Four Ways to Protect Yourself from Inflation
By Keith Fitz-Gerald Jun 24, 2009 10:50 am
Act now -- before the market makes these strategies too expensive.
Right now, there’s more than $9.5 trillion in cash on the sidelines -- or more than twice the amount of money currently invested in stock mutual funds, according to MoneyNet.inc and the Federal Reserve. Private equity firms alone are believed to hold as much as an additional $1.3 trillion.
While I’ve always doubted that the “money on the sidelines” argument is really all it’s cracked up to be, one can hardly argue with a recently released report from Harris Private Bank of Chicago (part of the US arm of the Bank of Montreal (BMO), which notes that, for 2 years, stocks have rallied whenever money-market assets have exceeded 25% of the S&P 500's capitalization. According to the Los Angeles Times, that figure is now 43%, down from 58%, after having peaked in December -- and that’s even after the 30%-plus run-up in the S&P 500 since March.
What’s interesting is that many investors holding large cash positions view their money as an asset, though it’s really more of a liability at this stage of the game. Some might take issue with that statement; after all, cash -- correctly deployed -- can allow an investor to sidestep the worst stretches of a financial crisis, like the one from which we’re currently attempting to extricate ourselves.
But when the markets are as beat-up as they as they have been, history suggests there’s probably more upside than downside -- even if we haven’t bottomed out yet. And there’s a broad body of research to support that contention -- including our own newly created LIBOR/Sentiment/Value (LSV) Index (published as a part of my firm's monthly investment newsletter).
No positions in stocks mentioned.
Fifteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 15 for 15, meaning he's closed every single one of his trades at a profit. And he did this during one of the most volatile periods for the U.S. stock market since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.
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2009-06-24 07:18:36
dollar exposure
Any nation's citizens have exposure to their own currency; as an American, you are naturally (if you will) long the dollar. Managing that position is probably something to think about.
In most of the world, this issue is well understood. In America (ex-CFOs), less so.
In most of the world, this issue is well understood. In America (ex-CFOs), less so.
2009-06-24 10:51:28
Time frame?
This investment advice has more of a five year horizon to make sense. Some TIP's, gold and KMP are fine. Commodities and shorting the US dollar may be a poor strategy for the balance of the summer. Investors will stay in the US dollar as other currencies are weak and political turmoil is on the near term horizon. Government debt issuance will not show up in new credit creation until mid to late 2010 as corporations are not looking to borrow and the consumer is tapped out. We are still in a deflationary environment and Treasuries will hold their value. Everything else is noise by the chattering class.
2009-06-24 12:38:59
TIP yield?
TIP yield?
Yahoo says 5.13%
Minyanville 4.4%
Keith Fitz-Gerald 7.6%
Vanguard VIPS 3.79%
Fed FINPX .88%
hrad to tell what the real yield is, dividend payments not regular and vary in amount> Can their by such a large real difference? Is this all do to just duration between funds?
Yahoo says 5.13%
Minyanville 4.4%
Keith Fitz-Gerald 7.6%
Vanguard VIPS 3.79%
Fed FINPX .88%
hrad to tell what the real yield is, dividend payments not regular and vary in amount> Can their by such a large real difference? Is this all do to just duration between funds?
2009-06-24 15:06:45
History
Economic theory has, historically, been completely divorced from the physical reality of the finite system we inhabit; i.e. the earth.
We seem to have reached a point in human history when human populations and their stores of 'wealth' in the form of fiat currencies dramatically exceeds any realistic ability of the physical system (the earth) to meet the potential demand for physical goods represented by the current stores of 'wealth'.
In short, when globalization runs its course, all fiat currencies MUST devalue (inflate) relative to physical goods (commodities). All economies based on physical growth are doomed by the simple fact that the earth is a finite system and indefinite growth is physically impossible.
Ultimately, global wealth destruction is inevitable and inescapable. And, sadly, necessary if the last decade of mindless excess in the USA is a barometer of human aspirations. Gold will go to $10,000/oz but a loaf of bread will be $100, and this will be true in any currency on earth.
