It is unusual for me to write about inflation three weeks in a row. But the threat is so real that I feel compelled to send you this urgent wake-up call.
I am in San Diego this week attending a real-estate and hotel conference. And what I hear there isn't only shocking, but some parts are, frankly, delusional. There is so much optimism among the hotel owners. And there is so much talk about daily room rates going up.
But what I find amusing is that they all seem to believe that inflation isn't a real threat in 2011 and not even in 2012. So they believe that hotel rates will go up but inflation won't.
Hopefully, you have been taking action to protect your investment portfolio against inflation and its effects.
We have the Fed reaching into our wallet, trying to steal our dollars by desiring and stoking inflation. Our leaders would call that treason if you and I tried that. But when the Fed does it, it is labeled "policy." Hogwash.
The Fed is trying so hard to bring in inflation here and claim it isn't working so far.
Let’s see what has happened in the past year or so:
• Corn is up by 85 percent;
• Cotton is up by 115 percent;
• Coffee is up by 65 percent;
• Sugar is up by 15 percent;
• Wheat is up by 50 percent.
So let’s not worry about inflation in America. It is well under 2 percent - not!
Now let’s take a look at what is going around the world which is causing such large price spikes:
• Massive floods in Pakistan in August destroyed wheat and sugar crops;
• Drought in the Shandong and Henan provinces of China has destroyed 95 percent of China’s wheat crop;
• Russian drought of 2010 has destroyed wheat;
• Intense cold weather has swept central India and has destroyed pulses crops (crops harvested solely for the dry seed);
• In Thailand, heavy rains has significantly disrupted the rubber crop, spiking prices there;
• Australian floods have heavily damaged production of coal and destroyed crops;
• In late 2009, heavy rains in Midwest America left 30 percent of the corn crop destroyed;
• Oil is hovering around the $90 per barrel and will top $100 soon on its way even higher.
As a consequence:
• Russia has banned the export of wheat;
• India has banned the export of cotton;
• China has banned the export of rare-earth minerals to Japan (rare-earth minerals aren't a "crop," but are significant here);
• Coal prices are skyrocketing due to the Australian short supply.
And yet, we have 30-year old veterans of the markets in America talk about inflation not being a threat to the U.S. economy in 2011 or 2012. I have heard this not only here in San Diego but also from the chief economist of a top 20 bank and several large investment managers on Wall Street.
The United States has been a huge importer from the Asian economies. Now that the Asians are in crisis mode and protecting their own citizens, I can guarantee that the bans on exports will continue to increase.
On a side note, the Ivory Coast has banned the exports of cocoa and coffee for a month and maybe longer. While this ban is a result of political turmoil, it is aiding a spike in cocoa prices.
All in all, you be the judge whether inflation will affect America this year or in 2012 and beyond.
I urge you to consider putting a portion of your investments in agricultural-based exchange-traded funds (ETFs) as well as the traditional inflation hedges such as gold and silver. Gold is down nearly $100 per ounce in the past few days. I believe this is a bargain price. While I cannot guarantee it won't fall further, I can go out on a limb and say gold prices will be back approaching $1,500 and higher again very soon.
Don't get lulled into inaction by the “Inflation will not be a problem here” camp. Shift your investment portfolio if you haven't done so already and protect your wealth.
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