I’ve written about this before and I know you know this but sometimes singing to the choir twice is not as silly as it sounds. What I don’t want to happen down the road is have clients adamant in not becoming proactive in moving to assets that will benefit them from inflation and a cheaper dollar. I understand why people don’t like change because I don’t like change anymore than anyone else. ‘Why, should I get rid of a bond mutual fund that made me money for so many years just to go and buy an exchange traded fund that shorts Treasuries? Life is getting complicated when all I want is simple. Yes, I know this and so do you but things change and owning Amalgamated Buggy Whips is not what you want in a world of Google.
First we have to understand what is going on and the game the Fed is playing. Our government is determined to reduce the purchasing power of our dollar and the result is having countries who buy our bonds screaming bloody murder. Those countries who bought our yesterday debt at yesterday prices are rewarded to see the Fed go about devaluing those very dollars they bought just a few short weeks ago. And with QE2 this is only the beginning of the Fed plan. Over the next 6-9 months the Federal Reserve will be doing their best to get the dollar down even more, inflation up and interest rates less than they are right now. And when they decide enough is enough what? No one, including the Fed, seems to have the answer. That is why smart investors are buying emerging market funds, investing in blue chip global companies that pay solid dividends and moving money into commodities. The signal is that there is little faith in today’s dollar and probably a lot less in tomorrows.
Fed chief Bernanke has said that inflation is low and for us not to expect it to increase exponentially any time soon. ‘Well, Mr. Chairman, I don’t know when the last time you filled your tank with gas or bought food at the grocery store but those items have increased dramatically and will continue to go up as you go about buying more and more of of our debt.’
Already we’ve seen cotton prices surge and copper is moving higher as emerging markets are coming of age and using this metal for their infrastructure. Agricultural prices will soar even more as more countries demand better food and nutrition. Morocco is becoming one of the most wealthy countries with huge deposits of potash, a fertilizer additive that is becoming more dear in the rest of the world. In the last few months we have seen extraordinary interest in potash producing companies as companies position themselves in a world where food becomes more expensive.
But the sharpest investor of all China is moving over half their Treasury purchases to hard assets because they simply know what they need in a few short years.
The Chinese buying spree will not abate in 2011 from hard assets, namely commodities. Their shift from U.S. Bonds is telling. Obviously our government is not and will not be pleased with the Chinese buying but you and I can take a lesson as the Chinese load up on iron, oil, potash lumber and copper (according to November 6th Barrons.com).
The Chinese are now the world’s largest consumer of copper, tin, steel, coal, aluminum, iron ore and second largest consumer of oil.
Taking a lesson the American investor should now be placing a portion of their assets into commodity funds simply to protect their dollar’s from inflation. Most investors only know of the metals markets and completely ignore the rest of the commodity index which includes agriculture, metals and oil.
The inflationary stage in our markets will not simply pop up one day. It will be a slow and insidious growth, eating away at our portfolios and paychecks until realization of what we have to do is too late. At that point owning cash, unlike 2008, would be one of the worst things an investor could do.
Over the next few months investors should review what they own and look to make room to own commodity funds either through ETFs or mutual funds. As always, if you have questions or need more information do not hesitate to call.
Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
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