More Inflation Expectations

I’ve been writing about the subject of inflation for years, but it only seems like mainstream media is reporting heavily on the topic in recent months. It took till the Dow was closing in on 11,000 for mainstream media to reach the same conclusion I’ve reached over and over on Raw Greed. Since 2005 I’ve posted over 420 articles with a consistent investment style and message. I’ve continued to post my picks and invest steadily in the same fashion through the crash. I didn’t let fear persuade me to change my investment style. I believe in looking for value so I’ve recovered faster than most who sat out on the sidelines. The crash only made me more hungry to buy more of the same great companies I like at lower prices.

Every major crash since the Great Depression has been followed by periods of strong growth and massive inflation. The purpose of the increase in money supply is partially to reduce our debt burden. It’s common sense to me that this time would be no different. Savers needed to prepare themselves for getting very hurt by inflation. I believe the bigger the crash, the bigger the recovery. This is human nature that we want to feel healthier and stronger as we recover after being sick.

I don’t buy into the idea that our children will have a lower standard of living than previous generations. In fact our children will invent the necessary tools, policies and rules to improve standard of living. Remember how easy it was for our current generation to create paper instruments like swaps and derivatives to inflate wealth. Financial regulation is still under reformed and new instruments to create massively inflated wealth will be invented by the current generation. This is the drug of paper number growth. Seemingly positive growth is politically acceptable and is a feel good message to main street. It’s a vicious cycle and the only loser is the responsible saver.

To beat inflation, get into hard assets that will keep up with the rate of inflation. Currently money is flowing into the stock market, but I believe property is your best investment prospect as property prices have lagged the increase in stock prices. My top locations to invest are Las Vegas, Nevada and Miami, Florida. Condo and condo-hotel prices are still down over 60% from 2007 levels. You can buy a condo in the above markets for .25-.40 on the dollar that is less than 5 years old and has a chance to generate an after tax income yield of 3-7%. Like a dividend paying stock, you benefit from an increase in the asset price and may have a predictable income with the right tenant. For condo-hotel units you don’t have to worry about tenants, maintenance or management.

Taken from this article: Pray For Inflation — It’s Our Only Hope

Everyone thinks the Fed’s job is to fight inflation, but right now the Fed is actually doing everything it can to cause inflation.

Why?

It part to help the economy get cranking again. Inflation provides an incentive for people to spend cash rather than saving it, because if they save it, the cash will lose value rapidly.

Inflation also helps solve another problem, though–our debt problem. The more inflation we have, the less our dollars will be worth. Because our debts are based on a specific number of dollars and not a specific value, the less our dollars are worth, the easier it will be for us to pay off our debts.

(Imagine owing someone 100 Zimbabwe dollars at a time when the currency is collapsing. If you wait a week, the value of the Zimbabwe dollar will have collapsed, and you’ll be able to pay off your 100 Zimbabwe-dollar debt with currency that is only worth half as much as it was the week before).

The Fed can’t admit that one reason it wants high inflation is to reduce the real burden of our debt, but you can bet that that’s one of its objectives. What’s more, says Nobel-winning economist Paul Krugman, inflation should be one of the Fed’s objectives. Because that’s how we’ve gotten out from under debt burdens in the past.

Further into the article:

So inflation is an important tool in getting us out of this mess. It’s painful and unfair–those who have been responsible and saved money will pay the price for those who borrowed money, racked up huge debts, and spent more than they could afford. But it’s what the Fed is (quietly) aiming for.

The Next Wave of Inflation is on the Way

Fortune Logo
This Fortune article, The next wave of inflation is on the way, is telling.

Taken from the article:

Inflation can be a positive or negative, depending on the level and duration of it in our economy. The main negative associated with inflation is a drop in purchasing power of money, and therefore, consumers. In extreme cases, consumers may actually start hoarding if they fear continued and aggressive price increases. The positive side of inflation is to decrease the real value of debt, or essentially provide debt relief.

Further into the article:

Back in the treasury market, 30-year treasuries have gone from yielding 3.73% to yielding 4.72% over the last year. That increase has happened for shorter-term treasuries — the short end of the yield curve — as well. And all these increases have happened despite the fact the Fed has maintained its target rate at 0 — 0.25%. Bond yields, in other words, are already accounting for inflation.

Finally, in the chart at the top of this page, we’ve plotted the Journal of Commerce Industrial Price Index over the last year. This index charts the price of key commodities that are used in industrial production. The chart is up and to the right, screaming inflation.

The U.S. has over $62 Trillion in long-term debt, according to David Walker, former U.S. Comptroller General and head of the Government Accountability Office. We are no where close to having enough income to pay-down our commitments. According to David, we would need a few decades of double-digit GDP growth just to pay for our long-term debt. It’s common sense to me, that without any new source of GDP growth, part of the solution to paying for our enormous debt will involve printing money and inflating our way out.

96% of Active Fund Managers Underperform the Market

Taken from the video:

Citing Forbes research, Town says 96% of active fund managers underperform the market over periods of 15 years or longer.

My advice is to pick an Index fund, like the Vanguard 500 Index Investor (VFINX), if you don’t feel comfortable actively managing your stock portfolio.