This is not just a bad recession; it is a turning point in human economic history.
We seem to have reached a point in human history when human populations and their stores of 'wealth' in the form of fiat currencies dramatically exceeds any realistic ability of the physical system (the earth) to meet the potential demand for physical goods represented by the current stores of 'wealth'.
In short, when globalization runs its course, all fiat currencies MUST devalue (inflate) relative to physical goods (commodities). All economies based on physical growth are doomed by the simple fact that the earth is a finite system and indefinite growth is physically impossible.
Ultimately, global wealth destruction is inevitable and inescapable. And, sadly, necessary if the last decade of mindless excess in the USA is a barometer of human aspirations. Gold will go to $10,000/oz but a loaf of bread will be $100, and this will be true in any currency on earth.
This is not just a bad recession; it is a turning point in human economic history.
2009-06-24 16:04:20
Just a Question
Would you prefer to invest in a Marxist country trending toward Capitalism or a Capitalist country trending toward Marxism?
What is the best way to protect against one's wealth being redistributed?
What is the best way to protect against one's wealth being redistributed?
2009-06-24 18:48:31
Just a Question
"What is the best way to protect against one's wealth being redistributed?"
Heh. That's the question of the day.
Also, if you are going to short the dollar, wouldn't it be best to just move? I guess I'm thinking it that if you are shorting the dollar, you must be long on something else. It seems like that would be the most logical action in that case is to move and transfer all your money and assets there there (aka pull a Jim Rodgers).
I don't think it helps to have 90% of your assets be based in US dollars (somehow) and then buy a short fund.
Heh. That's the question of the day.
Also, if you are going to short the dollar, wouldn't it be best to just move? I guess I'm thinking it that if you are shorting the dollar, you must be long on something else. It seems like that would be the most logical action in that case is to move and transfer all your money and assets there there (aka pull a Jim Rodgers).
I don't think it helps to have 90% of your assets be based in US dollars (somehow) and then buy a short fund.
2009-06-24 20:39:45
Just a Question
I would like to invest in a solid, apolitical commodity, say.. a rock. Maybe it would grow to become a Symbol, even a Pet. What? that bubble already burst?
Well, then, in a Free State that is trending toward Secession. Oh, fresh out of those :(
In a not-quite-yet-socialist State that successfully challenged unconstitutional Federal actions and trended towards less socialism? Montana?
Curses, foiled again.
Well, then, in a Free State that is trending toward Secession. Oh, fresh out of those :(
In a not-quite-yet-socialist State that successfully challenged unconstitutional Federal actions and trended towards less socialism? Montana?
Curses, foiled again.
2009-06-24 21:29:41
Just a Question
Yes indeed. My wife is a Japanese national - I discouraged her from getting her citizenship because I thought it was cheap insurance if I ever needed an escape route. Back then being a US citizen was worth something but I saw change coming.
After 40 years I am beginning to look like a prophet, if not profit. Johnson started the war on poverty back then... we have spent 7 times what WWII cost and we just lost the war - but the payments keep increasing.
After 40 years I am beginning to look like a prophet, if not profit. Johnson started the war on poverty back then... we have spent 7 times what WWII cost and we just lost the war - but the payments keep increasing.
2009-06-24 21:53:29
Just a Question
Lucky Man.
Yes, the payments keep increasing, it's like a toll road - never quite paid for and in need of constant maintenance.
The federal government has a surprise coming if they think the millions of late baby boomers are going to keep paying taxes when all the money we put into Social Security doesn't come back to us as promised.
Why stay in the U.S. and pay taxes and not get what you paid for over 50 years of work? I'll cash out and find friendlier territory.
Yes, the payments keep increasing, it's like a toll road - never quite paid for and in need of constant maintenance.
The federal government has a surprise coming if they think the millions of late baby boomers are going to keep paying taxes when all the money we put into Social Security doesn't come back to us as promised.
Why stay in the U.S. and pay taxes and not get what you paid for over 50 years of work? I'll cash out and find friendlier territory.
