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  • Inflation

  • Investing Strategies: How to Protect Yourself if the U.S. Economy Catches the "Japan Disease" Grim unemployment figures, growing worries about crushing debt loads and the apparent absence of any inflation are causing many investors to ask a tough question: Is the U.S. economy catching the "Japan disease," the dreaded and dreadful malaise that has left the onetime Asian powerhouse in a stagnant state since 1990?

    It's a crucial question.

    And the answer will guide your investment decisions for the next 20 years.

    To find out the best investments to be making right now, please read on... Read More...
  • CPI Shows Inflation May Be a Bigger Problem than the Fed Thinks It Is A hodge-podge of government reports released Friday has rekindled debate amongst economists over a question central to the future of the U.S. economic recovery: Is inflation slowly on the rise, or is deflation about to sink prices and future growth?

    The consumer price index (CPI) rose for the first time in four months in July, signaling higher prices in some sectors and easing concerns that a slowdown would sink the U.S. economy into deflation. Meanwhile, the government released a string of weak economic reports that point to slower economic growth.

    The consumer price gauge increased 0.3%, the most in a year, outpacing the 0.2% gain projected by the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed Friday. The so-called core rate favored by government economists, which excludes volatile food and fuel costs, met expectations, increasing 0.1%.

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  • The Fed's Treasury Purchase Plan is Just Further Proof That It's in the Denial About the Dollar This week's decision by the U.S. Federal Reserve to buy Treasuries in an effort to prop up borrowing is further proof that the economy is worse off than policymakers would have us believe. But more than that, the Fed's Treasury purchase plan is just one more reason for investors to anticipate inflation and take steps to protect their money from it.

    In case you missed the news, here's what happened...

    The Federal Reserve on Tuesday announced that instead of allowing proceeds from maturing mortgage bonds to disappear from its balance sheet, the central bank would take the "modest" step of using them to invest in new Treasuries.

    In plain English, that means that the Fed is reinvesting into U.S. Treasuries the money it would otherwise bank from maturing mortgages.

    Its goal is very simple: to keep long term interest rates from rising.

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  • An Anemic Economic Recovery Keeps the Fed From Focusing on Inflation With interest rates near zero and a balance sheet that's in excess of $2 trillion, U.S. Federal Reserve Chairman Ben Bernanke would be very glad to offload some of the Fed's obligations. But so far he's has been unable to do so, as an anemic economic recovery continues to monopolize his attention.

    The central bank yesterday (Tuesday) announced that it would reinvest the proceeds from expiring mortgage-backed securities into longer-term U.S. Treasuries. The move should help a weakening economy by keeping mortgage rates low. And while it also may boost inflationary pressures, the central bank feels it had little choice.

    "Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months," the Federal Open Market Committee said.

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  • Is the U.S. Economy Destined for Deflation? With inflation low and the recovery waning, a growing chorus of analysts is beginning to suspect that U.S. policymakers aren't doing enough to head off deflation.

    U.S. producer prices fell for a third straight month in June, sliding 0.5%. That follows declines of 0.1% in May and 0.3% in April. Core inflation, which excludes food and energy costs, managed only a 0.1% increase for the month, and is up just 1.1% in the past 12 months. The U.S. Federal Reserve's preferred target for inflation is 2%.

    Meanwhile a high rate of unemployment continues to jeopardize the U.S. recovery, and economists fear that a significant drop in economic growth could tip the scales toward a deflationary spiral.

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  • South Korea Raises Interest Rates, Joining Asian Movement to Reduce Stimulus South Korea on Friday joined a chorus of Asian countries in cooling their economies by raising its benchmark interest rate and removing monetary stimulus from its financial system.

    The Bank of Korea (BOK) joined counterparts across Asia by notching its rate up by 0.25 percentage point to 2.25%, lifting its key policy rate for the first time since August 2008 - the beginning of the global financial crisis.

    But the BOK stressed it is just nudging rates up from emergency levels to counter the threat of inflation and curb a rise in household credit. Asia's fourth-biggest economy joined other economies during the global financial crisis by slashing interest rates, knocking them down three times and shaving a total of 325 basis points off the benchmark rate.

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  • The Global Double-Dip Recession: Which Markets to Hold… And Which Ones May Fold Last week's stock-market meltdown was a worldwide affair, and was touched off by trader fears of a global "double-dip" recession.

    However, the truth is that the odds of a recessionary reprise are high in just a few countries - primarily those that have experienced excessive fiscal and monetary "stimulus," or that have real inflation problems.

    The rest of the world is recovering just fine.

    To find out which markets to hold - and which ones may fold - please read on...

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  • Inflation Isn't Dead, Just Sleeping – And TIPS Can Protect You When It Awakens
    Investors are always on the lookout for hot tips. The best tips highlight investments that pack a big potential profit punch, but that haven't yet started their move.

    That's just what we have for you here.

    We're not talking about the "inside scoop" on some obscure stock. What we're referring to are government-backed "TIPS" - or, as they're more formally known, Treasury Inflation-Protected Securities.

    Admittedly, inflation hasn't been a major concern of late. The U.S. Consumer Price Index (CPI) was actually down by 0.2% in May, extending a 0.1% drop in April, while May's core inflation - which is the CPI measured without the volatile food and energy components - was just 0.1% higher. That's why many market analysts and media pundits are now saying deflation is much more of a worry for U.S. markets than inflation.

    However, many of Money Morning's top experts - including Chief Investment Strategist Keith Fitz-Gerald and Contributing Editor Martin Hutchinson - disagree with that assessment. Recognizing the inevitable inflationary impact of increasing deficit spending, growing federal debt, rising state and local taxes and a weakening U.S. dollar, they see renewed upward price pressure not too far down the road.

