| |
| |
|
Investing Information |
|
|
|
The American Age of Inflation is Over
"The American Age of Inflation is finished." So says economist Robert Samuelson in his December 2nd Washington Post column. This type of refrain is common. We often hear that this or that is ended - that such things only happen in the past, and that our new, more advanced time is above such mundane things. It is reminiscent of the late '90's declarations of the end of value investing, and the meaninglessness of p/e ratios, and the (can you believe it?) end of bear markets. Such drivel is what houses of cards are built on. It is, in fact, just such declarations that should alert us to the impending disaster that awaits. The easiest way to know when a trend or characteristic may be on the horizon is the cacophony of pundits extolling its end. When the columnists and advisors in the late '90's told us that it was a "new era", and that we needn't worry about overpriced stocks, that was precisely the time to worry. Today, when we hear economists like Samuelson announcing the "end" of inflation, it is again time to worry. We already sensed the alignment of a variety of factors that could lead toward the re-emergence of inflation, but the fact that apologists for government policy (economists) see the need to talk it away only serves as confirmation that the time is at hand. Inflation is apparently not only on the way, it is probably at our doorstep. The massive spending spree and resulting dollar devaluation should lead us to that conclusion anyway. We've been expecting some level of inflation for some time. But, when we start hearing such defensive postures from those who don't want to hear the truth, well, its time to begin planning for it more seriously. In Samuelson's defense, his article focuses mostly on the idea that markets have risen rapidly over the past 20 years (since Reagan reduced inflation in 1982) due to the benefit of lower inflation. He argues that we will no longer benefit from that improvement. But his error is in thinking that things will now be "flat", and that inflation was a one-time event that will not be revisited. He displays a lack of political understanding. As long as politicians can benefit from printing and spending other people's money, we'll see more inflation.Of course, the fact that we anticipate inflation in the financial system does not mean that this will affect all goods equally. Certainly, our enhanced trade relations have caused prices of some imported goods to drop significantly. However, as the dollar drops in value, our ability to buy imports cheaply will also be reduced, and already, prices of imported goods are rising from their lows. Since these cheap imports have been masking inflation for some time, this eventuality will speed the negative impact. Oil prices are a prime example of this phenomenon. This kind of price increase is naturally uncomfortable, but is a natural result of the free-floating currency regime we follow, and it is actually part of a healthy mechanism for refocusing our efforts. It isn't the price increases that should surprise us, and they themselves are not the problem. This is simply the result of a dollar that is plummeting in value. We need to realize that it is not the producers of goods that are doing us harm, but the governments who run our currency into the ground. Eventually, we may expect to see prices rising on most goods, including both those produced locally, as well as imports. The result is important for investors. Rising price levels will mean your savings are worth less, and your retirement accounts must grow just to hold their value. It has been many years since this nation has dealt with high inflation, and most of us have forgotten how to deal with it. Since Reagan, Volcker, and Greenspan worked to defeat the wild inflation of the Carter, Ford, and Nixon years, we haven't had to deal with this devastating bugaboo, but today we should plan for it. In addition to damaging our savings, inflation can make our debts less bothersome. High inflation will push interest rates higher, however, so only borrowers with fixed rates will benefit. Others will probably experience rising interest rates on their credit cards and struggle to pay them off. Never before in U.S. history have so many carried so much credit card debt in a period of high inflation. One might expect higher default levels. Inflation will also boost home prices without increasing value, and uplift profit levels without growing real assets. The outcome will be higher taxes and tougher competition. In the end, it will be a worse time for bonds, and while stocks will be a better place to be, high-flying growth companies will often disappoint. It is a wonderful time to think like a value investor. To send comments about this article or to learn more about Scott Pearson's Investment Management Services, visit http://www.valueview.net Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U.S.