2009-06-24 22:15:44
Just a Question
"Yes indeed. My wife is a Japanese national - I discouraged her from getting her citizenship because I thought it was cheap insurance if I ever needed an escape route. "
Eh - the industrialized world is pretty much in the same boat. If it all turns to Mad Max here, I don't see how Japan, a country that I'm guessing has to be a net food importer at this point, gets a nice orderly society. YMMV, of course
I'm long on the US, but then I pretty much have to be. I just thought it was a kind of silly to advise going short on the dollar when most Americans would have almost every other asset denominated in it.
Eh - the industrialized world is pretty much in the same boat. If it all turns to Mad Max here, I don't see how Japan, a country that I'm guessing has to be a net food importer at this point, gets a nice orderly society. YMMV, of course
I'm long on the US, but then I pretty much have to be. I just thought it was a kind of silly to advise going short on the dollar when most Americans would have almost every other asset denominated in it.
2009-06-24 22:20:55
Just a Question
"The federal government has a surprise coming if they think the millions of late baby boomers are going to keep paying taxes when all the money we put into Social Security doesn't come back to us as promised. "
Most people get the actual cash back within the first few years of drawing Social Security. After that money flows out of the system to them. If you were in high income tax brackets most of your life, it takes longer but the "average" worker gets paid back very quickly.
"Why stay in the U.S. and pay taxes and not get what you paid for over 50 years of work? I'll cash out and find friendlier territory."
Because the US is one of the few countries that taxes on citizenship. (It's like the Hotel California - check out anytime you like but you can never leave.) They may not be able to collect, but by golly you'll still owe them. :)
Most people get the actual cash back within the first few years of drawing Social Security. After that money flows out of the system to them. If you were in high income tax brackets most of your life, it takes longer but the "average" worker gets paid back very quickly.
"Why stay in the U.S. and pay taxes and not get what you paid for over 50 years of work? I'll cash out and find friendlier territory."
Because the US is one of the few countries that taxes on citizenship. (It's like the Hotel California - check out anytime you like but you can never leave.) They may not be able to collect, but by golly you'll still owe them. :)
2009-06-24 22:22:09
Friendlier Territory
Aye, there's the rub. I would point and say "There's the friendlier territory" but...
2009-06-24 22:29:43
Just a Question
Very soon folks will draw Social Security benefits only if they need them... think redistribution of the wealth. Won't matter how much you have contributed over your life... if you have a retirement plan, 401k, house that is paid for, or savings -- you won't need SS. Guessing union members will be exempt.
Not quite true. Most countries don't have income tax on citizens living in other countries -- the USA has an exemption for a dollar amount if you live outside the country for 1 full tax year or X number of days that may span more than 1 year. They also have a housing deduction if you are employed and compensated by a US company. I lost track of the current Ts and Cs.
Not quite true. Most countries don't have income tax on citizens living in other countries -- the USA has an exemption for a dollar amount if you live outside the country for 1 full tax year or X number of days that may span more than 1 year. They also have a housing deduction if you are employed and compensated by a US company. I lost track of the current Ts and Cs.
2009-06-24 22:58:56
Just a Question
Seriously, the U.S. taxes your income even if you don't live here? Or work here? Or even visit???
Even more seriously, there are exemptions "for a dollar amount if you live outside the country for 1 full tax year or X number of days that may span more than 1 year...[and] a housing deduction if you are employed and compensated by a US company"?
If Our Glorious Leader succeeds in getting the "loopholes" that exempt foreign-generated income for corporations closed, the above "exemptions" have a limited shelf life.
Even more seriously, there are exemptions "for a dollar amount if you live outside the country for 1 full tax year or X number of days that may span more than 1 year...[and] a housing deduction if you are employed and compensated by a US company"?
If Our Glorious Leader succeeds in getting the "loopholes" that exempt foreign-generated income for corporations closed, the above "exemptions" have a limited shelf life.
2009-06-24 23:00:28
Just a Question
"Very soon folks will draw Social Security benefits only if they need them... think redistribution of the wealth."
Means-testing by any other name...
Means-testing by any other name...
