Inflation

Why Veteran Trader Says Inflation in 2013 Is Imminent

Currency USD inflated no shadow

Is a spike in the monetary base - currency in circulation plus bank reserves at the Fed - the first sign of imminent inflation?

Art Cashin, the well-respected director of floor operations at the New York Stock Exchange for UBS, recently told King World News the increase in the monetary base may well be a sign of impending inflation.

Monetary base, sometimes called high-powered money, is the basis for the bank lending that drives our economy. When interest rates are normal, banks use their reserves for lending.

Unfortunately, these are not normal times. The U.S. Federal Reserve and other central banks around the world continue to hold interest rates at zero.

Zero interest rates mean zero returns. Investors don't get paid for investing. Banks don't get paid enough interest to compensate for the risk of lending money into the economy. Looking at it another way, there is no penalty for doing nothing with your money.

To continue reading, please click here...

Why There's No Real Inflation (Yet)

According to Nobel Prize-winning economist Milton Friedman, "inflation is always and everywhere a monetary phenomenon."
Well, apparently not...
There's certainly plenty of cause for inflation today. Every central bank in the Western world is holding interest rates down, and almost all of them are printing money like it's going out of style. And the big deficits governments were running should be making inflationary matters even worse. Taken together, monetary and fiscal policies are far more extreme than they have ever been.
But today inflation is only running at around 2% - well below where it should be, according to Milton's monetarist theories.
What does it all mean?

Why Inflation is the Economy's "Iceberg" in 2013

Even though Ben Bernanke's Fed has kept interest rates close to zero, inflation hasn't been a big problem since the 2008 financial crisis.

Despite what many observers have expected inflation has remained quite tame.

However in 2013, that may be about to change. One factor that might cause a surge in inflation is the fiscal cliff.

That's because Bernanke is already buying $1 trillion of Treasury and housing agency bonds each year ($85 billion per month) against a budget deficit that is about the same level.

That means the inflow of funds to the economy from the Fed and the outflow of money to fund the government's spending are about balanced.

However, if we go over the fiscal cliff the Federal deficit immediately falls to about $300 billion per annum. At that point, Bernanke would be injecting an extra $700 billion a year into the economy - which would have a corresponding inflationary effect.

The Case for Higher Inflation

But that's only part of the inflationary story.

Central banks around the world are also expanding their money supply. China has become more expansive, the European Central Bank is buying bonds of the continent's dodgier governments and Britain like the United States is monetizing nearly all the debt it creates to fund its budget deficit.

The big change in 2013 is now in Japan, where the new Abe government has told the Bank of Japan it wants much more buying of government bonds, to push the inflation rate up to 2%.

And just as Bernanke's money creation increases inflation internationally, Japan's new monetary push creation will likely increase inflation here in the United States.

To continue reading, please click here...

QE4 is Coming; Will Inflation Follow?

Many observers expect the U.S. Federal Reserve to announce another round of quantitative easing, or QE4, this afternoon following the Federal Open Market Committee (FOMC) meeting.

The consensus is that the Fed will purchase an additional $45 billion of bonds from the secondary market each month.

That means the Fed would replace the monthly $45 billion used to swap short-term Treasuries for long-term Treasuries under Operation Twist, which expires at the end of this month, with outright bond purchases.

In addition to the $45 billion a month used in Operation Twist, the Federal Reserve Bank has been purchasing $40 billion of mortgage-debt securities monthly in its continued effort to boost growth.

In total, the market expects the Fed to continue to purchase $85 billion worth of bonds on the secondary market each month for the foreseeable future.

Now some investors fear the Fed with QE4 will seal the deal on skyrocketing inflation - but it takes more than increased money supply to raise prices.

To continue reading, please click here...


To continue reading, please click here...

Inflation-Proof Investments: Go Beyond Gold and Oil with These Two Sectors

By now, most investors know that the U.S. Federal Reserve and other global central banks continue to engage in dangerous, currency-debasing forms of monetary stimulus - meaning it's time to stock your portfolio with inflation-proof investments.

Known as quantitative easing on this side of the pond, there are dire consequences to just one tryst with QE.