    That makes this the perfect time to learn about TIPS and how they can protect you when inflation again rears its ugly head.

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  • Question of the Week: Readers Respond to Money Morning's Question on China's Currency After months of intense political pressure, China last week announced that it would allow its currency to gradually appreciate against the U.S. dollar. China's currency - the yuan - has been pegged to the American greenback since 2008.

    "This is going to lead to a transition from export-lead, investment-lead to more of a consumption-lead economy going forward," Jing Ulrich, chair of China equities and commodities at JPMorgan Chase & Co. (NYSE: JPM), told CNBC. "I think the ramifications are profound not just for the next few months but actually for the coming years."

    Not surprisingly, U.S. exporters embraced the news as an opportunity to compete against Chinese companies and to reduce the U.S. trade deficit. Foreign nations, including the United States, have accused China of undervaluing its currency to give its exporters an advantage in global trade.

    Chinese domestic consumption stands to benefit the most, as consumers will have more purchasing power on top of China's recent wave of multi-industry wage increases. Western companies that reach out to Mainland China can access a consumer base with more money and an increased desire to spend, which should give Western investors a chance to cash in on climbing profits.

    However, not everyone will see immediate benefits from the new currency policy. In fact, the combination of big double-digit wage increases in China and an increase in the yuan will reanimate inflation.

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  • We Want to Hear From You: Are You Worried About China's Currency Rise Sparking Inflation? After months of intense political pressure, China announced Saturday that it would allow its currency to gradually appreciate against the U.S. dollar. China's currency - the yuan - has been pegged to the American greenback since 2008.

    "This is going to lead to a transition from export-lead, investment-lead to more of a consumption-lead economy going forward," Jing Ulrich, chair of China equities and commodities at JPMorgan Chase & Co. (NYSE: JPM), told CNBC. "I think the ramifications are profound not just for the next few months but actually for the coming years."

    Not surprisingly, U.S. exporters embraced the news as an opportunity to compete against Chinese companies and to reduce the U.S. trade deficit. Foreign nations, including the Untied States, have accused China of undervaluing its currency to give its exporters an advantage in global trade.

    Read More...
  • Why China's Foxconn Will Hurt the Global Economy More Than the BP Oil Spill Before this month, chances are pretty good that you'd never even heard of Taiwan's Foxconn International Holdings (PINK ADR: FXCNY). And yet, Foxconn is one of the world's most important manufacturers.

    Given that the formerly anonymous giant is now at the forefront of the zooming escalation in labor costs that's currently taking place in Mainland China - and given the enormous implications of the inflationary pressures that will result - chances are excellent that Foxconn will have a bigger effect on the world economy this year than even BP PLC (NYSE ADR: BP).

    If that weren't enough, China's decision to let the yuan appreciate against the U.S. dollar will actually magnify this impact: If the Chinese currency strengthens, then the yuan-denominated wage increases will have an even-more-inflationary effect on the cost of China-made goods selling at your local Wal-Mart (NYSE: WMT).

    To understand the "Foxconn Effect" - and to see how to position your investments - please read on...

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  • China's Inflation Higher Than Target Rate, Could Be a Sign It's Time to Tame Rapid Growth China's inflation rate rose 3.1% in May from a year earlier, exceeding the government's 3% target rate for 2010 and stirring speculation on whether or not Beijing will attempt to slow the nation's rapid growth pace.

    The consumer price index climb was the fastest in 19 months and was higher than the 2.8% rate in April. The National Bureau of Statistics also posted increases in industrial production, retail sales, and property prices, which contributed to analysts wondering whether or not China will make moves to tame growth to avoid higher inflation.

    "Officials seem confident that price pressures will ease later this year, attributing much of the recent positive trend to base effects, but there are plenty of reasons to think that inflation can keep moving higher," Royal Bank of Canada (NYSE: RY) economist Brian Jackson told The Wall Street Journal.

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  • These Five Inflation Plays Will Provide Protection and Profits Inflation hawks have been warning since 2008 that the spurt of U.S. money creation that began at the end of that year would spark a surge in consumer-price inflation.

    And yet the consumer price index (CPI) statistics remain quiet - not giving ammunition to the deflationary camp, but making "inflationists" look silly, as well. Now, however, it is becoming obvious that inflation will soon arrive. But this time it is sneaking in through the back door - courtesy of our emerging-market trading partners.

    Fortunately, there are some very clear steps that investors can take to protect themselves from this expected inflationary surge.

    To learn about five investments that can battle inflation even as they fatten your portfolio, please read on... Read More...
  • With Economic Turmoil and Inflation on the Horizon, Higher Gold Prices Lie Ahead The gold bull is unstoppable.

    Gold prices are up fourfold since 2001 and hit a new record high near $1,250 an ounce on May 14. But they're still nowhere close to finished.

    In fact, another four-fold increase could be in the cards.

    "It sounds like a gold bug's dream," Money Morning Contributing Editor, Martin O. Hutchinson said in a May 13 Reuters BreakingViews column. "But looking back to the last inflation-adjusted peak price in 1980, it's far from impossible that the gold price could soon go above $5,000."

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  • U.S. Treasury Bonds: The Not-So-Safe "Safe Haven" In the last few weeks, international investors spooked by the budget crisis in Greece and the turmoil in southern Europe have been flocking into the U.S. Treasury bond market as a "safe haven."

    The huge resulting funds flows have pushed the 10-year Treasury bond yield down to 3.16%, very little above its level during the crisis of October 2008. To a rational investor, this is extremely peculiar: After all, what on earth is safe about the "haven" of long-term U.S. Treasury bonds?

    To learn about the potential investment dangers posed by U.S. government debt, please read on... Read More...