's policies and Obama's and the writing is on the wall as to what will happen next.

Hope you're not on a fixed income.


On Jul 05 12:56 PM Retired wrote:

> 1982 inflation = 6.16%
> 1982 unemployment= 9.7%
> 1983 inflation = 3.22%
> Note that in the year AFTER high unemployment, inflation FELL
> The point I was trying make was as long as we have high unemployment
> inflation is not a concern.
> Guess I should have been more specific. Please name a year when there
> was HIGH inflation coupled with HIGH unemployment.

Jul 11 02:34 PM