Commodities Up 11.4%

Fed's Dangerous Game is Commodities' Gain by Mike Burnick

 

Last  week, markets were surprised — and inflation hawks shocked — to see core  consumer prices post the biggest monthly gain since 2009 ... surprise,  surprise!

 

Now, we all know the flawed Consumer Price Index does a lousy job capturing the actual rate of inflation. That's because it downplays too many real-world costs that are spiraling ever higher, including health care and education.

 

But now, even the "official" inflation numbers are accelerating to the upside.

 

Take travel costs ... auto insurance jumped 4.8 percent year over year in May, hotel costs are up 5 percent, and airfares surged nearly 6 percent higher.  Expect your summer vacation to cost more this year!

 

And what about soaring food prices, which jumped the most last month in nearly three years: Eggs are up 10 percent, bacon rose 15.3 percent, while citrus and  coffee prices are likewise soaring this year. Your well-balanced breakfast is a lot more expensive than a year ago!

 

Fed discounts inflation danger

 

The year-over-year change in CPI has more than doubled in less than one year. That's clear evidence that inflation is already simmering and may soon boil-over.

 

From an investment perspective, commodities are the likely winners from the Fed's dangerous game.

 

With the unemployment rate steadily declining and inflation now suddenly at the top  of the Federal Reserve's comfort zone, you would think Fed officials would be growing  concerned about ultra-easy money policies stoking more inflation ... but you'd  be wrong.

 

Concluding a two-day policy meeting last Wednesday, it was business-as-usual as Fed chief Janet Yellen quickly dismissed the inflationary CPI report as "noise."

 

Long ago, economist Milton Freidman warned that "inflation is always and everywhere"  the result of excess money growth. In the 1970s, the Federal Reserve ignored  this principle ... and a decade of stagflation was the result.

 

The  Fed is playing a very dangerous game because ignoring simmering inflation today  won't make it go away; it will only fan fears of future inflation all the more.

 

Do you own any of these 6 winners? If  not, you might want to buy them as soon as you can! These companies are the  “Best of the Best” across several key market sectors ... with HUGE profit  potential in 2014.

 

Adding fuel to fire

 

True, deflation has for the most part had the upper-hand in the global economy since  2008. And money velocity — or the turnover of dollars in our economy — has been  unusually weak in recent years.

 

But the Fed has exploded its balance sheet to more than $4 trillion, with $2.5  trillion sloshing around the banking system as excess reserves.

 

This is like high octane rocket-fuel just waiting to ignite much greater inflation  once the velocity of money does pick up.

 

From an investment perspective, commodities are the likely winners from the Fed's  dangerous game. The evidence has been plain to see all year, and especially last week after the Fed ignored the uptick in CPI.

 

There is a growing unease that the Fed is hopelessly  behind the curve on inflation, and commodities markets sense it!

 

Gold  jumped 3.25 percent, the biggest gain in nine months. Silver soared even more, up 6.9 percent. Although precious metals may be the most obvious beneficiaries, they aren't alone in posting strong gains so far this year.

 

Crude oil is up 7.9 percent year to date while natural gas has gained 5.6 percent.

 

Gold is up 9.5 percent, platinum 5.5 percent and palladium jumped 13.5 percent.

 

Corn is up 5.5 percent, sugar 9.3 percent and coffee is up a stunning 56 percent just since January 1st!

 

In fact, the broad-based CRB Commodity Price Index is up 11.4 percent so far this,  well ahead of the stock market's return with the Dow up just 2.6 percent year  to date!

 

Consider  the uptrend of inflation and commodity prices; it's a good idea to consider adding more commodities, or at  least commodity-related stocks to your portfolio mix. One way to accomplish this with a single trade is an ETF like the Market Vectors Natural Resources ETF (HAP), which provides a  diverse mix of natural resource stocks that are tracked by the Rogers-Van Eck Hard Assets Producers Index.

 

The index was developed in concert with legendary investor Jim Rogers, former co-manager with George Soros of the famed Quantum Fund, and author of numerous  investment books including: Hot  Commodities. Rogers is a recognized expert on hard asset investing and his index is viewed by many as the best benchmark for commodity stocks.

 

HAP includes 341 of the world's largest and most prominent companies engaged in the production and distribution of hard asset commodities. As of March 31, 40 percent of the ETF was invested in the red-hot Energy sector, 39.6 percent in Materials, 9.5 percent in Consumer Staples and 5.5 percent in Industrials.

 

This is one ETF with the potential to be a very big winner as the Fed plays its  dangerous game with inflation.

 

Source: Money & Markets, Mike Burnick, June 26, 2014 email.

 

Comments

 

Real inflation has been holding at 10% per year, but the uptick of the phony CPI just confirms that it won’t settle down.  The Fed is not likely to jump interest rates or back off their money printing, but “stagflation” like the 1970s continues to dominate.

Our high real unemployment, our 37% workforce nonparticipation, continues. We will not be able to ring this down unless we drastically reduce the immigration of low wage refugees. Dumb legal and illegal immigration policies have delivered 1 to 2 million foreign job seekers since 1989 and this build-up continues. 

Norb Leahy, Dunwoody GA Tea Party Leader