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Deflation

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George Soros: We Are Repeating 2008

By , Money Morning -

George Soros

George Soros offered a grim prediction for the markets yesterday, likening this environment to 2008.

This time, however, he blames China's over-indebtedness as the primary factor responsible for global market woes.

Here's the Hungarian-born hedge fund manager's full warning...

After Fed Meeting Today, Make Money in These Three Assets

By , Associate Editor, Money Morning • @JimBach22 -

The Fed

The Federal Open Market Committee (FOMC) meeting today (Wednesday) continued to fuel discussions about when the U.S. Federal Reserve is going to finally raise interest rates.

After all, labor market conditions have cleared up - at least by the Fed's metrics. The economy added 295,000 jobs in February, and the unemployment rate sits at an impressive 5.5%. But the other side of the Fed's dual mandate paints a grimmer picture. The U.S. is in deflation.

The real question is how to invest for deflation. Here's how...

Federal Open Market Committee Minutes Today Proved One Thing

By , Associate Editor, Money Morning • @JimBach22 -

Federal Open Market Committee

The Federal Open Market Committee (FOMC) minutes today did little to quell confusion over when the U.S. Federal Reserve will raise interest rates.

The expectation is that the Fed will raise rates sometime in the summer. But the direction of Fed monetary policy has become more complicated than simply pegging a rate increase to what has become an arbitrary consensus estimate.

That's because there are so many potential policy directions, and Fed ambiguity makes nothing certain.

Here's how you should read today's latest round of Fed uncertainty.

Deflation in 2015? These Four Charts Say Yes

By , Associate Editor, Money Morning • @JimBach22 -

deflation in 2015

Deflation in 2015 seems to be upon us. And while falling prices might seem like a good thing, deflation can wreak havoc on the economy.

In a deflationary period, prices will drop, corporate profits will dry up, wages will shrink, and all of this will reinforce the conditions of recessions.

These four charts show that the U.S. has a real deflation problem now...

What's Next for This Bull Market Will Give Main Street Investors a Rude Awakening

By , Capital Wave Strategist, Money Morning • @WallStreet_II -

So far today U.S. stocks aren't celebrating the 5-year anniversary of the bull market, which technically speaking began on March 9, 2009.

Will they rally by the end of the day, in a formal salute to moving onwards and upwards?

Deflation Is Coming (and It's Not What You Think)

By , Capital Wave Strategist, Money Morning • @WallStreet_II -

Be careful out there.
The stock market rally that started in March 2009... The one that's taken us out of the Great Recession and to new highs... The rally that's driving sentiment indicators of people who benefit from rising financial assets directly, peripherally, or because they hope all boats rise with the market...
The rally has never been loved.
The thing is, equity markets don't need love to go twice as high from here, or three times as high in the next 20 years. If they get what else they need, they'll keep going higher.
We could be on the verge of a generational bull market. That's if deficit-plagued, interconnected global sovereigns deleverage and, at the same time, re-capitalize middle and rising classes by making "recourse-sound" capital available and simultaneously reconstituting entirely the notion of taxation.
Too bad the likelihood of that happening is somewhere between slim and none.
That's one reason why I'm an increasingly reluctant bull.
But there's another reason too.

And it has to do with deflation...

These Charts Show Why QE3 Hasn’t Triggered Inflation – So Far

By , Associate Editor, Money Morning • @DavidGZeiler -

When you pump massive amounts of money into an economy, as the U.S. Federal Reserve has done with QE1 through QE3, you're supposed to get some measure of inflation.

And yet despite some $2.3 trillion of quantitative easing since 2008, the core inflation rate has actually fallen over the past year from about 2.25% to 1.7% as of May.

It defies both common sense and monetary theory - or at least until you find out where all that QE3 money ended up.

To continue reading, please click here...

One Sure Winner as We Fight Deflation

By , Money Morning -

The Library of Economics and Liberty defines the Law of Unintended Consequences as such: Actions of people-and especially of government-always have effects that are unanticipated or unintended.
Our current economic state is a perfect example. Central banks have flooded the economies, and yet the world still inches toward deflation. But for savvy investors looking at the right stats, this is an opportunity to buy one sector in particular.
Here's a great bargain and why it's a great buy now...

Fed's "QE2" Could Fuel Inflation in U.S. & Deflation in Europe

By , Contributing Writer, Money Morning -

The U. S. Federal Reserve's latest round of quantitative easing (QE2) may further escalate the currency war by producing a crippling bout of deflation in Europe and conversely, another period of inflation on the domestic front.

