$TIP Inflation could prompt largest Social Security cost-of-living adjustment in decades. Why there’s a push to change the way it’s calculated
The Dollar May Remain Strong For Longer Than We Think
Why demand for it is higher than other fiat currencies
by Charles Hugh Smith
Tuesday, September 16, 2014, 10:50 PM
What Fundamentals Drove The Equity Rally?
Mar. 3, 2014 3:28 AM ET | Includes: CRB, DVY, OIH, SPY, TIP, XLB
Fed’s Stein sold off his TIPS right on time, disclosure shows
August 28, 2013, 1:40 PM
It’s been apparent for some time that Fed Gov. Jeremy Stein writes intelligent speeches because they often spark debate among Fed watchers.
What we didn’t know until recently is that he also makes intelligent trades.
A financial analyst at Stone Street Advisors who goes by the alias of "Dutch Book" , uncovered evidence of Stein’s clever trade that avoided sharp losses in mid-2012. The trade was discovered by combing through Stein’s financial disclosure form released by the Fed on Tuesday. All 19 top Fed officials released their assets and income for 2012.
The gist of the trade is that Stein avoided losing about 10% of his money by selling his Treasury Inflation Protected Securities and replacing them with short-term debt issues by investment-grade companies.
According to the disclosure form, Stein sold $250,000 – $500,000 worth of shares in the Vanguard Inflation Protected Securities fund VIPSX on May 24, 2012. The next day, he made a purchase in the same dollar range in the Vanguard Short Term Investment Grade VFSTX fund.
Treasury inflation-protected securities yields have risen substantially since May 24, 2012, with the 10-year note yield rising from -0.413% on May 25, 2012 to 0.615% on Wednesday. The Vanguard TIPS fund has lost about 8% from the sale, while the short-term high-grade fund, which invests in corporate bonds and U.S. government bonds with short- to medium-term maturities, is about flat from the date of his purchase.
The Stone Street blog was noticed by Matthew Klein, a reporter for Bloomberg View.
– Greg Robb
If one could predict the eventual collapse of the bond market, they could position investments well. This seems difficult considering Japan has been playing a similar government bond buying game for multiple decades without collapse.
I heard somewhere (Puplava's radio show?) that 70% of our treasuries are purchased by our government. How would one confirm this?
If the government is buying most of the bonds, this would explain low interest rates.
It seems these are the sources of treasury buying:
-=1.) Our government <-- 70%?
-=2.) Banks (borrow from the Fed and then carry trade off of the treasuries for an easy buck)
-=3.) Foreign entities/governments (slowing down?)
-=4.) Private individuals
I suppose 1 and 2 are the largest source. It seems highly unlikely that 1 will diminish any time soon, and this seems to have carried Japan for multiple decades. Therefore, one could expect low interest rates to continue for multiple decades here. This would mean shorting the bond market is a BAD idea. However, Jim Rogers is doing it as of a couple of weeks ago (listen to latest Puplava interview with him).
#2 will not diminish as long as they can make easy money (as long as they can borrow for less than the treasuries pay).
#3 and #4, I contend, simply do not matter in the face of the immense buying from #1 and #2.
A Bond Allocation For Your Dividend Growth Portfolio
June 12, 2012
John Williams: The Real Unemployment Rate: 22%-Not 8.1%
The coming fiscal cliff: hyperinflation on track for 2014
A new TIPS type fund
ProShares, the country’s fourth most successful exchange traded fund (ETF) company,1 today announced the launch of ProShares 30 Year TIPS/TSY Spread (NYSE: RINF) and ProShares Short 30 Year TIPS/TSY Spread (NYSE: FINF), the first ETFs designed to provide exposure to breakeven inflation,2 a widely followed measure of inflation expectations. The ETFs list on NYSE Arca today.
The two new ProShares ETFs are:
• RINF — seeks to match the performance of the Dow Jones Credit Suisse 30-Year Inflation Breakeven Index, before fees and expenses.
• FINF — seeks to provide the inverse of the daily performance of the Dow Jones Credit Suisse 30-Year Inflation Breakeven Index, before fees and expenses.