But here in the U.S., we're on our third go-round with the QE addiction.

This means we're headed down a dangerous path.

That's because too much money supply triggers inflation. While it's not definite that QE3 will bring about a return to the old Weimar Republic or the problems Zimbabwe has had to deal with recently, there is almost no getting around the fact that a financial system awash in liquidity is a financial system vulnerable to inflation.

Over the course of history, gold has been the favored destination for investors looking to combat inflation, but there is more to the story these days. The good news is inflation can be fought myriad ways and that includes going beyond the usual suspects.

Here are a few other overlooked inflation-proof investments that'll let you profit while prices soar.

Read More…

The QE3 Dangers Bernanke Isn’t Telling You About

Hoping the third time is the charm, the U.S. Federal Reserve voted on Sept. 13 to launch another bond-buying program, QE3.

Equity and commodity markets cheered the Fed's move. Stocks rallied and analysts raised precious metals price forecasts.

QE3 differs from the first two rounds in that it is an aggressive open-ended purchase program of $40 billion per month of mortgage-backed securities. The buying is slated to continue until we reach substantial and sustained improvement in the U.S. economy, which won't be a short-term achievement.

The program aims to lower long-term interest rates, stoke consumer demand and bring down the elevated unemployment rate.

But some opponents think the latest stimulus measure from Fed Chairman Ben Bernanke will fail to achieve any of that.

In fact, the QE3 doubters have a lot to say - and anyone with money in the markets right now should pay attention to what could happen.

To continue reading, please click here...

How QE3 – Like QE1 and QE2 – Will Trigger Inflation

The traditional safe haven assets of gold (NYSE: GLD) and silver (NYSE: SLV) have surged in price due to the announcement of the latest round of quantitative easing, QE3 - but those aren't the only assets QE3 will push higher.

While QE3 might seem harmless to U.S. consumers, it is present every time they gas up their cars or buy food at the grocery store.

In fact, all three rounds of quantitative easing have led to higher priced commodities.

Whether you realize it or not, QE3 - same as the stimulus programs before it - is adding greatly to the costs of everyday life. QE3 is directly leading to higher prices for oil, food and the cost of imported goods.

Over time, that results in a tremendous consumer expense in all product and service categories.

To continue reading, please click here...

Rising U.S. Food Prices are About to Eat Away at Your Savings

As U.S. households prepare for Recession 2013 , they'll have trouble saving as one constant expense is starting to take a sharp climb: food prices.

Higher U.S. food prices are the last thing the country needs as 2013 is set to bring with it a painful bunch of tax increases and the ominous fiscal cliff, but U.S. consumers need to understand that their grocery bills are about take a much bigger chunk out of their wallets.

You see, the United States is in its worst drought since the Dust Bowl. Farmers for months have been grappling with the effects, which are trickling down to your local store shelves.

"In 2013 as a result of this drought we are looking at above-normal food price inflation," U.S. Department of Agriculture (USDA) economist Richard Volpe told the Associated Press. "Consumers are certainly going to feel it."

To continue reading, please click here...

The U.S. Lies About Inflation: Here's The Inflation Secret The Government Doesn't Want You to Know

Is anyone else having deja vu?

In 1973, the U.S. economy had:

  • Record oil prices (check).
  • A stock market crash (check).
  • And jaw-dropping inflation (check).
Sound familiar? Yep, brush off your bellbottoms. The 70s are back.

And soon even Bernanke's shell games won't be able to hide the truth. After years of the Fed's loose money policy, inflation is biting back. And it's going to get ugly.

The government could stop inflation in its tracks if it would make some hard decisions. But if it doesn't, there are still proven ways to protect yourself from inflation. (For specific anti-inflation recommendations, take a look at the latest Money Morning special presentation right here.)



Learn more by clicking here...

Five Savvy Ways to Conquer the Wall of Worry


If you like extreme risk and consider living on the edge to be "normal," today's column isn't for you.

Today I'm writing to the millions of investors who are completely terrified by the prospect of what's next and who simply want their faith restored - not to mention their investments.

To all of them I would say: You are not alone and you're not wrong to be apprehensive.

