Forty years ago the administration of Richard Nixon ended the gold standard. While you won't see much about this in the regular news, it is one of the most relevant acts in our history that explains the malaise we experience today. Forty years ago, it took $35 to buy one ounce of gold. Today gold is up 50-fold at $1764.
Fifty times... Fifty times in 40 years!
Inflation is defined by Webster as: A continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.
While we are told our current economy is operating at a low rate of inflation (2%), we should use some perspective to envision what the future will look like. We should look at the definition above and realize what is applicable today. Make no mistake, quantitative easing is simply an academic term for ordinary printing of money, and it absolutely "increases the volume of money and credit relative to available goods and services".
Sleight of Hand
Today's anniversary should be a wake up call. A wake up call to everyone to realize how much our purchasing power has fallen in such a short period of time. The dollar is worth 1/50th of what it was just 40 years ago. That is clear for all to see, if of course they are looking.
You won't hear much about Nixon today, or the US's 40th anniversary of ending gold convertibility. No, the MSM will not be running any "special reports". Only those that have their eyes open will see, but for most this day in time will simply vanish. Poof... gone... out of sight and out of mind. The central bankers and elite that run our world economic machines will win, as the focus is on issues other than what is vitally important. They will continue to print money and debase the value of what we earn and save.
The most basic form of magic is the ability to use sleight of hand. By shifting attention away from what he is really doing, the magician is able to convince the people he can truly perform unworldly acts. Our central bankers are master magicians, and their followers believe our dollar is solid.
Indeed today should be a wake up call, but only those prepared for inflation will benefit.
Inflation ETF Ideas
Food, fuel, and water are three areas that are absolutely necessary going forward. While water and food are nature's building blocks to life, fuel is man's addition to necessitate overall growth. Therefore, all three areas are necessary and will hold their worth regardless of the currencies' value.
For individual investors that would like a basket of securities to mirror their investment themes, the following ETFs are useful:
Powershares Global Agriculture (PAGG): Tracks companies involved in the agriculture business. Price: $30.22 52week range $24.87 - $34.28
Market Vectors Agribusiness (MOO): Tracks companies involved in the agriculture business. Price: $49.80 52 week range $41.83 - $57.93
iShares Dow Jones US Energy (IYE): Tracks companies involved primarily in the US energy business. Price: $38.32 52 week range $29.12 - $46.12
iShares S&P Global Energy (IXC): Tracks companies involved in the worldwide energy business. Price: $36.67 52 week range $30.00 - $45.61
Powershares Global Water (PIO): Tracks companies that focus on the provision of potable water, the treatment of water, and the technology and services that are directly related to global water consumption. Price: $17.46 52 week range $16.07 - $21.50
Guggenheim S&P Global Water (CGW): Tracks companies that seek to mirror performance of the S&P Global Water Index. Price: $19.47 52 week range $16.70 - $22.44
Today should be a day that all investors wake up and pay attention to the need to protect their money against the effects of inflation. As happened 40 years ago when Nixon abandoned the dollar/gold peg, today we also face very clear inflation signals ahead. Every day we read about another bailout, central bank bond purchase, or quantitative ease. It's time to use this day to remind ourselves that while inflation is sneaky and sometimes sleepy, the dollar's value is only 1/50th of what it was just 40 years ago.