“Many investors are focused on inflation and closely follow breakeven inflation, a common yardstick for inflation expectations,” said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, ProShares’ investment advisor. “We are pleased to offer investors the first ETFs linked to this important economic indicator.”
Breakeven inflation aims to isolate the market’s expectation of inflation implied by the difference in yields between Treasury Inflation Protected Security (TIPS) and Treasury bonds. The Dow Jones Credit Suisse 30-Year Inflation Breakeven Index tracks the returns of a long position in 30-year TIPS and a short position in Treasury bonds.3, 4
It’s a Trap
By Tim W Wood CPA
So far, the high for the year occurred on May 2nd at 12,876 on the Industrials and on July 7th at 5,627.85 on the Transports. In turn, this left an upside non-confirmation in place and on August 4th both the Industrials and the Transports closed below their previous secondary low points. This was the first time since the March 2009 low that this has occurred. In doing so the primary trend turned bearish in accordance with Dow Theory. Also in accordance with Dow Theory, once a primary trend change is established, that primary trend is considered to be intact until it is authoritatively reversed. In this case, such a reversal requires a move above the previous secondary high points, which has not occurred. Therefore, according to orthodox Dow Theory, the bearish primary trend change remains intact. The current Dow Theory chart is included below.
However, in spite of this orthodox bearish Dow Theory trend change, history also shows that not all Dow Theory trend changes are created equally. Point being, while all major down turns in the market have been accompanied by a Dow Theory trend change, not all trend changes have been accompanied by a major downturn. So, to say that just because we have seen a Dow Theory trend change and that a major turn has occurred is a bit misleading. Therefore, in my studies I have looked at ALL Dow theory trend changes at both tops and bottoms going back to 1896. In this case we are concerned about potential tops so the context of this article will be with tops in mind. What I have found is that while no Dow Theory trend change should be taken lightly, including the current one, there are distinguishing differences.
My studies have also shown me that as the secular bull and bear market periods grew, we began to see Dow Theory trend changes occur within the context of the longer-term trend. This was first seen in 1946. This also occurred in 1948, 1951, 1953, 1956, 1960, 1962 and 1965. Sure, these were important tops in the market, but none of them marked THE top of the secular bull market. The leading Dow theorist of that time was E. George Schaefer and he recognized that the secular bull market had stretched in duration. As a result, Mr. Schaefer explained that he used his other technical studies, outside of traditional Dow Theory, to filter these Dow Theory trend changes.
I want to add that during the secular bull market period that ran between 1974 and 2007, there were also a number of traditional Dow Theory trend changes. Such trend changes were seen in 1977, 1981, 1984, 1987, 1990, and 1998. As it turns out, even the trend change that occurred at the 2000 top proved to have occurred within the context of the longer-term secular bull market, which appears to have finally peaked in 2007. Again, these were all important tops. But, none of them prior to the 2007 top were THE top. Thus, history clearly shows that Dow Theory trend changes are not always ominous nor do they always set the longer-term trend for the market.
With this all said, my long-term view has definitely not changed as I continue to believe that the rally out of the March 2009 low is a bear market rally that will ultimately separate Phase I from Phase II of a much longer-term secular bear market. I also continue to believe that the Phase II decline will be much more devastating than the Phase I decline seen between October 2007 and March 2009. However, as with Mr. Schaefer, based on my other technical studies, I have found that every major top since 1896 has been accompanied by unique DNA markers. It is because these DNA markers were missing in conjunction with the recent Dow Theory trend change that I have to question its strength. I also believe that this Dow Theory trend change will ultimately be part of a much more meaningful setup and that once the DNA Markers do appear, all financial hell will break loose. The details of these DNA Markers and their development are covered in my monthly research letters. Until such time as they appear, the overall technical data suggests that a much larger trap for both the bull and bear alike is likely being set.
Where To Hide From The EU Debt Bomb
11/01/2011 @ 4:56PM
The European debt crisis continues with its one and a half year tradition of two steps forward, three steps back. Where are money managers putting their clients money to preserve capital?
David Donabedian, chief investment officer of Invesco’s private wealth management firm Atlantic Trust, says they sold off all of their European equity exposure over the summer and bought large cap U.S. dividend stocks. “Not that we think the outlook for them is fabulous or that we have great expectations on a total return basis. We just think that over the long term, large cap companies that are well managed and have a large part of their revenue coming from the big emerging markets will do better than bonds,” he says.
