How to Make Money Off of Rising Inflation

inflationNext week the Federal Reserve announces what it will do for QE2. Most investors are expecting bond buying and more monetary easing that will lower interest rates and make the dollar decline further to help spur our exports. Low interest rates have not spurred the economy so far, and a declining dollar has the possibility of igniting worldwide currency wars and increase inflation.

That’s what has been happening to most American households – inflation. The FED is so worried about deflation that it has been trying to ignite inflation with massive money printing and so the prices of foodstuffs, cotton and metals have increased tremendously over the last few months. This is what investors are expecting into the future.

Prognosis: Lower interest rates, but rising inflation ahead, unemployment unchanged. How’s that for your bank savings? Pretty bad and if you are unemployed, even worse. You are only going to experience more difficulties, and this is what we think will happen.

Our editors personally don’t think this strategy of trying to ignite inflation will dig us out of the economic hole we’re in. We might see assets go up in price, but the economy is rotten to the core because of all the jobs lost these last two decades due to offshoring, the loss of the manufacturing base and technology replacing individuals. The push for productivity has killed the standard of living because it produced unemployment at a  rate we can no longer handle during the “perfect storm” congruence of factors we are now seeing colliding together. All these jobs are not coming back even though we may see asset prices go up in value due to easier monetary policies from the FED. Which one do you want for a strong country – asset prices to go up or unemployment to go down?

The bigger question is, how can you play this to put more money in your pocket? There are several strategies to talk through with your investment or financial advisor. They might include the following:

(1) Buying real assets such as commodities and certain metals. Famous investor Jimmy Rogers suggests this.

(2) If inflation continues to devalue the dollar, investors may sell the dollar in favor of foreign currencies whose governments are keeping inflation under control. That includes countries like Australia, South Korea, Singapore and Sweden which DO NOT want to see inflation. You might invest in these currencies through appropriate ETFs.

(3) Some large dividend paying stocks tend to do well during inflationary times.

(4) Treasury Inflation-Protected Securities, or TIPS, are a product many will consider, but be careful because TIPS  historically  have a low “correlation” to the consumer-price index. Commodities had a  0.63 correlation to CPI inflation from 2002 to 2009 while TIPS only showed a 0.21% correlation during this period. Commodities seem to be a better play.


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