B smith

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

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.