Markets tanked on Tuesday after Greece’s Prime Minister George Papandreou said that he would ask for a referendum from voters to agree or disagree on the proposed mechanism to save Greece from itself. However he puts it, voters who have been rioting on and off all year over austerity and cuts to public pensions are highly unlikely to agree to anything that made those cuts permanent.
His surprise move shocked local lawmakers and the market on Tuesday. And now a no-confidence vote is expected for Friday, The New York Times reported from Athens. A no confidence vote on Papandreou’s leadership raises possibility of a Greek government collapse that could mean a total, Argentine style default on Greek debt, putting dozens of major European banks in jeopardy as it would signal the possibility for similar problems unwinding in Italy. Italy is the world’s third largest bond market.
“Greece will vote against any referendum and that could have a spill over affect into Italy, which we feel is the next sore spot after Greece,” he says. Atlantic Trust has $17.5 billion under management.
The October relief rally is over.
So where should investors hide from the fallout of the Europe’s exploding debt?
“Our U.S. macro model went to negative from neutral in September. It’s now a matter of pick your poison,” says Paul Simon, chief investment officer of Tactical Allocation Group, a $1.5 billion asset management firm. “We are overweight cash. In equities we are buying the highly liquid large cap global names in the U.S. and emerging markets that have a lot of cash on hand to weather any storm in Europe. In fixed income, we are holding emerging market bonds because you have better fundamentals there and better spreads over Treasury bonds,” Simon says of the yield differential between 10-year Treasury bonds and emerging debt in countries like Chile and Brazil.
Simon likes the iShares Treasury TIPS exchange traded fund (TIP), the SPDR Gold (GLD) ETF and MSCI Emerging Markets (EEM).
He says stay clear of Europe. “We think Europe is probably already in a recession. The market is very dangerous right now,” he says.
I made my last transfer into my 401K TIPS on June 30. Must wait four more months for next transfer, but my finger is already on the trigger to add more to the TIPS later this year.
Thanks for the chart and good luck,
Dollar to drop on S&P move
By Emelia Sithole-Matarise | Reuters – 1 hr 8 mins ago...
LONDON (Reuters) - The dollar may fall and Treasury yields rise on Monday in response to the United States losing its top-tier credit rating from Standard & Poor's but any selling is likely to be tempered by the euro zone's escalating debt crisis.
Equity markets' likely reaction was indicated by a drop of more than six percent on Sunday in Tel Aviv stocks, one of the first to open globally after S&P on Friday cut the U.S. long-term credit rating by a notch to AA-plus from AAA.
Investors will be all the more likely to withdraw to safe havens, such as the Swiss franc, the yen and gold, if euro zone officials cannot stem concern that their debt crisis risks engulfing Italy, the bloc's third largest economy, whose government bond yields have soared to 14-year highs.
"The real effects of this (U.S. credit rating downgrade) will take time to show through but a weaker U.S. dollar and marginally higher yields are likely," said Charles Diebel, a strategist at Lloyds Bank.
"The irony here is that in the context of the price action last week, the equity market response could be quite negative and thereby we may actually see U.S. Treasuries supported by safe-haven flows," he said in a note.
Worries of another U.S. recession and concern about the euro zone crisis have already sparked a global stock market slump that wiped $2.5 trillion off company values in the past week.
The fall in global share prices, as measured by the MSCI All-country World Index, was the biggest weekly decline since early October 2008, according to Thomson Reuters Datastream.
Consumer discretionary shares of firms dependent on external demand are likely to be singled out for more punishment.
On Friday, yields on benchmark U.S. ten-year treasury notes were about half a percentage point away from a record lows near two percent hit during the throes of the global financial crisis.
The sharp swings in financial markets have piled pressure on policymakers.
Finance ministers from the Group of Seven most developed economies were due to discuss on Monday the U.S. sovereign rating downgrade and Europe's debt woes, Japanese news agency Kyodo reported on Sunday.
Analysts warned the U.S. downgrade was likely to heighten investors' risk aversion and further bolster the Japanese yen and the Swiss Franc, even though the authorities of both countries took steps last week to staunch the export-denting strength of their currencies.
