Making money.

Don’t be deluded into thinking that inflation “might be coming” in the future and that once you see the signs you can protect yourself.

Inflation is already here. And if you wait too long to take precautions, this silent thief will most certainly steal your wealth and savings. You must act NOW if you wish to protect what you have worked so hard for. Take the right actions today, and you can not only insure your wealth against erosion by inflation… you can generate life-changing profits as well.

First, it is important to have a proper understanding of inflation. Most people believe that the definition of inflation is rising prices. This is not true. The definition of inflation is when the supply of new money outpaces the production of goods and services. When an increasing supply of money chases a decreasing or static supply of goods and services, the money becomes worth less (or worthless, if you prefer) and the price of goods and services goes up.

In other words, rising prices are a symptom of inflation. They are the end result of a monetary phenomenon. But if you wait until the symptoms appear, it will already be too late. If you own a house on the Gulf of Mexico, you wouldn’t start pricing hurricane insurance with a Category 4 storm curling around the Florida Keys. Likewise, the time to shop for inflation insurance is not when prices have already begun to rise.

The government’s Consumer Price Index (CPI) fell in March and was unchanged in April. This would indicate that prices are stable and there is no need to worry. But the bond market is telling a different story. The bond market is signaling that rising prices are just ahead and you should be worried.

In a report issued in November, I wrote:

“The credit markets are much larger than the stock markets. These markets are driven by traders whose job it is to see beyond the lies and propaganda coming from Washington and Wall Street. You will not have to wait for asset deflation to finally give way to inflation. The bond market will spot it on the horizon and begin discounting bonds and raising long term rates.”

The chart below of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) illustrates the point. When Uncle Sam’s creditors begin to worry about inflation, they demand a higher rate of interest for their loans. As interest rates tick up, bond prices fall. And as you can see below, the prices of long-term U.S. Treasury bonds are falling at a record clip.

This is not the only indication that the first winds of inflation will soon arrive. Gold stocks have broken out to highs not seen since last August. And the dollar is back in a sustained down trend. The market is speaking loud and clear. It is time to batten down the hatches.

There are a number of ways to profit and protect your wealth during a period of inflation. If you are knowledgeable and prepared, it can make you a fortune. First, you should have a healthy portion of your portfolio in precious metals and energy investments.

You may also consider shorting long-term government bonds. As interest rates inevitably rise, bond prices fall. Shorting the TLT would make an excellent long term inflation hedge. You could also consider buying TBT, a leveraged inverse fund which seeks to return two times the return of the TLT.  In other words, if the TLT falls by 10%, the TBT should rise 20%.

Blue chip companies with strong business fundamentals and a long history of raising dividends are also an excellent way to profit in an inflationary environment. These companies can raise their prices to keep up with inflation, and then pass the profits along to shareholders. And the consistently rising dividends can produce a yield that outpaces all but the most severe inflation.

And finally, don’t be afraid to hold sensible levels of long-term fixed rate debt on valuable assets (a mortgage, for example). By “sensible”, I mean debt that can be easily serviced, even in a worst case scenario. Fixed rate debt can be a powerful financial tool in an inflationary environment. How else could you legally borrow a dollar and pay back 50 cents? If you use that debt wisely to purchase assets that increase in value over the term of the loan, your profits can be substantial.

Don’t be afraid of inflation. It is already here and there is nothing we can do about it. The effects will soon be obvious to all. Just make sure you are among those who are protected and prepared to profit.

You know they are trying to accomplish this ignominious feat. The goal is to keep Americans in an economic stupor. It is working.

Lies and deceit are pervasive. Newspapers, magazines, TV broadcasts, economic analysis and official prognostications are all based on shady statistics. Junk in… junk out.

When you look closely at a chart of actual GDP you’ll see a resounding depression in the US the first decade of this century:

This chart is from www.shadowstats.com and tracks US economic growth the old fashioned way… the truth receives priority. The red line in this chart represents the official story and shows positive growth over the last 18 years with the exception of a recent plunge into negative territory.

The blue line represents the same data interpreted according to more reliable standards, well before the bubble blowers took steroids and the central planning helm. Yes, the stats have been doctored for 25 years. If the blue line doesn’t show a sustained recession (depression) I’d hate to see one. What’s even worse is that there is no end in sight to our economic malaise.

