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danielosborne
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I am an investment professional currently working for the amazing Wall Street Bad Boys.
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NextCandle.com
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  • Economic News March 15: Friday’s CPI Numbers Will Confirm What Consumers Already Know 0 comments
    Mar 16, 2012 7:18 PM | about stocks: GLD, IAU, GDX, GDXJ, XOM, CVX
    On Friday morning, the Bureau of Labor statistics at the US Department of Labor will release its Consumer Price Index (CPI) figures for February and investors should expect it to show what consumers already know: We are heading into an inflationary environment.

    Specifically, economists are forecasting that the CPI rise will double from January's month-on-month gain of 0.2%. Mark Zandi, Moody's Analytics chief economist, expects inflation to be higher than what the Fed policies makers think and he has pointed out that when (or if) unemployment drops below 7%, there will be inflation problems as job growth creates purchasing power which in turn creates inflationary pressure on businesses and consumers alike. Then there is the fact that for all intensive purposes, the Fed is printing money as fast as the printing presses can print it while its also an election year where President Obama will need to use the Fed to generate all the "pump-priming" he can get to make the troubled economy look better in the eyes of voters.

    However, consumers do not have to wait to for 7% unemployment or after the November elections to experience the brunt of inflation because as a recent CNBC article noted, rents are up 3% nationally this year while last year, food prices rose 4.4% and energy prices rose 6.1%. And of course, then its gas prices which may be heading beyond the $4 level throughout the country by the summer driving season. Hence, investors should not expect anything dramatic on Friday - other than a confirmation of what consumers already know and are experiencing.

    So how can stock investors profit from or at least protect themselves from inflation? Here are a few ideas or stock predictions:

    · Gold. Periods of high inflation and economic uncertainty will tend to drive gold prices higher. The easiest way for investors to profit from rising gold prices would be to invest in gold ETF funds that hold physical gold such as the SPDR Gold Shares (GLD) and the iShares Comex Gold (IAU), both of which are up over 6%. Likewise and for investors seeking exposure to gold mining stocks themselves, the Market Vectors ETF Trust (GDX), an ETF that attempts to replicate the price and yield performance of the NYSE Arca Gold Miners Index (GDM); or the Market Vectors Junior Gold Miners ETF (GDXJ), an ETF that attempts to replicate the price and yield performance of the Market Vectors Junior Gold Miners Index (the Index). However, the GDX is down over 2% since the start of the year while the GDXJ is up over 3%.

    · Other Commodities or Natural Resources Stocks. Given demand for energy and oil in particular from emerging markets, investors can probably expect oil prices to remain high. Hence, oil and energy stocks like Exxon Mobil (XOM) and Chevron Corporation (CVX) will probably beat inflation. Likewise and given that stocks usually beat inflation, investors might want to look at mining and other commodity stocks while keeping in mind that an economic slowdown in China could wipe away any gains from inflation.

    · REITs. An overlooked sector given the housing crisis and possibly a commercial real estate crisis, REITs also have direct exposure to any rise in rental rates plus they usually pay great dividends. However, REIT investors will need to be very selective with the REITs they choose as some real estate sectors or regions of the country have held up much better than others.

    Finally and before the start of trading on Friday, investors might want to check their Next Candle stock predictions for some of the stocks in the above sectors. And while investors should not expect any dramatic price swings, there nevertheless could be some movement after the CPI numbers are reported.

    NOTE: THIS PIECE WAS JUST POSTED ON OUR BLOG AT http://www.nextcandle.com/blog/2012/03/economic-news-march-15-friday%E2%80%99s-cpi-numbers-will-confirm-what-consumers-already-know

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