"Be wary tomorrow of irrational depression as markets take flight," said Justin Urquhart Stewart, a director at Seven Investment Management in London. "We are dealing with the knowns and not the unknowns but what we have a shortage of at the moment is political leadership."
It was not yet clear whether European policymakers would be able to come up with measures to allay such concern, though all the signs were that they were keenly aware of the importance of reassuring markets.
Central bank sources said the European Central Bank would hold a conference call at 1700 GMT to decide whether to buy Italian government bonds in the secondary market.
The ECB last week resumed its purchases of government bonds in the secondary market after an 18-week hiatus but its decision to restrict such purchases to Irish and Portuguese bonds led to sharp declines in Italian and Spanish bond prices.
"There is no reason why the ECB cannot simply go ahead and imply that they are going to support the Italians and the Spanish," said Mike Lenhoff, chief strategist at Brewin Dolphin in London. "It is better that they don't say anything but go in and show there is another side to the market."
Any such ECB buying would offer relief to beaten-down Italian and Spanish bonds.
That would in turn offer a respite to European stock markets. Banks' exposure to Italian sovereign debt and Italian banks have forced equity traders to focus on the rising cost of Italian borrowing and the widening premium that Italian bonds offer over German government bonds, known as Bunds.
Without ECB action, the reverse would be true.
"The fact that Italian 10-year BTP risk premia over Bunds closed near 400 basis points following (Thursday's) ECB press conference, reaching the level of Greece's risk premium before the ECB launched the (bond buying programme) back in May 2010, means that the time to intervene in Italian bond markets is now," said Lena Komileva, head of G10 strategy at Brown Brothers Harriman.
Even so, the extent of any rally in these bonds will depend on how the size and persistence of any ECB bond purchases given investors have been disappointed before by such moves.
Moreover, any ECB bond buying would not address international investors' other major concern at the moment -- the risk of an economic slowdown in the United States.
Goldman Sachs strategists said there was a one-in-three probability of a U.S. recession due to the worsening European crisis, the possible failure to extend payroll tax cuts and elevated levels of joblessness, despite a slight dip in the U.S. unemployment rate in July.
That would bode ill for the benchmark MSCI all-country world stocks index, which last week hit its lowest since September 2010 and has accumulated losses of more than 12 percent since late July.
"Market sentiment appears acutely vulnerable given the build-up of concern on a sharper U.S. slowdown and speculation on the appropriate policy response and lingering fears stemming from the sovereign debt crisis in Europe," Citigroup strategists said in a note.
(Additional reporting by Saikaat Chatterjee in Hong Kong; editing by Swaha Pattanaik)
The Road to a Downgrade
A short history of the entitlement state..
JULY 28, 2011.
Even without a debt default, it looks increasingly possible that the world's credit rating agencies will soon downgrade U.S. debt from the AAA standing it has enjoyed for decades.
A downgrade isn't catastrophic because global financial markets decide the creditworthiness of U.S. securities, not Moody's and Standard & Poor's. The good news is that investors still regard Treasury bonds, which carry the full faith and credit of the U.S. government, as a near zero-risk investment. But a downgrade will raise the cost of credit, especially for states and institutions whose debt is pegged to Treasurys. Above all a downgrade is a symbol of fiscal mismanagement and an omen of worse to come if we continue the same habits.
President Obama will deserve much of the blame for the spending blowout of his first two years (see the nearby chart). But the origins of this downgrade go back decades, and so this is a good time to review the policies that brought us to this sad chapter and $14.3 trillion of debt.
With former President Truman at his side, LBJ signs the Medicare bill into law, July 30, 1965.
FDR began the entitlement era with the New Deal and Social Security, but for decades it remained relatively limited. Spending fell dramatically after the end of World War II and the U.S. debt burden fell rapidly from 100% of GDP. That changed in the mid-1960s with LBJ's Great Society and the dawn of the health-care state. Medicare and Medicaid were launched in 1965 with fairy tale estimates of future costs.
