Search results matching tags 'Rydex' and 'Fixed Income'

Big Names Predict Problematic Inflation: What's An Investor To Do?

RichardSchwartz — Wed, 11 Mar 2009 13:48:00 GMT

ECONOMIC VIEW. Rising Inflation Expected. So predicts a whole slew of big names, everyone seems to be jumping on board this train in the last few days. Now Warren Buffett and Bill Gross have joined Marc Faber and Jim Rogers and more in predicting problematic inflation just out there over the horizon. Yep, as soon as deflation became the consensus buzz word – recessions kill inflation is what I’ve heard repeated from many sources – we’re getting a groundswell of opposite opinion. Well, not quite opposite but close enough, let me explain. Everyone agrees this slump will preclude problematic inflation but all say that’s a temporary phenomenon. No one predicting rising inflation will go so far as to say just WHEN rising inflation is going to emerge but more and more observers are saying it’s definitely coming, arriving when this economic slump is over, whenever that is. Again, rising inflation, no, out of control inflation, no, to put it more accurately, hyperinflation is my biggest worry. That America printing money galore – yes, for bailing out businesses too important to the financial system to allow them to fail, and, yes, for keeping the economy greased and running, and, yes, for stimulating new growth and maintaining existing economic activity, and, yes, for overall deficit spending in this economic downturn – will come back to bite us in a big way. I can handle some inflation, I know how to shop for bargains which will help in food and clothing needs, what I’m worried about is a major currency devaluation which wipes out mine and America’s buffer. America’s savings becoming worthless as has happened time and again across the globe when some country’s finances just go kafluey. When a country can’t pay its bills compounded by a wholesale lack of trust in its currency. Schwartz View: Hasn’t happened in the US yet, but …

So I get more nervous when I hear Warren Buffett, America’s richest man and known as the best value investor of our time, say inflation could go as high as it was in the 1970s, that’s almost double digits! I get even more nervous when Bill Gross, who manages one of the largest bond funds going, says that US government efforts to break this recession will cause “costs for goods and services” to rise. I respect both these guys and their opinions. Now they join long term forecaster Jim Rogers, who is also more worried about rising inflation than deflation, best I can figure. He’s long been predicting an US dollar crisis and really bad inflation ahead and says he’s just waiting for the proper moment to essentially “short US Treasury bonds.” Rogers sees commodity inflation returning with a vengeance since today’s global economic slump in his view is just improving the fundamentals underpinning commodity prices. In other words today’s credit crunch and resulting recession causing miners to delay or even shut down exploration and thus leading to a further drop in supply. He loves to mention that global food inventories are already down to 50 year lows. Finally, Marc Faber, the well regarded international investor and past BARRON’S Roundtable panelist, sees rising inflation from another angle. He figures that the US government is going to have all kinds of problems in raising interest rates down the road or in effect withdrawing all the money it’s pushing into the system now to try to end today’s credit crisis. Schwartz View: This rising inflation camp is growing now, with many others predicting a forthcoming inflation problem as well. I am too.

Schwartz Recommendation. If you also worry about rising inflation, one strategy available today is to buy an inverse ETF or inverse sector fund. One that goes up when long term US interest rates go higher. That’s the natural reaction if inflation rises, yields generally rise forcing bond prices down. For example ProFunds has two such funds, RTPIX and RRPIX while Rydex offers up RYJUX and in the ETF camp there’s TBT which “correspond to twice the inverse” of the US Treasury bond. I recommend such.

Disclaimer! I don’t own any of the above now but can and do change positions without notice.

For a FREE week’s sampling of my complete daily e-letter, please email me at RichardStk@aol.com.

Is This Your Portfolio?

RichardSchwartz — Fri, 27 Jun 2008 15:14:00 GMT

WHERE YOU SHOULD STAND TODAY. The Ideal Portfolio (another Schwartz View).

Yep, let me offer up one man’s view of what the ideal portfolio should be today and why:

· Very minimal exposure to the stock market! This major, modern day margin call on institutional investors is causing havoc. I’ve likened this margin call to the one which wiped out many individual investors quickly back after the 1929 stock market crash, only this time around its institutional investors getting slaughtered and thus the process of meeting their margin calls is being stretched out. All are deleveraging their portfolios big time and since the securitized investments killing them are so opaque and illiquid, it’s a terrible, long, drawn out process.