These lies are part and parcel of our presently crumbling economy. It simply matters more now that the wheels have completely fallen off.

Clearly, the US has had negative growth this decade with the exception of a brief period in 2004. Negative growth predominating over a nine year time frame rings up similarities to Japan’s “Lost Decade” of the 1990s. Japanese real estate and stock prices crumbled in 1989 and Japan’s bubble has been leaking air ever since. They imported central planning from the West and cling to it to this day.

In actuality, Japan’s economy grew about 1.5% per year in the 1990s if their numbers can be trusted. That’s a far cry from their post WW2 boom years, but also drastically better than the US’s present lost decade.

The word con is derived from confidence games. A consumer credit and debt based economy is a confidence game. Official stats have become a confidence game. Wall Street cheerleading is a confidence game. Treasury debt is a massive confidence game. The US dollar is the biggest confidence game of all.

You’ve been conned for decades. The swindle has gone down. The flim-flam men are setting up their next trick. Trusting and unwary citizens are lining up to participate once more. The population remains in a state of denial.

No, you can’t lie your way out of a depression! Nor can you borrow and spend your way out of one. The money being printed for crony bailouts and “stimulus” packages adds up to unfathomable amounts of debt. All that is stimulated in the end is the certainty of the days of default and bankruptcy.

The US is long past the point where a reasonable amount of debt can be taken on and have it result in a proportional productivity. Debt and over-leverage are the catalysts of our problems and there will be no real recovery until they are wrung out. One way or another they will be purged. There are natural laws of economics just like there are natural laws of science. Don’t confuse the Fed head with Father Economics.

Our manipulating officials can amp up the Dow for a smiley face 2000 points but this does nothing for the underlying economic and financial fundamentals. Be careful that you don’t fall for this trickery as corporate insiders are presently unloading stock en mass. What exactly do they know?

You must see through the ongoing distortions and protect yourself. Blow away the smoke and shatter the magicians’ mirrors. Participate in all the tea parties you like but nothing gets solved until the con men are run out of town.

Live Resourcefully,

Rusty

My article for Investor’s Daily Edge on 04/09/09 recommended the iShares MSCI Brazil Index (EWZ).  This Exchange Traded Fund holds a nice basket of Brazilian stocks and seeks to mirror the Brazilian stock market as measured by the MSCI Brazil index.

If you took my advice, you’d have seen a big short-term gain as the Brazilian ETF rose over 22% in less than two months.  Our staff here at Investor’s Daily Edge strives to give you information that can help you accumulate wealth and enhance your financial well-being.

If you missed this opportunity to get into EWZ, it’s not too late.  This Brazilian ETF has the potential to run much higher as Brazil is one of the best emerging markets to invest in.  Let me explain:

During a recent trip to Brazil, I observed an economy that is flourishing.  Brazil is a country that is blessed with a bounty of natural resources.  Two hundred million Brazilian people are striving to live a better life and they are well on their way to becoming a developed country like the U.S. or Japan.  I foresee Brazil becoming a global superpower within 20 years.

Brazil is an agricultural and commodities powerhouse with large and well-developed mining, manufacturing, and service sectors.  The world’s population is exploding and Brazil’s rich farmland has the potential to feed the budding masses.  Plus, Brazil has plenty of oil deposits; in fact, they just found another 8 billion barrels in the Tupi offshore oil field.  They have plenty of natural resources that they can export to the rest of the world.  And, once the world finally pulls out of this economic crisis, you will see commodity demand and prices skyrocket… Brazil will be sitting pretty.

Brazil continues to push industrial and agricultural growth and development of its vast interior.  Exploiting huge natural resources and a large labor pool, Brazil is at the moment South America’s top economic power and is expanding its presence on the world stage.

Brazil’s ethanol industry is powerful and is on the rise. The country turns a good portion of their sugar cane crop into alcohol fuel for their cars.  The world is seeking alternative sources for traditional fuels and Brazil is well positioned to deliver.

America was Brazil’s top trading partner until last month, but China surpassed the U.S.!  And, China is looking to widen its exposure to Brazil’s massive amounts of natural resources.  From 2006 to 2008, China/Brazil trade surged at an average annual growth rate of 50%.