Medicare, the program for the elderly, was supposed to cost $12 billion by 1990 but instead spent $110 billion. The costs of Medicaid, the program for the poor, have exploded as politicians like California Democrat Henry Waxman expanded eligibility and coverage. In inflation-adjusted dollars, Medicaid cost $4 billion in 1966, $41 billion in 1986 and $243 billion last year. Rather than bending the cost curve down, the government as third-party payer led to a medical price spiral.
LBJ launched other welfare programs—public housing, food stamps and many more—that have also grown over time. Last year, the panoply of welfare programs spent about $20,000 for every man, woman and child in poverty, according to Robert Rector of the Heritage Foundation.
Social Security's fiscal trouble began in earnest in 1972 with bills that increased benefits immediately by 20%, added an annual cost of living adjustment, and created a benefit escalator requiring payments to rise with wages, not inflation. This and other tweaks by Democrat Wilbur Mills added trillions of dollars to the program's unfunded liabilities. Believe it or not, these 1972 amendments were added to a debt-ceiling bill.
None of these benefit expansions were subject to annual budget review and thus they grew by automatic pilot. They are sometimes called "mandatory spending" because Congress is required by law to make payments to those who meet eligibility standards, regardless of other spending needs or tax revenues.
According to the most recent government data, today some 50.5 million Americans are on Medicaid, 46.5 million are on Medicare, 52 million on Social Security, five million on SSI, 7.5 million on unemployment insurance, and 44.6 million on food stamps and other nutrition programs. Some 24 million get the earned-income tax credit, a cash income supplement.
By 2010 such payments to individuals were 66% of the federal budget, up from 28% in 1965. (See the second chart below.) We now spend $2.1 trillion a year on these redistribution programs, and the 75 million baby boomers are only starting to retire.
We suspect that in the 1960s as now—with ObamaCare—liberals knew they had created fiscal time-bombs. They simply assumed that taxes would keep rising to pay for it all, as they have in Europe.
On Monday night Mr. Obama blamed President George W. Bush's "two wars" for the debt buildup. But national defense spending was 7.4% of GDP and 42.8% of outlays in 1965, and only 4.8% of GDP and 20.1% of federal outlays in 2010. Defense has not caused the debt crisis.
Many on the left still blame Ronald Reagan, but the debt increase in the 1980s financed a robust economic expansion and victory in the Cold War. Debt held by the public at the end of the Reagan years was much lower as a share of GDP (41% in 1988 and still only 40.3% in 2008) compared to the estimated 72% in fiscal 2011. That Cold War victory made possible the peace dividend that allowed Bill Clinton to balance the budget in the 1990s by cutting defense spending to 3% of GDP from nearly 6% in 1988.
Mr. Bush and Republicans did prove after 9/11 that the Washington urge to spend and borrow is bipartisan. Republicans launched a Medicare drug benefit, record outlays on education, the most expensive transportation bill in history, and home ownership aid that contributed to the housing bubble. The GOP's blunder was refusing to cut domestic spending to finance the war on terrorism. Guns and butter blowouts never last.
Then came Mr. Obama, arguably the most spendthrift president in history. He inherited a recession and responded by blowing up the U.S. balance sheet. Spending as a share of GDP in the last three years is higher than at any time since 1946. In three years the debt has increased by more than $4 trillion thanks to stimulus, cash for clunkers, mortgage modification programs, 99 weeks of jobless benefits, record expansions in Medicaid, and more.
The forecast is for $8 trillion to $10 trillion more in red ink through 2021. Mr. Obama hinted in a press conference earlier this month that if it weren't for Republicans, he'd want another stimulus. Scary thought: None of this includes the ObamaCare entitlement that will place 30 million more Americans on government health rolls.
This is the road to fiscal perdition. The looming debt downgrade only confirms what everyone knows: Congress has made so many promises to so many Americans that there is no conceivable way those promises can be kept. Tax rates might have to rise to 60%, 70%, even 80% to raise the revenues to finance these promises, but that would be economically ruinous.
Yet Mr. Obama and most Democrats still oppose any serious reform of Medicare, Medicaid and Social Security. This insistence on no reform reinforces the notion that our entitlement state is too big to afford but also too big to change politically. This is how a AAA country becomes AA, the first step on the march to Greece.
Thanks for the excellent article. That makes a lot of sense.
