Inflation can be a nasty surprise for investors who are not amply prepared. Its effects can reduce your real return on an annual basis and make it much more difficult to keep up with your standard of living. With the newly-announced open-ended quantitative easing program that involves a fair amount of money printing, many investors are worried that it is only a matter of time before inflation kicks up and wreaks havoc on their investments. Some are predicting hyperinflation, while others like Bill Gross have stated that inflation will be significant enough to turn all real returns to 0% for the foreseeable future [for more inflation news and analysis subscribe to our free newsletter].
The debate over inflation versus deflation in the U.S. has been relatively heated in the past few years. Given the harsh recession suffered in 2008 and our ever-growing pile of debt it has been difficult to get analysts to agree on one phenomenon over the other. Deflation is a much more rare occurrence than inflation, but can often have a heavier impact like it did on the Japanese economy. Then again, the U.S. is all too familiar with the damages that inflation can leave in its wake if it gets out of control. Below, we outline the predictions of several hot-shot analysts on whether we are gearing up for a deflationary or inflationary environment [for more economic news and analysis subscribe to our free newsletter].
It seems like everyone has an opinion on quantitative easing these days, as the actions of the Fed and Ben Bernanke have riled up investors all around the world. Last Friday, some were waiting for Bernanke to announce QE 3 at his Jackson Hole speech, though he merely hinted that the Fed will step in if the economy worsens. Given all of the money printing and the fact that the U.S. economy is still sluggish at best, many experts are weighing in on the various asset-purchasing programs and whether or not they agree with the actions of the Fed [for more economic news and analysis subscribe to our free newsletter].
The concept of a world-ending economic collapse seemed to be a joke several years ago, but as time has pressed on, more and more people have hopped on the bandwagon of a world-ending crisis, be it a natural disaster or economic crisis. But while some people may be sitting around merely talking about the possibilities of all of the terrible things that could happen, one country is actually doing something about it. The Norwegian government has funded and built a seed vault in preparation for any kind of regional or global disaster [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].
In a recent, rather grim article, bond king Bill Gross stated that investors can expect inflation to cut significantly into their returns in the coming years. In fact, he went as far to say that he believes the average return on a nominal basis will fall around 0%. His argument looks at a long history of both stocks and bonds and compares the past to the present to arrive at his final figure [see also Warning: Ignore Bill Gross’ Hard Money Prediction At Your Own Risk].
Inflation is a common environment for most economies as prices tend to rise as time passes. Governments and central banks around the world mold policies in an effort to curtail inflation and keep it under control. Another less common phenomenon is deflation, or the general decline in prices (and wages) and inflation rates fall below zero. Still an even more rare event is hyperinflation, an issue that does not ail nations often, but when it does, it leaves behind significant damage. For those unfamiliar with hyperinflation and its impact on a surrounding economy, we outline five surprising facts about the phenomenon [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].
Inflation is one of the most talked about phenomenons of the financial and economical world. Central banks have spent years trying to push and pull at inflation rates, much to the dismay of a number of analysts who feel that it should simply run its course. From hyperinflationary environments in Zimbabwe, where banks issued $50 million bills and billionaires could go hungry, to more tame examples like the U.S. in the 1970s (though this was still a pretty serious bout of inflation). Still, for all of the attention that inflation receives, its sister environment, deflation, gets the short end of the stick [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].
We’ve all heard of TIP, right? If you’re a long term commodities investor that buys on the dips, you might use this highly liquid ETF as the short term place for your dry powder. In theory, it protects from inflation, since the ETF holds only Treasury Inflation-Protected Securities (TIPS). In practice, the return on these TIPS is based on the movement of the CPI over time. Is this a problem? Depends whom you ask.