2009-06-24 23:07:18
Just a Question
OK - I checked the current amount:
If you have your full time residence abroad for a full calendar year, or live there for 330 days out of any consecutive 12 month period, you can exclude up to $87,600 of earned income from U.S. Income Taxation for 2008 and lesser amounts in earlier years.
Carter eliminated that exclusion and droves of businessmen repatriated almost immediately. My company reacted quickly after I and my team threatened that. Many US companies suffered from sales and support of their exports and it was eventually restored under Reagan I think.
If you visit the USA, you owe full taxes on income during the visit.
If you have your full time residence abroad for a full calendar year, or live there for 330 days out of any consecutive 12 month period, you can exclude up to $87,600 of earned income from U.S. Income Taxation for 2008 and lesser amounts in earlier years.
Carter eliminated that exclusion and droves of businessmen repatriated almost immediately. My company reacted quickly after I and my team threatened that. Many US companies suffered from sales and support of their exports and it was eventually restored under Reagan I think.
If you visit the USA, you owe full taxes on income during the visit.
2009-06-25 00:29:30
Statute of limitations
"If you have your full time residence abroad for a full calendar year, or live there for 330 days out of any consecutive 12 month period, you can exclude up to $87,600 of earned income from U.S. Income Taxation for 2008 and lesser amounts in earlier years."
Bl**dy H*ll. I didn't think the US Tax Code could shock me any more, but that's what I get for assuming my electrotherapy treatments stopped after I promised to stop seeing Pink Elephants. (Secretly I still see them in the Senate).
Since it's Open Season on contracts and bankruptcy laws dating back hundreds of years, reckon the Statute of Limitation on tax owed will be soon on the menu. Or is it already offered as Just Dessert(s)?
Guess I'd better figure what I owe for income from playing guitar in the Paris Metro in 1980. They really liked (as in plopped lots o' coin) when Mustafa and I sang The Boxer in harmony. Paid for food and plane ticket home, but I didn't own a house (or anything else but my clothes and guitar!) then... maybe I would qualify as one of The Deserving Poor and therefore have a "loophole."
Or since I was working with an Undocumented (aka Oppressed, from Algeria which had been Evilly Colonized) Worker (i.e. Deserving of All Aid, plus his middle name was Hussein too), I would get a medal?
Bl**dy H*ll. I didn't think the US Tax Code could shock me any more, but that's what I get for assuming my electrotherapy treatments stopped after I promised to stop seeing Pink Elephants. (Secretly I still see them in the Senate).
Since it's Open Season on contracts and bankruptcy laws dating back hundreds of years, reckon the Statute of Limitation on tax owed will be soon on the menu. Or is it already offered as Just Dessert(s)?
Guess I'd better figure what I owe for income from playing guitar in the Paris Metro in 1980. They really liked (as in plopped lots o' coin) when Mustafa and I sang The Boxer in harmony. Paid for food and plane ticket home, but I didn't own a house (or anything else but my clothes and guitar!) then... maybe I would qualify as one of The Deserving Poor and therefore have a "loophole."
Or since I was working with an Undocumented (aka Oppressed, from Algeria which had been Evilly Colonized) Worker (i.e. Deserving of All Aid, plus his middle name was Hussein too), I would get a medal?
2009-06-25 05:44:20
Just a Question
Yes, SS will be means tested, for sure.
I guess I have a different viewpoint on it. I'm Generation X, which means the system will be throughly trashed by the time I get there. Chances are high I'm only see a fraction of what I paid in, if anything. SS is just another tax to me, just like the Federal, State, and Local variety. I only get mad about to the extent I get mad about the rest of taxes.
And thanks for the reminder on the exemption - it's been a while since I've taken the tax class.
I guess I have a different viewpoint on it. I'm Generation X, which means the system will be throughly trashed by the time I get there. Chances are high I'm only see a fraction of what I paid in, if anything. SS is just another tax to me, just like the Federal, State, and Local variety. I only get mad about to the extent I get mad about the rest of taxes.
And thanks for the reminder on the exemption - it's been a while since I've taken the tax class.