Market Scenarios After the Debt Ceiling Debate Is Over
by: Eric Parnell July 26, 2011
All eyes remain on the debt ceiling debate. While glacial like progress continues to be made, the probability still remains high that an agreement will be reached by the final hour. With this in mind, it is worthwhile to increasingly focus on how investment markets including stocks, bonds and gold are likely to respond once the debt ceiling issue is finally behind us. While the immediate response is likely more straightforward, the market may then find itself on several different challenging paths in the months ahead depending on how the legislation finally comes down.
The initial reaction upon a final debt ceiling deal is likely to be a euphoric sigh of relief. Stocks will likely seize the opportunity to take off on another rally. And assuming stocks follow the pattern shown during our most recent brushes with crisis, we’ll most likely see this rally begin to take off anywhere between 24 to 48 hours before we have the all clear that a deal is done. This initial response in stocks is understandable, as the resolution of the debt ceiling debate eliminates a major risk that is currently overhanging the market. The next steps for stocks after this expected initial burst may not be so positive, however, but more on that in a minute.
As for bonds and Treasuries in particular, they may catch an initial bid once a deal is done, but yields are already so low that it’s equally probable that they may trade flat or perhaps even sell off as investors take off the safety trade and venture back out into risk assets like stocks.
Finally, gold is likely to sell off in the midst of any debt ceiling deal. Gold has performed exceedingly well in recent days supported in part by investors seeking a hard asset safe haven from all of the uncertainty brewed up in U.S. and global investment markets by the ongoing debate. The fact that gold is lingering near overbought levels on a technical basis further supports the idea that a short-term breather may soon be in store.
But the initial response is far from the prolonged market reaction once we begin to move beyond the current debt ceiling debate. And a key to this more extended response is what is decided upon in the final deal.
The legislation resulting from the debt ceiling deal will likely place downward pressure on economic growth. This is due to the fact that a reduction in government spending or an increase in taxes has a dampening impact on an economy. As of tonight, it appears that any tax increases are off the table. But spending cuts are at the heart of the debate in order to get the debt ceiling raised. Some law makers would like to focus on spending cuts that would begin to take place immediately. Others are seeking to push these spending cuts out into the future. Adding to the debate, the credit rating agencies are demanding cuts of sufficient substance to prevent the lowering of the country’s prime AAA credit rating. How the final agreement is put together will determine the magnitude of the impact on the economy, but the net result is likely to be a dampening effect.
A decrease in economic growth would have a negative effect on stocks. Basically, if the economy slows, this will lead to an overall reduction in corporate revenue and earnings. And if the “E” starts to go down in the market “P/E,” then pressure starts to build on the “P” to also go down in order to keep valuations at current levels. But unfortunately for stocks, valuations typically shrink during periods of economic weakness, as investors have less confidence about the ability of companies to predictably make each dollar of earnings. Taking this one step further, the more immediate the spending cuts, the more pronounced the drag on stocks is likely to be. And while putting off spending cuts until later would actually be more favorable for stocks in the short term, the uncertainty bred by the U.S. fiscal situation being allowed to fester has the potential to create an even greater problem longer term.
A decline in economic activity would be bullish for high-quality bonds including Treasuries. This is due to the fact that investors typically seek the implied safety and stability of the Treasury market during times of economic weakness. Even today, despite all of the uncertainty surrounding the debt ceiling debate and the talk of possible default, the Treasury market remains a safe haven destination for capital. Thus, if the current debt ceiling debate were to result in the sense that the United States is truly getting serious about reducing spending, balancing our budget and getting our fiscal house in order, this would be all the better for the Treasury market. Conversely, if it were perceived that the government is just kicking the can down the road with a debt deal that lacks any real teeth, this would add to the long-term downside pressure that has been building in the Treasury market for some time. This would be particularly true if the U.S. credit rating is downgraded.
Any economic deceleration will likely add to the already bullish case for gold going forward. And unless legislation is put into place that greatly increases confidence that the United States is beginning down a path to clean our fiscal finances, the U.S. dollar is likely to remain weak and perhaps weaken even further, which would add to the gold tailwind.