China is securing energy resources to power its economy by providing a loan to Brazil’s Petrobras which will supply China with 150,000 barrels of crude a day this year and 200,000 barrels in 2010.  Brazil and China recently signed multiple accords to promote trade, investments and cooperation between the two nations.  And this bilateral trade will be done using Brazil’s currency the “Real” and China’s currency the “Yuan”, not the U.S. dollar.

Brazil’s economy has been quite stable under President Lula da Silva.  He is pushing further economic reforms to reduce taxes and increase investment in infrastructure.  Brazil’s debt achieved investment grade status early in 2008, which in turn encourages more foreign investment.

Plus, Brazil has a growing tourism industry due to their amazing beaches and friendly people.  Check out this incredible picture of Rio.

Not only is Brazil a beautiful country, but it’s a great place to invest for the long run.  The Brazilian stock market is on fire right now and they are immune to a lot of the ills that America is suffering from, like exposure to toxic assets.  Make sure you put a small portion of your portfolio into emerging markets like Brazil.

Again my favorite way for you to play Brazil is the iShares MSCI Brazil Index (EWZ).  This Brazilian ETF offers excellent profit potential.  Pick some up today…

Best Wishes,
Ted Peroulakis

As I pen this article, gold is at $950 per ounce and I believe it will head over $1,000 in the near term.  After that, my long-term target for gold is $2,000 per ounce and beyond.  This is an opportunity for you to double your money.  Buy gold… 

We know inflation is coming due to central governments around the world printing up trillions in new currency in an attempt to pull out of this global recession.  Inflation will send gold prices much higher.

In addition, gold is known as the crisis commodity and we have certainly seen geopolitical risk picking up lately.

A mad man dictator in North Korea just set off a nuclear device and shot off a few missiles.  Kim Jong Il wouldn’t hesitate to sell a nuclear device to a terrorist.  Even China is running out of patience and the world is about to turn the screws on the North Korean regime.

The North Korean people need to get rid of that evil regime which ran their country into the ground, and embrace freedom and democracy.

What’s more, Iran is continuing to irritate the civilized world and further isolate itself by developing nuclear weapons, rather than focusing on their faltering economy.

There is a good chance that Israel will attack Iran’s nuclear facilities if the hardliner Iranian President Mahmoud Ahmadinejad is re-elected next month.

Hopefully, the Persian people will take this opportunity to elect moderate political leaders so we can avoid a major war in the region.

War with Iran could easily escalate up to the use of nuclear weapons.  Iran will become a glass parking lot and gold will be over $5,000 per ounce.

Then, you have the Taliban which is trying to take over nuclear armed Pakistan.  Do you think the Taliban would even hesitate before starting World War III?

Higher inflation and geopolitical risk are just two reasons to own gold.  Make sure a portion of your investment portfolio is in the yellow metal.

Best Wishes,
Ted Peroulakis

Since the first day I started working in the stock and bond business, the old timers, who I have always sought out as a great source of advice, have said almost without exception, “The markets don’t change.”

This mantra was always in response to those in the business who, following a big run-up or downturn in the market, would make the claim that “it’s different this time.” This claim of new market rules usually was an effort to support buying at the top of a market, or buying when things seem over priced.

The former, the old timer’s advice, was, until now, always correct. Markets have always been the markets. They run up, they fall down. They always fall a lot faster than they go up and if you wait until everyone gets in to convince you its ok to do it you will lose money.

This time though I believe some things have changed in the markets, the changes may be of a temporary nature, but this definitely is not our grandfather’s or father’s market.

What I think has changed is how investors will have to prepare themselves mentally for the markets for the next three to five years. It’s called a trading discipline and you will have to change yours or get out of the market. You can stay in and try to do the jump in and out game, but you’ll get crushed even faster than in the past.

Since the majority of small investors have no trading discipline anyway, this will be a new concept for them. There is still a lot of money to be made in stocks and bonds; it will just take a few shifts in expectations and procedures to get to it.

The first change is that this is not a trading market. Some will continue to get lucky with their guesses, and the select few who always seem to make money will, but going forward, the big money will be made by those who can wait it out and use dollar cost averaging to their benefit.

Trading requires some amount of predictability, the biggest change in the new market is the little predictability the markets ever had has been driven underground by the huge collapse of confidence. This market today is jumpier than at any time in our history. The slightest suspicion, wind shift or rumor makes this thing plummet. We will see more falls over the next five years than at a rock climbing competition.

