WSJ provides advice on getting ahead of inflationPosted: February 11, 2011
In “How to Profit From Inflation: The Scourge of Rising Prices Hasn’t Hit Home Yet, but the Underlying Signs Point to Trouble Ahead. Here’s What You Should Do Now” the WSJ provides some advice on getting ahead of inflation. It makes a lot of sense to buy inflation protection when it is “cheap.” In other words, you should worry about inflation when no one else is worrying instead of when the protection is expensive and inflation is on everyone’s mind. We are currently at a kind of middle ground where inflationary pressures are rising almost everywhere EXCEPT the United States, but I believe the U.S. is just the last bastion of deflationary expectations…
Some key quotes from the article:
“…it is a much different situation overseas, particularly in the developing world. In South Korea, the CPI rose at a 4.1% clip in January from a year earlier, higher than the 3.8% estimate. In Brazil, analysts expect prices to rise 5.6% this year, exceeding the central-bank target of 4.5%. China, meanwhile, has been boosting interest rates and raising bank capital requirements to keep inflation, which rose to 4.6% in December, in check….
…Even some developed economies are seeing rising prices. Inflation in the U.K. surged to 3.7% in December, while the euro zone’s rate climbed to 2.4% in January, the fastest rise since 2008.”
“…Of course, the main inflation driver is usually wages—and that isn’t a factor in the U.S., where high unemployment has kept a lid on pay for three years.”
The WSJ advices selling bonds, especially long-dated Treasurys. Sell some TIPS, Treasury inflation-protected securities, because the trade is over-crowded. The WSJ is also lukewarm to negative on real estate, gold, and stocks. On the other hand, WSJ recommends buying money-market mutual funds that are only invested in short-term bonds, inflation-linked savings and bonds products, floating-rate funds, and some commodities through ETFs.
Clearly, since inflation is already raging globally in energy, materials, and agriculture, it is a little late to give more straightforward advice than the eclectic mix presented above. The best time to get ahead of inflation was when deflationary fears gripped the entire globe. Inflation Watch has attempted to be one of the few reminders that deflation will not be a permanent condition in the global, or even U.S., economy.
As always, the best strategy for you will depend upon your own risk tolerance and inflation expectations and your financial goals.
Disclosure: author is long GG and TIP.