MORE RESOURCES:
Google News |
 |
|
|
RELATED ARTICLES
The Past Does Not Equal The Future: Mutual Fund Returns! A way that investors get ripped off and in a sense rip themselves off is based on the culture of performance in the mutual fund industry. If you stop and think about it there is absolutely no reason that the past has to equal the future. Angels, Are They Real? They're real, but few survive. High risk investing is dangerous to your bank balance. Looking For a Safe Investment? Try a Certificate of Deposit If you are looking for a safe investment and you have between $100 -$1,000 to invest, you should consider a certificate of deposit or CD. When purchased through a bank, CD's are federally insured up to $100,000. Trading Tips No 4: Technical Analysis The Holy Grail Syndrome Everyone knows that the Holy Grail of investing and trading is a myth. Finding a good technical analysis tool that will give you a trading system that wins all the time is called the holy grail of trading. Out-Of-State Investors Check List of Questions The following lists of questions are suggested questions to ask before you plan to purchase residential real estate outside of your neighborhood.It's probably best to speak with at least three licensed real estate sales professionals and three property managers in the area. Do You Need A Financial Planner? No matter how much money you make, it pays to keep on top of money coming in and going out. Even if you do a good job of that, there are important times in your life when talking with a professional adviser makes sense. An Old Dividend Stock Investment Idea, for a New Generation Death and taxes! The certainties of life! And then, of course, there are the mortgage payments, the utility bills, phone bills, the car payments and thirsty automobiles. Add that to the grocery and clothing bills, and there appears to be more then just death and taxes as certainties of life. Volatile Oil The Light Crude Continuous Contract fell from $67.70 a barrel on Monday to $62. Stock Market Leaders and Laggards Leaders are stocks that breakout immediately when the market confirms a new rally. In the first several weeks, strong stocks with leadership ability will breakout on volume above their 50-day average. Invest or be Pink Slipped Firing an employee seems to be easier and easier for corporations. Up until now you allowed them to set your clocks. Discover the Foundation of Retiring Wealthy - The IRA! Let me tell you about some legal ways to avoid getting taxed on profits from the stock market. You can make a lot of money now with the stock market as low as it is at this time as I teach you in my home study course. Beginning Investor - Investment Terms Over the course of the past two months, readers have brought to my attention that there is a steep learning curve for investment terminology. That's why the focus of this month's Beginning Investor column will be investment terminology. Approaches to Investing Here is a small summary of the three major approaches to investing:1. Fundamental AnalysisTruly superior companies exist, are sometimes undervalued by markets, and can be identified by mostly financial research. The Three Legged Stool My paternal grandparents were born near Lake Como, Italy. My grandfather learned how to farm, and he did just that until he died chopping wood at age 88. Investing In or Owning Drug Lab Properties Clean Up (includes the insides and the outside of a building)Air out the buildingRemoval of contaminated materials: Carpets, carpet pads, Linoleum, drapes and blinds, air-filters, refrigerators, range, water heater, all tenant clothing and their furniture.Removal needs to be to a site that accepts contaminated product. Stocks: Reduce Risk Yet Maximize Profits It is important to note that every smart investor wants to minimize risk while maximizing profit potential. Yet conventional investment theory tells us that in order to increase returns, you have to increase risk. A Gadfly On A Dinosaurs Butt, Or The Hood-winking Of The American Investor Have you ever noticed how some words in the English language are so perfectly named for what they describe? And how some words seem to be, I guess you could say, backwards? For instance, the word sunflower! How wonderfully aptly named is the sunflower, that beautiful yellow flower that follows the sun from sunrise to sunset.And then there are those words in the English language where there meaning appears to be backward, so to speak - like parkway and driveway. Exchange Traded Funds They call 'em ETFs.There are hundreds of them. Finding False Gold in Penny Stock As far as traders go, many do not see the penny stock as a solid way to do business. Many believe that dealing with penny stock is a risky business. Investing & Online Stock & Share Trading- The Stock & Share Markets are Booming But Be Warned I had the pleasure of being invited on a friend's yacht to sail in a race on Sydney Harbour yesterday. On board, as one of our motley crew, I met a top ranking corporate executive from one of Australia's largest banks, who we'll call 'Phil' here for the purpose of this article.
|
| home-bondsnstocks.com | site map |
| © 2007 |
