Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Why PEAK INFLATION is a RED HERRING! Prepare for a Decade Long Cost of Living Crisis - 9th Aug 22
FREETRADE Want to LEND My Shares to Short Sellers! - 8th Aug 22
Stock Market Unclosed Gap - 8th Aug 22
The End Game for Silver Shenanigans... - 8th Aug 22er
WARNING Corsair MP600 NVME2 M2 SSD Are Prone to Failure Can Prevent Systems From Booting - 8th Aug 22
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22
What it's like at a Stocks Bear Market Bottom - 29th July 22
How to lock in a Guaranteed 9.6% return from Uncle Sam With I Bonds - 29th July 22
All You Need to Know About the Increase in Building Insurance Premiums for Flats - 29th July 22
The Challenges on the Horizon for UK Landlords - 29th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Grow Your Investments in an Inflationary Environment

Economics / Inflation Feb 26, 2008 - 10:10 AM GMT

By: Money_and_Markets

Economics

Best Financial Markets Analysis ArticleTony Sagami writes: I got my first taste of inflation in 1973, shortly after I got my driver's license.

Gasoline was 25 cents a gallon when I first started driving, and I was busy enjoying the freedom and independence that an automobile gives a teenage boy.


But that freedom didn't last very long. The Arab oil embargo and 1973 energy crisis made gasoline very hard to get.

Do you remember the inconvenience of long lines that stretched so far that gas stations often ran out of gas before you finally made it to the pump? How about even/odd days?

And while waiting in line was very inconvenient, what really killed my joy riding was the stratospheric increase in gas prices from 25 cents to $1-plus a gallon! That was more than this son of a poor dirt farmer could afford.

Our Country Lost Its Fiscal Innocence During 1970s Hyperinflation ...

Remember the days of long lines for gas and soaring prices?
Remember the days of long lines for gas and soaring prices?

I was too young to be in the market for a home, but plenty of other Americans found themselves priced out of the game.

Reason: The Federal Reserve Bank, under Paul Volker, raised interest rates to almost 20% by the end of the decade to combat inflation.

Mortgage rates skyrocketed!

Finally, inflation got so bad that President Nixon froze wages and prices ... initially for 90 days ... and eventually for almost 1,000 days.

Even my father, who rarely complained about anything, bitterly talked about how the price controls were vaporizing his already-meager vegetable profits.

I was just a kid, but old enough to know that inflation was NOT a good thing.

Now, fast forward thirty years ...

Hyperinflation Is Back, and It Could Be Worse this Time Around!

The U.S. Consumer Price Index (CPI) jumped 0.4% in January for a 12-month overall inflation rate of 4.4%, up from the already-too-hot 4.1% inflation reported in December.

What's more, this is the third month in a row that the annual inflation rate has been above 4%.

Energy prices increased 19.6% over the last 12 months. And over the last three months, they soared a whopping 43.6%!

It would be a huge mistake to blame all that inflationary pressure on energy, though. After all, it represents just 10% of the CPI.

Prices for the other 90% must be on fire, too!

And as Federal Reserve Bank of St. Louis President William Poole warned, further interest rate cuts may accelerate inflation to an even more unacceptable level.

"Taking out insurance against certain risks is not free. At any given time, policy makers could pursue a powerfully expansionary policy to all but eliminate the possibility of a significant recession in the year ahead, but doing so would come at the cost and even likelihood of an unacceptable increase in the rate of inflation."

To be fair, the U.S. isn't the only place where inflation is picking up ...

China's January producer price index jumped 6.1% to its highest level in three years. The leap was mainly due to rising oil prices, which jumped 29%, and raw material prices, which rose 8.9% percent last month from a year earlier.

Chinese firms are sending rising prices to overseas buyers ...
Chinese firms are sending rising prices to overseas buyers ...

According to the Chinese National Bureau of Statistics, consumer prices rose 7.1% in China last month, the single largest increase in more than a decade!

But here's the important part about inflation in China: Chinese exporters are passing on their rising costs to overseas customers!

Just look: The price of Chinese goods leaving factories rose by an eye-popping 6.1% in January, the highest rate in three years!

Note that this does NOT include January's inflationary data, which is certain to be even worse because the most severe snowstorm in more than 50 years caused prices to skyrocket.

Once those numbers are factored in, I wouldn't be surprised to see the Chinese inflation rate top double-digits.

According to a Global Sources survey, a Hong Kong trading company, 80% of the 709 Chinese exporters surveyed said they expected to increase prices in the next six months.

Is it a coincidence that gold has jumped more than 30% over the last 12 months to a 28-year high of $950? Or that the price for a barrel of oil closed over $100 last week for the first time ever?

Even the metal that doesn't shine is headed to the moon! I'm talking about iron, of course ...

Since 2001, the price of iron ore, the main raw material used to make steel, has risen by an astonishing 500%!

That stunning increase will translate into dramatically HIGHER costs of producing steel. We're already seeing this trend play out in the global marketplace. Japanese and South Korean steel mills just agreed to a 65% increase in iron ore prices from Brazil.

What can you do to protect yourself as inflation sweeps around the globe? Rather than burying your head in the sand, I urge you to consider ...

Three Steps to Protect and Grow Your Investments In a Hyper-Inflationary Environment

Step #1: Make sure your portfolio includes a heavy dose of hard asset and natural resource companies. Sean and Larry have given you plenty of great ideas in recent issues of Money & Markets .

And two weeks ago I told you about Companhia Vale do Rio Doce (NYSE: RIO), which has jumped by more than 10% since then.

I've said it many, many times in the past, but my #1 rule for successful investing for the next decade is ...

Get 'long' whatever the Chinese are buying!

Nothing captures that strategy better than the hard assets and natural resources that the Chinese so desperately need to fuel their growth.

Step #2: If you're a fixed-income investor, I suggest dumping your long-dated bonds right away because inflation is going to clobber bond investors. Keep your bond maturities shorter than five years and hold a bundle of cash.

Step #3: The U.S. dollar is doomed to keep falling as long as Gentle Ben Bernanke and his Fed buddies keep cutting interest rates. It might sound simplistic, but don't invest in dollars when the dollar is falling.

In my book, the best way to diversify a portfolio is with foreign stocks, especially Asian shares.

As I just told you, despite rising inflation, many of these firms are doing a great job of passing on higher costs to their customers. So not only will your portfolio have the potential to appreciate from currency gains, but it will also be hitched to what I consider the fastest growing and most profitable part of the world.

Whatever you do, DON'T make the mistake of doing nothing! Inflation is a very real threat, and the time to act is now.

Best wishes,

Tony

 

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

René Cohrt
05 Mar 08, 00:54
Protection against inflation

Reasonable advice given, never take advice from banks


Post Comment

Only logged in users are allowed to post comments. Register/ Log in