One additional factor beyond the debt ceiling debate may mute any initial euphoria and also add to the pressure on markets going forward. This is the situation in Europe. Due to all of the focus on the debt ceiling debate, the fact that Treasury yields are back on the rise again in Europe flew a bit under the radar today. We are only four days removed from the Euro Zone’s latest bazooka shot and 10-Year government yields are already back above 6%. While it is presumed that the leaders of the European Union bought themselves some time with their latest rescue plan, if the situation begins to quickly descend back into crisis, this would amplify the downside pressure on stocks as well as the upside pressure on Treasuries and gold.
In anticipation of a conclusion to the debt ceiling debate in the coming days, I remain long TIPS (TIP) and Treasuries (IEI), (IEF), (TLT) and Gold (GLD). In regards to gold in particular, I am watching for any meaningful sell offs to add to positions. As for stocks, I remain focused on high-quality defensive sectors including food, household products and utilities. And just like with gold, I am selectively looking to pick up high- quality stocks that are severely sold off along the way.
While it will be a relief to put the debt ceiling debate behind us when it is finally over, more hard work lies ahead for the global economy and markets.
Disclosure: I am long IEI, IEF, TLT, TIP, GLD.
Disclaimer: This post is for information purposes only. There are risks involved with investing including loss of principal. Gerring Wealth Management (GWM) makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by GWM. There is no guarantee that the goals of the strategies discussed by GWM will be met.
Axel Merk: Americans are Over-Exposed to US Dollar Risk
Merk believes diversifying away from dollar-denominated assets will help protect purchasing power
July 13, 2011
Axel Merk, president of the Merk Funds and an authority on strategic currency investing, joins Jim Puplava on Financial Sense Newshour to discuss his latest White Paper "US Investors Overexposed to US Dollar Risk?". Merk’s research concludes that 89.3% of the U.S. personal sector’s assets are directly linked to the risk of the U.S. dollar declining.
Axel is the Founder and President of Merk Investments LLC and the author of Sustainable Wealth: Achieve Financial Security in a Volatile World of Debt and Consumption. Merk is considered an expert, providing insights on macro trends, hard money, international investing and building sustainable wealth. An authority on currencies, he pioneered the use of strategic currency investing to seek diversification.
Interview in following link:
8 Contrarian Stocks Climb to 52-Week Highs as Dow Dips 58 Points
By Wall St. Cheat Sheet
July 12 2011
Bernanke to Invent New Term for Printing Money
June 20, 2011
When the U.S. Bureau of Labor and Statistics (BLS) reported their latest consumer price index (CPI) inflation data last week, everybody in the mainstream media worked tirelessly to spin the data in order to proclaim that U.S. price inflation is not a problem. Most articles in the media reported that inflation slowed in May due to falling gas prices. The truth is, gas prices rose last month and U.S. price inflation is spiraling out of control.
Price inflation based on the CPI on a year-over-year basis rose during the month of May to 3.57%, up from 3.16% in April, 2.68% in March, 2.11% in February, 1.63% in January, 1.5% in December, and 1.1% in November. The official rate of price inflation has more than tripled over the past 6 months. Yes, maybe the rate of year-over-year price inflation rose by slightly less in May over April, than it did in April over March, but this isn't good news at all. This U.S. dollar is still rapidly losing its purchasing power and the rate at which it is declining in purchasing power is accelerating.
On an unadjusted basis, gas prices rose 3.6% in the month of May. The media is reporting gas prices based on the BLS's seasonal adjustments. Only with the BLS's deceptive seasonal adjustments did gas prices decline by 2% in the month of May. The BLS's seasonal adjustments will actually reverse starting in the month of July and add to reported gasoline prices. NIA predicts that come August when the BLS releases its July CPI report, the media will begin focusing on unadjusted gasoline prices because the unadjusted gain will be less than the adjusted one. The media always reports the data that supports their agenda and ignores the data that works against it.
The media is obviously just saying what the U.S. government wants them to say. Larry Summers, a Keynesian economist who served for 5 years last decade as President of Harvard and was up until late-2010 director of President Obama's White House National Economic Council, just said last week that, "the underlying rate of inflation is still trending downwards". The media's favorite economist Paul Krugman, a Keynesian who has an op-ed column in the New York Times, said last week that, "There’s really nothing here to shake my view that deflation, not inflation, is the threat."
