Jim Rogers, legendary commodities investor and co-founder of the
Quantum Fund along with George Soros (a legend in his own right),
has been looking at the pace of money printing in the developed
world. And he doesn't like what he sees. In fact, the legendary
investor was recently quoted as predicting, "inflation run
amok."
Rogers isn't just anotherWall Street prognosticator. He
predicted the housing bubble and financial crash, and started
selling stocks in the sectors in 2006. He also saw the slowdown
we've seen during the past couple years in Chinese stocks coming.
During the 10 years he helped manage the Quantum Fund with Soros,
the fund returned 4,200%.
So it's easy to see why people tend to sit up and pay attention
when Rogers warns of trouble on the horizon.
An unprecedented increase in monetary stimulus
Rogers has good reason to fear the high inflation. Since 2008, the
Federal Reserve has pumped more than $2.3 trillion into theeconomy
and just recently announced another $40 billion program to reduce
interest rates further in the third round of quantitative easing.
The result has been only a gradual reduction in unemployment and a
sluggish 2% rate of economic growth. To make matters worse, if the
president cannot come to an agreement with Congress to avoid the
fiscal cliff, then there will be little left to support the economy
but to enact more monetary easing.
And the U.S. Federal Reserve is not alone. Central banks in
Europe, Japan and China have all turned on the printing presses to
stimulate growth. While these policies have led to only a slight
increase in inflation during the past couple of years, this could
all change soon.
If the economy starts showing any sign of improvement, then
markets could start pushing prices across all sectors dramatically
higher, which would be the best-case scenario. Even if the economy
doesn't pick up, the immense amount of new money central banks are
creating could start pushing up prices. The result: Stagnant growth
and high inflation, or stagflation.
Follow the leader
Investors looking to protect their portfolios, or evenprofit from
the coming rise in prices, should consider what Rogers and other
successful investors are doing. Rogers has been a buyer of
commodities -- especially gold and agriculture -- recently saying
that agriculture is one of the few sectors that will boom during
the next few years. Extreme weather patterns across the globe
pushed some agricultural prices up more than 60% this year and the
increased consumption of meat inemerging markets will likely drive
the price of feed grains up.
Several exchange-traded funds (
ETFs
) provide a good bet on inflation and other global forces. The
PowerShares DBCommodity Index Tracking (
DBC
)
gives investors exposure to a range of assets from energy to metals
and agriculture. Investors looking for a more focusedinvestment in
agriculture may prefer the
PowerShares DB Agriculture (
DBA
)
. The fund holds a diversified mix of agriculturefutures contracts
including: Corn (12.4%), wheat (12.4%), cattle (16.7%) and soybeans
(12.4%).
Of course, the classic inflation bet has been gold. An
investment in the
SPDR GoldShares ETF (
GLD
)
since its inception in 2004 has returned 17.7% on an annual basis
and many investors are positioning for a new breakout in
prices.
One of my favorite inflation hedges is inreal estate investment
trusts (REITs). Runaway inflation makes the high level of debt on
company books worth much less, but real estate assets keep their
value even as the dollar falls.
HCP Inc. (
HCP
)
, a REIT that buys and manages health care properties, should do
well as the Affordable Care Act brings more insured visits to
hospitals and services. The shares pay a 4.5%dividend yield and
have returned more than 24% in the past year.
.png)
The policy levers have certainly been pulled for either economic
growth, inflation or both. This is FCX)back in August. The
metal-mining stock has exposure to copper and gold prices and a
30.4% annualized revenue growth during the past 10 years.
.png)
The stock has some great support behind it with the rebound in
housing and global monetary easing, and has returned about 10%
since I profiled it in August, beating the S&P 500 by more than
12%. Best yet, shares still trade at a relatively cheap 12.4 times
trailingearnings and pay about a 3% dividend yield.
Risks to Consider:
Despite a multi-trillion dollar response to slow economic
growth, monetary easing has yet to lead to much higher inflation.
It is a good bet that prices are going higher, but it may take a
year or more before a strong jump in inflation materializes.
Action to Take -->
Whether economic growth picks up or not, it is a fairly safe bet
that prices across all segments of the industry are going higher.
The only question is how high and how fast. Investors need to have
assets in their portfolios that will protect them from the coming
rise in inflation and the ideas mentioned should do just that.