The latest issue of Money magazine is warning of a significant trend for the coming year — the Federal Reserve will reinflate the economy, spurring significant inflation.
In its “Investor Guide 2011,” the magazine identifies inflation as the top trend investors need to watch for in the new year.
“After listening to recent statements by the Fed, I’m convinced central bankers will reinflate this economy by any means necessary,” Pat Dorsey, director of equity research for Morningstar, writes in Money.
“Yet it’s hard to reinflate the economy just enough to get job creation going, but not so much that inflation remains perfectly in check. In fact, there are precisely zero historical examples of that kind of macroeconomic fine-tuning, which means the risk of the Fed overshooting is high.”
Dorsey isn’t alone in warning of looming inflation. Billionaire investor Warren Buffett said at last year’s shareholders meeting of his Berkshire Hathaway Inc. that “the prospects for significant inflation have increased.”
He said more recently that “a country that continuously expands its debt as a percentage of GDP and raises much of the money abroad to finance that, at some point, it’s going to inflate its way out of the burden of that debt.”
Other financial experts who see inflation on the horizon include Robert Wiedemer, co-author of the best-selling book “Aftershock,” who in 2006 predicted the economic meltdown, and Richard Rahn, chairman of the Institute for Global Economic Growth.
David Skarica, author of the new best-selling book “The Great Super Cycle: Profit from the Coming Inflation and Dollar Devaluation,” says that the Federal Reserve and other central banks are actively inflating their currencies to monetize staggering debt loads.
This, in turn, will lead to a significant dollar devaluation with the greenback set to devalue by as much as 50 percent during the next few years, Skarica says.
Editor's Note: Get a free copy of David Skarica’s "The Great Super Cycle" — Read More — Click Here Now.
If the Fed does reinflate the economy, “your best insurance policy is an investment that’s likely to give you a reasonable inflation-adjusted return,” Dorsey advises, citing three stock picks for dealing with inflation:
• HCN, a healthcare real-estate investment trust, manages senior-living and medical-office buildings, and has several built-in inflation protectors.
Many of its leases have inflation escalators that automatically raise rents based on changes in the consumer price index. And most leases call for tenants to cover the increases in taxes, insurance and maintenance that inflation would bring.
• Magellan Midstream Partners LP operates one of the country’s biggest pipelines for refined petroleum products. Demand for fuel is likely to rise in a reinflated economy, increasing the volume of refined products that Magellan delivers and the fees it collects.
Also, the company collects tariffs that can rise with changes in the producer price index for finished goods.
• Healthcare conglomerate Abbott Laboratories is another firm with “real pricing power,” a strong brand with unique products that can pass along price increases without hurting sales, according to Dorsey.
“The firm’s pharmaceutical division enjoyed 23 percent growth in the third quarter, thanks in part to the strength of brand-name drugs like Humira, used to treat autoimmune disorders such as rheumatoid arthritis.”
Editor's Note: David Skarica’s "The Great Super Cycle" reveals five global investments that will rise with inflation and be protected against a dollar devaluation — Read More — Click Here Now.
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