Krugman, who has been calling for massive price deflation the whole entire time that NIA has been predicting massive price inflation, is refusing to admit he has been wrong and is telling all Americans to ignore rapidly rising food and energy prices because he claims they are too volatile. He is telling the world to focus solely on the core CPI, which ignores food and energy, the two items that Americans need most to live and survive. Core CPI is weighed heavily by rents and America's Real Estate bubble still isn't done deflating. The only purpose of having a core CPI is for Keynesian economists like Krugman to use it to mislead Americans and deceive them into believing that inflation is not a problem.
Core CPI was an invention of the Nixon administration, which right there should tell you all you need to know about it. President Nixon's idea for creating core CPI, was to deceive Americans about price inflation by excluding the items that were rising the most, which he would justify by calling these items "too volatile". NIA has predicted from the very beginning that inflation will not effect all goods and services equally and that as inflation begins to spiral out of control, inflation would gravitate most towards the prices of the items that Americans need the most, and there is nothing that Americans need more than food and agricultural products, and to a lesser extent energy.
Whenever the mainstream media reports about global inflation and they show a map of the world, the map always shows massive inflation in Middle Eastern and Asian countries, with the U.S. having the least price inflation. The truth is, inflation in Middle Eastern and Asian countries isn't many times worse than the U.S., it is just that their governments are many times more honest and aren't as advanced in manipulating economic statistics as our government is. While all of the headlines from major American news organizations about U.S. inflation said last week that inflation is slowing and not a problem, those same news organizations wrote articles about Chinese inflation being at a new 34-month high of 5.5%. The fact is, official U.S. price inflation is also at its highest level in nearly three years and our real price inflation rate is actually higher than China's reported rate of price inflation.
Based on the BLS's CPI, year-over-year U.S. price inflation in the month of May of 3.57% was the highest year-over-year price inflation rate since October of 2008, right before the global financial crisis. If it wasn't for the global financial crisis of late-2008/early-2009 and the world's mistake of liquidating real assets and hoarding fiat U.S. dollars as a safe haven, it is likely that the official rate of U.S. price inflation would already be in the double-digits today. NIA estimates the real rate of U.S. price inflation, minus geometric weighting and hedonics, to currently be approximately 7.5% on a year-over-year basis. It is possible that the real U.S. price inflation rate will reach double digits in the second half of 2011. That will be devastating to the U.S. economy because at that point it will just about guarantee that the Federal Reserve will have to raise the federal funds rate to north of 10% by the middle of this decade.
The Federal Reserve's balance sheet just reached a brand new record of $2.832 trillion, up from $2.815 trillion in the prior week, as we approach the end of QE2 at the end of June.] The stock market is already anticipating the end of QE2 with the Dow Jones currently down over 900 points from its high at the end of April. The declining stock market is pretty much sowing the seeds for a QE3. After all, Federal Reserve Chairman Ben Bernanke doesn't want to see the phony U.S. economic recovery blow up in smoke.
Bernanke will do everything possible to disguise QE3 and will never admit to there being a QE3. Remember, this is the same Federal Reserve Chairman who lied to every single American on '60 Minutes' when he said, "We're not printing money." That is exactly what QE2 is, printing money, but just like how Bernanke won't admit to printing money, Bernanke is now going to retire the term "quantitative easing" and come up with a new term for the Fed's latest destructive policy of creating massive monetary inflation.
Bond Rally Keeps Rolling; Schwab Analyst Says Low Rates Here For Awhile.
By Murray Coleman
June 1, 2011, 1:43 PM ET
TIPS has had a great run and appears to be topping again.
For me in my 401K, TIPS is the only alternative to provide me inflation protection.
I try to analyze the Fed's actions and yesterday Bernanke indicated QE2 will cease at the end of June. But I expect another quantitative easy should the economy go into decline.
BUT if the economy goes into decline, there might be an associated deflation.
I'm in a total quandary about the future. For me, I'm holding. For you, if you had a great run in TIPS over the past three years, you could move a portion out of TIPS at this point.
Long term the dollar is toast and inflation will dominate, imo. That's why I will continue have a core holding in TIPS.
It's not an easy decision and the charts say to take profits.