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The Greenback Effect - - WEB in Today's NYTimes Op ED


Investmentacct
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It's a point of view WEB has discussed quite a bit in the last 6 months, the most likely outcome for US will be:

1) coming inflation, big time

2) dollar devaluation

3) higher taxes

 

Now, what can you make out of this? Here are the things I can think of in terms of where to hide/profit: 

1) great business as inflation hedge, like KO, JNJ

2) companies with hard assets, commodity, oil, gold

3) real estate

 

Thoughts?

 

 

 

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Guest Broxburnboy

 

Now, what can you make out of this? Here are the things I can think of in terms of where to hide/profit: 

1) great business as inflation hedge, like KO, JNJ

2) companies with hard assets, commodity, oil, gold

3) real estate

 

Thoughts?

 

 

 

 

I would be very careful about real estate investments outside one's own personal holdings or fully owned revenue properties. Real Estate prices are coming off a perfect storm for high prices.. easy, cheap credit, irrational investor exuberance, record levels of consumer spending. These conditions may not be repeated for a long time. Levered investments here are subject to further painful delevering and possibly soaring interest rates in the short or medium term.

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Philip Fischer wrote, " In other words, stocks that are going to have a big rise regardless of inflationary conditions are the only type of stocks that will safeguard the investors' assets against inflation."

 

I am always amazed by all the people claiming hard assets and commodities automatically confer protection against inflation. In the book Paths to Wealth through common stocks, Fischer totally dispels this myth. There is nothing automatic about stocks protecting against inflation nor is there anything that guarantees hard asset companies do the same. His thesis is that it is the individual character of the stock/business, so basically one commodity stock might have a good after-inflation return while another, in the same field, may not.

 

All generalities are suspect, including this sentence :)

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Considering that technology is playing an ever increasing role in our lives and the amount of computing power you get/dollar is growing exponentially I'm not all that worried.  Consider that in 2006 10 shares of Fairfax would have gotten you an adequate laptop, today 1.5 shares is enough for something most of us would find usable!  At this rate by the end of 2010, 1 share will get you a sick flatscreen tv, xbox 360 w/ natal.  Fast forward a a decade into the future and maybe we're talking about battery powered car that can do L.A to Vegas for less than 5$ worth of electricity. 

 

 

Cheers.

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I won't disagree with Fisher that stocks need to be evaluated with merit of its own, regardless of inflation of not, but I believe in a time of shift, there will be easy places to look for likely winners (5 of 10 companies in a sector will do well) vs difficult places (1 exceptional out 10 in a sector will do well). Like oil sector in the past 10 years, one could have just bought the whole sector EFT and do very well.

 

Price in technology always put a deflation pressure, IMO it's "things you want" and thus less important comparing to price inflation of "things you need", food, energy, housing, education etc. However the official inflation doesn't capture that, and even plain misleading in this regard.

 

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