The diverse results are possible because further Fed purchases of debt are likely to re-ignite economic growth and increase prices in the United States, while a surging Euro will make it more difficult for European countries to pay off debt.

Fed purchases of Treasuries to stimulate the U.S. economy could send the euro rising against the dollar, sparking deflation in Europe, Nobel Prize-winning economist Robert Mundell told Bloomberg News.

Read More…

Question of the Week: U.S. Federal Reserve Keeping Low Rates Does More Harm Than Good

By , Associate Editor, Money Morning -

After their meeting last week, U.S. Federal Reserve policymakers said they are more worried about deflation than inflation and vowed to look for ways to help along an economy that is experiencing worrisomely slow growth.

In fact, the central bank's rate-setting Federal Open Market Committee (FOMC) said it plans to keep the benchmark Federal Funds rate at its record-low level unchanged between 0.00% and 0.25% for the 20th consecutive month. And, using its go-to line - central bank policymakers said rates could remain that low for "an extended period."

In the near term, that appears justified. Core inflation is running at only 0.9%, below the Fed's comfort-level target of 1% to 2% - where it says the inflation rate needs to be for price stability. Fed Funds futures at the Chicago Board of Trade (CBOT) now show that traders believe there is a 54% chance the Fed won't increase short-term rates until its November 2011 policymaking meeting.

Read More…

Exchange-Rate Risk: The Unseen Enemy of U.S. Investors

By , Capital Wave Strategist, Money Morning • @WallStreet_II -

When specialty-chemicals-maker H.B. Fuller Co. (NYSE: FUL) announced its third-quarter results earlier this month - with earnings and revenue coming in well below expectations - company shareholders suffered an 8% haircut in a single day.

Rising raw material costs appeared to be the headline reason for turbulence at the company. But there was another culprit - a frequent flier in cases of earnings shortfalls, but one that often remains unseen and misunderstood.

I'm talking about exchange-rate risk.

U.S. investors don't realize it yet, but the level of exposure to exchange-rate fluctuations facing big American companies - as well as those based overseas - is steadily increasing. So what happened to H.B. Fuller - and its shareholders - is going to occur with increasing frequency. And in many cases, the fallout will be much more severe.

To better understand the rising exchange-rate risks facing U.S. investors, please read on...

Currency Exchange Rates and Your Investments: What You Don't Know Can Hurt You

By , Capital Wave Strategist, Money Morning • @WallStreet_II -

You may be facing immense foreign-currency risks in your investment portfolio - and not even realize it.

If that's the case, don't feel bad: You're not alone.

The reality is that most American investors have no idea that currency exchange rates directly affect U.S. corporate earnings, this country's stock market, or the growth rate of our economy.

The bottom line: These investors don't realize that they face some pretty major foreign-exchange-rate exposure in their investment portfolios - as well as with the individual stocks contained in those portfolios.

This exchange-rate exposure can be accompanied by some pretty major risks. Understanding how currency fluctuations can enhance or destroy corporate earnings, the export sector and the U.S. economy, and even your personal wealth will make you a smarter, better investor.

To understand how the currency markets are determining the fate of our economy, please read on...

We Want to Hear From You: Should the U.S. Federal Reserve Keep Interest Rates Low?

By , Associate Editor, Money Morning -

After their meeting yesterday (Tuesday), U.S. Federal Reserve policymakers said they are more worried about deflation than inflation and vowed to look for ways to help along an economy that is experiencing worrisomely slow growth.

In fact, the central bank's rate-setting Federal Open Market Committee (FOMC) said it plans to keep the benchmark Federal Funds rate at its record-low level unchanged between 0.00% and 0.25% for the 20th consecutive month. And, central bank policymakers said rates could remain that low for "an extended period."

In the near term, that appears justified. Core inflation is running at just 0.9%, below the Fed's comfort-level target of 1% to 2% - where it says the inflation rate needs to be for price stability. Fed Funds futures at the Chicago Board of Trade (CBOT) now show that traders believe there is a 54% chance the Fed won't increase short-term rates until its November 2011 policymaking meeting.

In the interim, faced with a still-wheezing economy, the central bank may even start buying back large blocks of U.S. Treasury bonds - a technique that pushes liquidity out where its needed.

Read More…

Is the U.S. Economy Destined for Deflation?

By , Managing Editor, Money Morning -

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.

Read More…

These Five Inflation Plays Will Provide Protection and Profits

By , Global Investing Specialist, Money Morning -

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...

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