2009-06-25 05:59:55
Statute of limitations
If you want a throughly depressing experience, take a cheap tax class through one of the big companies that shall not be named. That's how I knew that little tidbit about taxing income even if you leave.
I tend to think the tax code generally has a logic that can be followed. (An odd logic, but one nonetheless.) Historically, the US of A has produced a lot of very wealthy people. Once you've attained a certain level of wealth, it starts to make sense to repudiate your citizenship, take your American based income, and live elsewhere tax free. Doing that would be the most attractive to people who pay the lion's share of the taxes, in the top 5%.
In other words, the IRS would stand to lose a huge volume of income if it ignored the people who earned (and continue to earn) their money here but have shed their citizenship solely for tax purposes. Why corporations aren't held to the same standards, I won't even pretend to guess. ;)
I tend to think the tax code generally has a logic that can be followed. (An odd logic, but one nonetheless.) Historically, the US of A has produced a lot of very wealthy people. Once you've attained a certain level of wealth, it starts to make sense to repudiate your citizenship, take your American based income, and live elsewhere tax free. Doing that would be the most attractive to people who pay the lion's share of the taxes, in the top 5%.
In other words, the IRS would stand to lose a huge volume of income if it ignored the people who earned (and continue to earn) their money here but have shed their citizenship solely for tax purposes. Why corporations aren't held to the same standards, I won't even pretend to guess. ;)
2009-06-25 09:35:58
Revolting
Agreed.
The populace may not have the guts to revolt, very true.
That is a revolting comment, I didn't watch the infomercial. Logan's Run and Soylent Green don't seem too far-fetched anymore. If we have nationalized healthcare, there will be a big incentive to delay treatments in hopes you kick the bucket so they don't have to pay for you anymore. Painkillers are a lot cheaper than treatment, and old people can't fight in a war.
Texas would be my last state of refuge, but they do have the illegal immigration problem and it may be too late even for them.
The populace may not have the guts to revolt, very true.
That is a revolting comment, I didn't watch the infomercial. Logan's Run and Soylent Green don't seem too far-fetched anymore. If we have nationalized healthcare, there will be a big incentive to delay treatments in hopes you kick the bucket so they don't have to pay for you anymore. Painkillers are a lot cheaper than treatment, and old people can't fight in a war.
Texas would be my last state of refuge, but they do have the illegal immigration problem and it may be too late even for them.
2009-06-25 09:45:31
Revolting
Agreed.
I had not watched the infomercial, very revolting comment.
They'll let us die before treating us; big incentive to do so, painkillers are a lot cheaper than treatment, and old people can't fight in a war.
The sheeple may never revolt, true. Only time will tell.
More likely the revolt will be for the responsible to start keeping their due and retreat to friendly states or other countries. The system will collapse from within eventually. The 100 year experiment into seeing if human nature destroys good intentions versus realistic actions will be over.
When you enable generations to become slothful, ignorant, and uenthical all the good intentions, hope, and positive thinking in the universe won't keep the ship afloat.
I had not watched the infomercial, very revolting comment.
They'll let us die before treating us; big incentive to do so, painkillers are a lot cheaper than treatment, and old people can't fight in a war.
The sheeple may never revolt, true. Only time will tell.
More likely the revolt will be for the responsible to start keeping their due and retreat to friendly states or other countries. The system will collapse from within eventually. The 100 year experiment into seeing if human nature destroys good intentions versus realistic actions will be over.
When you enable generations to become slothful, ignorant, and uenthical all the good intentions, hope, and positive thinking in the universe won't keep the ship afloat.
2009-06-25 10:20:56
Just a Question
"Yes, SS will be means tested, for sure. "
First step will be to make it fully taxable.
First step will be to make it fully taxable.
2009-06-25 11:03:11
Just a Question
When I said leave or not pay the taxes I meant revolt and breaking the law and not following rules.
I know people who haven't paid their taxes in years and go about merrily doing the things people do.
If the trust and the deal is broken, the silent quiet bill and tax paying majority could very possibly revolt simply by not paying, cheating, or leaving the country.