The trader’s position has always been just this side of insane, but now it has crossed the line. With virtually no fundamentals, no confidence that the changes that have been put in place by the Obama administration will produce any lasting results, the debt, the monetization of the debt, the politicalization of the banks and a world community that has grave misgivings about the future of our markets and economy, you’d have to be crazy to think you could predict anything.

What will work going forward are positions in companies like Clorox (CLX). There are the usual reasons to own a stock like this, and the new reasons that work within the new market rules.

First, the usual reasons: The company recently raised their earnings projections. They will earn around $3.70 this year and $4.17 next. The dividend is $1.84, about a 3.4% yield, and there’s plenty of cash to pay it. Their profit margin is rising, they have abundant cash, they’re paying down their debt and they have stable brands; bleach, Kingsford Charcoal, Brita, Glad Bags, Burt’s Bees Skin Care and Greenworks Detergents.

A solid company with reasonable prospects.

In this economy this is what I call a slap in the face investment. It is about $51 per share, was as high as $65 in the last 52 weeks, was as low as $46 and has been showing a very nice upward trend for the past three months.

The new reasons to own it: It isn’t sexy, it will not run off the charts with breaking news, it pays a good dividend that appears to be safe, it won’t be subject to big swings, it won’t fall off the charts because of a rumor, it is expected to show an incredibly boring growth rate of around 15% going forward and most importantly you can own it and still retire on time.

In fact, this stock has everything you will need to survive the next five years; stability, fundamentals, solid management, income and products that consumers will need and buy.

Why income, because I expect to see major, I mean major swings in this market. If you don’t have some type of money showing up in your account from a bond or a safe dividend there will be extended periods in the new market when you probably won’t see any money at all.

The second aspect of your investing you must change is to average into this market. Take advantage of the big price swings we will definitely see. Make the volatility work for you. As Warren Buffet said recently, “I love when things are this bad.”

Investors must learn to cheer when the market crashes, it’s a buying opportunity. If you’re in the right stocks you have virtually nothing to worry about except where you’ll get more money to buy into the dips.

Shift your expectations and investing style for the next five years or be prepared to be very disappointed. Get out of the Stock of the Month Club, get back to boring, solid companies you can live with.

This is the same advice my old timer friends in the markets have been giving me for years. Maybe things haven’t changed that much after all. Maybe we’ve just been dropped kicked back to reality.

Good luck!

Steve

There is quite a bit of discussion right now about if this market rally is real, and if it is how long it can last.

The last round of corporate earnings weren’t as bad as many expected, and there seems to be some tempered optimism that this could be a sustained rally.

As much as I would like to see the recovery turn into sustained growth, I have to agree with Rick Pendergraft’s article a few weeks ago that this rally will soon run out of steam.

The reason is a bit different than Rick’s however. Looking at the charts, instead of the potential inverse head-and-shoulders that Rick points to, my reasoning is a little less fancy.

“Sell in May and go away”. As corny as it may seem, there is some merit to the old saying.

Here’s a chart of the last 5 years with June 1st denoted with a red bar and Sept. 1st denoted with a blue bar.

As you can see, the market goes virtually nowhere between June 1st and Sept. 1st. The moves each year were as follows:

2004: -3.3%
2005:  -0.08%
2006:  1.8%
2007: -1.6%
2008:  -7.8%

Unfortunately, things don’t look good for this rally. Expect sideways movement at best for the next few months, but more than likely a slide as Rick mentioned.

Respectfully,
Christian Hill

The Fed has been buying government bonds to lower interest rates and stimulate the economy.

Since December 2008, U.S. Treasury bond prices have fallen, and yields have risen as a result. For example, the yield of 10-year Treasuries has risen from around 2% in December, to 3.55% today.

The problem is the Fed cannot keep interest rates from rising.  Investors are not buying as many U.S. bonds, consequently bond prices go down and rates go up.

I would advise against buying long term U.S. government debt right now.  I think bond prices have a ways to fall.   

Expect higher interest rates in the future, not lower ones.