Our political situation is an embarrassing train wreck, our national debt looks like a one way trip to financial hell, housing remains in the dungeon, unemployment is unacceptably high and Europe...oh Europe.

It's nothing short of a gigantic wall of worry.

Plus, there have been so many attempts to "fix" things that I've lost count. Throwing good money after bad is a fool's game and one that will have very real and inevitable consequences.

So what should investors do?

The Fed's War on Capitalism

Here's how I see things. The "Whitewash Ministry" has basically five options:

  1. Repression
  2. Devaluation
  3. Austerity
  4. Deflation
  5. Inflation
You can forget the double "d's" - devaluation and deflation.

Even though both would be the proper way for free markets to bleed out the excesses of the past, they are essentially political nukes and nobody has the willpower to touch either one of them.

The third, austerity, is being tried but only halfheartedly. Our leaders have no idea what this actually means. Since they remain completely unaccountable, there is no true incentive.

Besides, large numbers of people have figured out it's easier to be on the dole than it is to actually work, so this is another disincentive for meaningful cuts in spending.

As for inflation, this too is officially a non-starter as long as interest rates are held near zero. Unofficially, it's a different story. Most investors I know are feeling the heat of 12% to 15% a year in their wallets.

That leaves option number one - repression.

You can call it what you want, but repression is really a fancy way of saying that our government is conducting punitive monetary policy.

While they mouth off about how they want to create jobs and take care of the middle class, in reality they're eviscerating it.

How?

To continue reading, please click here....

Investors Turn to TIPS as Warren Buffett Warns on Inflation

Warren Buffett last week did more than warn investors on the dangers of low interest rates and inflation.

The Oracle of Omaha also had harsh words for traditional bonds.

In a Fortunearticle Buffett went so far as to say, "Right now bonds should come with a warning label."

"They are among the most dangerous of assets," Buffett wrote, "Over the past century these instruments have destroyed the purchasing power of investors in many countries."

To prove his point Buffett labeled inflation as the primary threat to bond investors, noting it takes no less than $7 today to buy what $1 did in 1965.

Instead of bonds, Buffett recommends "productive assets," including farmland and real estate.

But he saved his highest praise for stocks, especially the stocks of companies like The Coca-Cola Co. (NYSE: KO) and International Business Machines Corp. (NYSE: IBM), that consistently deliver inflation-beating returns.

But what if you're not comfortable betting most or all of your chips on stocks? And if traditional bonds are out, where else can investors turn for inflation beating returns?

TIPS Insure Wealth Against Inflation

Enter Treasury Inflation Protected Securities, or TIPS.

Unlike regular bonds, TIPS are designed to protect your principal against the ravages of inflation.

In fact, TIPS zig when other securities zag, providing diversification and safety to your portfolio.

TIPS are considered to be an extremely low-risk investment since they are backed by the U.S. government, and their par value rises with inflation while their interest rate remains fixed.

Here's how they work.



To continue reading, please click here...

Not Much of a Debate: Inflation is Part of the Plan

Forget about lost decades. Forecasts that we'll be turning Japanese couldn't be further from the truth.

Here's why.

It's simple, really. Deflation is not in the interest of anybody in power, so it's very unlikely to happen.

The U.S. Federal Reserve's policy move to target inflation last week just re-emphasizes this point.

That's not to say deflation is a bad thing for everybody.

For savers and those living on fixed incomes, deflation would be a very good thing indeed.

Their income would gradually increase in real terms, and their savings would become steadily more valuable. Holders of Treasury bonds would also gain mightily from deflation.

However, the very people who would gain from deflation are not in power.

The People's Bank of China can't vote in the U.S. (yet!), Ron Paul is not president, and there is not an organized and powerful savers' political movement. After all, this is not Germany or Japan!

Meanwhile, in the real world, the U.S. government is spending far more than it takes in, and its debt is rising to dangerous levels. This has been happening on a bipartisan basis since at least 2001.

The Tea Party may have elected a Congress committed to reducing spending, but none of the battles of 2011 actually reduced spending - they just slowed the rate of growth somewhat.

Since much of the debt is borrowed long-term at low interest rates, the best way to reduce its burden on future generations is to encourage inflation.