Nationalized healthcare will be the nail in the coffin. There will not be enough ballast in the hold of the ship, and everyone will be up on deck asking for free drinks and food. The ship won't be able to stay afloat. The real secret is that the ship is already sinking while more climb on board, but that won't be obvious until the seawater hits us in the face.
We have a parasitic government, and there isn't enough income to prop it up. We don't produce a great deal of tangible goods beyond food. Seventy percent consumption does not provide a base to support hundreds of millions of retirees taking money out of the system to live and getting government healthcare.
They'll tax SS, tax or take your 401K or savings, and in exchange offer you citizenship and a bed in the local Government Hospital IF you give your house in a reverse mortgage to the bank to pay for your healthcare.
I know people who haven't paid their taxes in years and go about merrily doing the things people do.
If the trust and the deal is broken, the silent quiet bill and tax paying majority could very possibly revolt simply by not paying, cheating, or leaving the country.
Nationalized healthcare will be the nail in the coffin. There will not be enough ballast in the hold of the ship, and everyone will be up on deck asking for free drinks and food. The ship won't be able to stay afloat. The real secret is that the ship is already sinking while more climb on board, but that won't be obvious until the seawater hits us in the face.
We have a parasitic government, and there isn't enough income to prop it up. We don't produce a great deal of tangible goods beyond food. Seventy percent consumption does not provide a base to support hundreds of millions of retirees taking money out of the system to live and getting government healthcare.
They'll tax SS, tax or take your 401K or savings, and in exchange offer you citizenship and a bed in the local Government Hospital IF you give your house in a reverse mortgage to the bank to pay for your healthcare.
2009-06-25 13:24:45
Revolting
"The tree of liberty must be refreshed from time to time by the blood of revolution." - Jefferson
Except... it failed. The Whiskey Rebellion, even the Attempted Secession. So, fewer leaves and branches and less pleasant shade, and we are told to adapt to "The New Normal." And most do, and will continue to do. The ship will not go down easily.
Hussein's Insurance Scam will permanently cripple us, and then His cap-and-trade will break the crutches. But we'll crawl along, like the Russians and Swedes and English have done.
Most revolting line from the American Bootlicking Corporation's fawning presentation of Our Glorious Leader's infomercial last night:
"See, she might be better off not taking the surgery, but just taking the painkiller."
Except... it failed. The Whiskey Rebellion, even the Attempted Secession. So, fewer leaves and branches and less pleasant shade, and we are told to adapt to "The New Normal." And most do, and will continue to do. The ship will not go down easily.
Hussein's Insurance Scam will permanently cripple us, and then His cap-and-trade will break the crutches. But we'll crawl along, like the Russians and Swedes and English have done.
Most revolting line from the American Bootlicking Corporation's fawning presentation of Our Glorious Leader's infomercial last night:
"See, she might be better off not taking the surgery, but just taking the painkiller."
2009-06-25 15:54:15
Revolting
Look to Arizona as the last state of refuge. The Republican legislature has passed the following: State residents will not be required to sign up for Obama care: Affirmative Action programs for all phases of our lives will no longer apply in Arizona and one that is coming close will be local law enforcement officers will be able to make arrests of illegals and turn them over to ICE - no more sanctuary cities.. Couple this with loosening the gun laws in the state, Arizona may be the last to join the union of the lower 48 and perhaps the first to leave.
2009-06-25 15:57:21
Revolting
As to paying taxes, the IRS tells us that we have 95% "voluntary" compliance in paying taxes. Should that drop to 90%, the government is in trouble and should it go below 90%, then we are back to the Weimer Republic after WW1 or Zimbabwe today.
2009-06-25 17:15:35
Just a Question
"I know people who haven't paid their taxes in years and go about merrily doing the things people do.
If the trust and the deal is broken, the silent quiet bill and tax paying majority could very possibly revolt simply by not paying, cheating, or leaving the country. "
And that is why the VAT is on the table.
If the trust and the deal is broken, the silent quiet bill and tax paying majority could very possibly revolt simply by not paying, cheating, or leaving the country. "
And that is why the VAT is on the table.
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