The wonderful thing about options is you can make money when the market goes up, and when the market goes down!  A favorite strategy with professional options traders and a great way to make money on a market pull back is to buy puts on the Standard & Poor’s 100 index or OEX.  The Standard & Poor’s 100 is an index of 100 stocks which have the largest market capitalization in the S&P500 index.  These OEX index put options make you money as the stock market drops, and will serve as “insurance” to offset losses in your long positions.  OEX puts allow you to hedge against a broad market decline.  We are in a period of increased market volatility and it may be a good strategy is to short the rallies.

My article for Investor’s Daily Edge on 04/09/09 specifically recommended the PowerShares India (PIN). This Exchange Traded Fund (ETF) is traded in the U.S. and holds a nice basket of Indian stocks and seeks to mirror the Indian stock market measured by the Indus India index.

If you took my advice, you’d have seen a great short-term gain as the Indian ETF rose over 23% in just over a month. You don’t usually see big profits that fast–and our readers are quite happy about this gain.

Our staff here at Investor’s Daily Edge strives to give you information that you can profit from, that is our passion.

If you missed this opportunity to get into PIN, it is not too late. This Indian ETF has much more upside potential as India is one of the best foreign markets to invest in. Let me explain:

India’s recent election was a big victory for the free-market oriented Congress Party and paves the way for more economic reforms. Now, India is on track to open up its markets to more foreign investment. The election opens the door to immense investment into Indian stocks. You should put a small portion of your portfolio into India because massive gains are possible over the next couple of decades.

India has seen impressive gains in economic investment and output, but protectionism has hindered foreign access to India’s vast and growing market. Recently, this has been changing and India has been slowly opening up its markets.

After the last Indian election—I expect protectionism to rapidly retreat which will be great for business. India is on track to open up its retail, insurance and banking sectors to more foreign investment. Also, the government may reduce its ownership in refineries, banks and fertilizer companies.

India is one of the world’s fastest growing economies, with strengths in their agriculture, textile, and service sectors. Plus, they boast many modern industries. Services are the main source of economic growth, accounting for over half of India’s output with less than a third of its labor force.

The Indian economy has been growing an average of 7% over the last 10 years, reducing poverty by about 10% over the same period. India had GDP growth of 8.5% in 2006, 9.0% in 2007, and 7.3% in 2008.

India is a democratic federal republic with a strong and independent judicial system based on English common law. Plus, they have a stable economy and have a vast work force which can crank out products at an incredibly low cost. The nation has virtually unlimited potential as a low cost producer of goods and services.

What’s more, India’s standard of living is rapidly increasing and domestic consumption is intensifying. More and more Indians are driving cars and oil consumption is rising sharply. India has a population of almost 1.2 billion and growing. India could surpass China and become the most populous country in the world by 2029. India’s citizens are demanding more and more natural resources. For instance, Indians love gold jewelry and are one of the world’s biggest consumers of the yellow metal. All these factors are incredibly bullish for oil, gold and commodities in general.

Domestic consumption in India is exploding as people have more income to purchase retail goods. Many international companies are aggressively seeking to cash in on the new Indian consumer class.

Furthermore, Indians are smart—they have a strong pool of scientific and technical manpower. India leads the world in abundant high-quality and cost-effective workers. They produce some of the world’s best scientists and engineers.

India even exports their software services and software workers to other parts of the world which repatriate funds right back into the Indian economy.

Moreover, India has the world’s second largest English-speaking population. English is the most important language for national, political, and commercial communication. English is the co-official language of India, with over ninety million speakers. This leads to outsourcing for thousands of U.S.-based software manufacturers, computer companies and other sales and service companies.

India has good infrastructure and billions are being spent to make it better in order to improve the lives of the rural poor and boost economic performance. They are improving their highways, building new roads, improving their electrical power sector. Plus, they are improving railways, upgrading airports and seaports, improving their sanitation and water supply. And, India has a rapidly growing and increasingly affluent urban middle class that is demanding improved infrastructure.

The Bombay Stock Exchange has taken off due to the election victory of the free-market oriented Congress Party. I expect billions of dollars worth of investment capital to flow into Indian stocks. India’s economy is going to continue to soar and you owe it to yourself to invest in India. Keep in mind that investments in developing markets tend to be volatile, so only put a small portion of your portfolio into emerging markets.

Again my favorite way for you to play India is the PowerShares India Fund (PIN). This Indian ETF offers excellent profit potential. Buy it now…

Best Wishes,

Ted Peroulakis