Savers may lose out on the deal, but to those in Washington, the idea of inflating our way out of debt is irresistible.

Of course, sometimes we can depend on an independent central bank to resist this temptation. But at present, Fed Chairman Ben Bernanke is committed to near-zero interest rates in his fight against deflation.

Now you don't have to be a conspiracy theorist to realize that, if the power structure is committed to at least moderate inflation, inflation is what you are going to get.

In fact, it is already brewing.



To continue reading, please click here...

Why Warren Buffett Is Buying – And You Should Be Too

Legendary investor Warren Buffett recently made news with his purchase of International Business Machines Corp. (NYSE: IBM), though I can't say I'm surprised.

Despite criticism that he's buying into a top-heavy market, that IBM is at a premium, and that he's losing his touch, chances are Buffett knows exactly what he's doing.

And guess what, it's exactly what I've been counseling investors to do since this crisis began - bolster defenses by putting money to work in companies that are backed by trillions of dollars in tailwinds, and have solid defensible businesses (Buffett calls these "moats").

According to a Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) filing made Monday but dated Sept. 30, 2011, Buffett also waded into General Dynamics Corp. (NYSE: GD), DirecTV (Nasdaq: DTV), CVS Caremark Corp. (NYSE: CVS), Intel Corp. (Nasdaq: INTC) and Visa Inc. (NYSE: V).

In the third quarter, Buffett funneled $10 billion into Berkshire's IBM stake, which now stands at 5.5%. Of course, Berkshire maintains a $13.5 billion stake in The Coca-Cola Co. (NYSE: KO) that remains the firm's largest.

Buffett Pulls the Trigger

As a long time Buffett watcher, I am somewhat surprised that he picked up Intel and IBM, if only because the Oracle of Omaha has a well-documented aversion to tech.

Still, I can see the logic. Both companies are global giants poised to profit from the whirlwind of growth set to take place thousands of miles from our shores in the decades ahead.

There are technical similarities, too.

For instance, IBM's price has risen more than 29% this year. As a result, at least five analysts have removed their buy recommendations because they believe the stock may have run its course, according to Bloomberg News and YahooFinance . At the moment, less than 50% of the analysts who cover IBM recommend buying the stock.

Back in 1988, it was much the same situation. Coke had more than doubled in size and analysts had much the same reaction when it came to doubts about further growth. Many openly bashed the stock's prospects and completely ignored the global growth potential that today is Coke's mainstay.

Coke is up tenfold since then. Enough said.

Here's what I think Buffett sees:



To continue reading, please click here...

Helicopter Ben is at It Again: Four Ways to Protect Yourself From the Fed’s Next Flyover

The circus known as the debt-ceiling debate may have left town - at least for the time being - but there's still one sad clown left standing squarely in the center of the ring.

I'm talking about U.S. Federal Reserve Chairman Ben S. Bernanke - otherwise known as "Helicopter Ben."

Bernanke got the nickname "Helicopter Ben" from a speech in 2002, in which he announced that deflation was a real worry (this was just when house prices were taking off) and that one possible solution would be to fly around the country dropping $100 bills from helicopters.

Strange as it sounds, that might actually have been a better approach than the one he ended up taking.

Attack From the Sky

Small towns in the Midwest and the working poor of such downtrodden urban environments as Cleveland and Detroit could certainly use a visit from the kindly flying Santa Claus. At least those Americans would have put the money to good use.

But so far, Bernanke's helicopter has only hovered over Wall Street, and his generosity has had a negative effect on the U.S. economy as a result.

His first two rounds of quantitative easing had three major consequences:

  • Higher inflation.
  • Higher unemployment.
  • And higher borrowing costs for average Americans.
In fact, the only thing Bernanke's policies have managed to suppress is economic growth.

U.S. gross domestic product (GDP) increased by just 1.3% in the second quarter - an indication that an already wobbly economic recovery could tip completely over in the second half of the year.

But if you think that means we'll get a reprieve from Helicopter Ben's razor-sharp rotors, you're wrong. To the contrary, he's gearing up for another flyover - a third round of Treasury purchases (QE3).

To continue reading, please click here...