· Where you do have exposure, have some in the Energy Service sector. Business is going to remain strong and money is going to funnel into this sector as long as oil stays up there, even if oil tanks 50%. The world is in now in a new competitive battle to secure our energy futures. Thus companies which help countries like Brazil find and produce oil should do well.

· Where you can, hedge your long stock exposure. One does this by having some inverse mutual funds and/or ETFs (exchange traded funds). Happily today, investors have access to this modern day invention of being able to go short (bet on declines) with inverse investments. You just buy a fund or ETF which goes up as the market goes down. I would recommend having small inverse positions, especially in financials. This allows you to ride through a day like yesterday knowing that a part of your portfolio is rising while your long positions are falling. The next day you check your portfolio’s value and see how you did. That’s what I do each morning. Say the stock market fell -3.00%, like yesterday, & your account lost just -0.20% like my ProFunds managed account did you might figure your hedge is just right. Just tinker with the hedge until you get it right.

· Hold NO BONDS. I’ve been recommending this for some time now. Yes, we may get a deflationary collapse at the end of this 25 year “too much of everything” Kondratieff disinflationary economic backdrop we’ve been in since former Fed chairman Paul Volker broke the back of runaway inflation in the early 1980s. But the world is now experiencing our first return to higher inflation jolt. Thus we’ve started a new bear market in bonds. I can’t help but remember when I first became a stockbroker with Merrill Lynch back in the late 1970s, the client who say she would never, ever buy a bond again, after losing money on bonds going back two or three decades. Well, we’ve had a 25 year bull market in bonds and its over or close. Thus, my recommendation is no bonds. (Except some very short term laddered US Treasuries for income.)

· Hold a little Gold. Yes, some will keep warning of a deflationary collapse ahead, when the economy really tanks and thus say gold will collapse as well. But gold is in a long term uptrend, a bull market, and no one knows quite how it will react in various market and economic scenarios. Buy SPDR Gold Trust (symbol GLD) as opposed to the miners themselves, thus eliminating one unneeded uncertainty. FYI, I’ve seen gold rise and gold sector funds fall, so watch yourselves.

· Hold a little foreign currencies. Again, in today’s modern day investment world, the individual investor can easily bet on foreign currencies … by buying their ETFs or tracking stocks. I’ve been recommending & still am, buying Swiss francs & Japanese yen, symbols FXF and FXY. Both are Big Picture superstar guru Jim Rogers’ picks and are in long term bull markets and dipping now so it’s a good spot to buy in on weakness. Today let me add the Chinese renminbi, symbol CNY, to the buy list since there is a exchange-traded note in existence. Not a fast mover but it’s also in a long term bull market and probably is now one of the most reliable bull markets going.

· Hold a little agricultural commodity position. The middle class global world has grown tremendously, yay!, and thus the general commodity bull market has now spread out to foodstuffs. A larger global middle class, means more and better food is needed, especially increased protein. Food commodities are up so only buy on pullbacks here if you don’t own any now. My picks have been and remain symbols RJA and DBA. Again buy the commodities themselves as much as possible and not the companies which produce such although ETFs like MOO have been doing well to this point. Today, let me add iPath Livestock ETN (symbol COW) to the buy list if I haven’t already, a livestock play. Looks like with corn prices so high, cattle is being killed off (thus one can still get steak and hamburger at $1.99 a pound) because it costs too much to feed ‘em. But that will change too and red meat prices will skyrocket.

· Finally, hold small positions in lots of alternative, clean green energy stocks. I see new fortunes being made by those riding the wave of the US and globe getting off oil. The best way I’ve found to buy these is to keep the shopping list of alternate, clean green stocks I’ve compiled and posted for you back on June 6^th in this space handy. (If you don’t have it email me and I’ll send you a copy.) Buy a bunch of these stocks on weakness. I bought one for myself yesterday.

Disclaimer! I hold or plan on holding many of the ideas recommended above.