Friday, August 22, 2014 07:38pm
North Adams, MA now: 64 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
@theMarket: Stop Worrying About Inflation
By: Bill Schmick On: 10:29AM / Sunday February 13, 2011
Important
0
Interesting
0
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0

Here is a sampling of comments I received this week from Berkshire clients:

"Just wait until higher prices start hiking the inflation rate."

"Interest rates are rising because of inflation."

"Look at the government deficit disaster, the only thing we can do is inflate our way out of debt."

It is as if everyone in the United States is absolutely convinced that we are on the verge of hyperinflation. And yet the inflation rate remains below the Federal Reserve's target of what is considered a healthy rate of inflation. It's time I cut through the hyperbole and set things straight for you and I.

I believe that until the unemployment rate drops substantially, inflation in the U.S. will be contained to no more than 2 or 3 percent.

In the meantime, in order for the housing market, the banking sector, the nation's unemployed and the economy overall to improve, we need to spend more money and ignore the deficit for now. The Fed has it right. Drown the system with dollars until even the most recalcitrant lender has no choice but to lend despite the perceived risk.

Commodity prices are rising because of 1) terrible weather and 2) economic recovery worldwide. Those price increases may or may not be inflationary depending upon where you live and do business. Additional demand for wallboard by a local builder, for example, is a good thing because there is a lot of excess capacity right now in the U.S. The same is not true for Chinese or Indian builders, who are populating their country's skylines with thousands of new buildings. For them, higher prices for every additional nail, two-by-four or steel girder fuel their already high inflation rates.

Quantitative easing has been judged a failure by a host of economists and strategists because it has caused interest rates to rise and asset prices to increase, but those are positive developments in my opinion. The price rise in assets (capital goods) is why big takeover deals are back. The impetus behind "merger mania" is simple: investors' expectations have changed drastically from last year's "double dip" mentality. Both market participants and corporations now believe that the return on investments over the coming years will be far higher than expected so assets are worth more now; thus the price increase. That's why investors are loving the increasing stream of takeovers and mergers. These asset price increases will lead to a surge in economic activity and ultimately increases in employment.

The rise in interest rates does not indicate inflation fears. They are simply reflecting the new reality that real returns on assets are increasing. In order to stay competitive, the bond market must offer higher rates. So don't be spooked by higher rates. Their increase is a natural, predictable and welcome development in any country's economic recovery. Don't let the talking heads tell you otherwise.

Expect the dollar to continue to weaken. Very few countries outside of the U.S. have any form of QE I, II. As a result, other countries' currencies will strengthen against the greenback as their interest rates rise much higher than our own. As I've written before, this is good for our exports because a cheaper dollar increases demand for "Made in America" products. Witness this week's take over of the New York Stock Exchange by the Germans.

As for the stock market, contrary to everyone's expectations of an impending correction, the averages continue to confound to the upside. I say expect a correction, but don't wait for it. We have considerable upside ahead of us. Stay the course and stay invested regardless of any pending pullbacks.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.



Tags: inflation, QE      
News Headlines
Motorama Roars Into North Adams For Fourth Year
Pittsfield Firefighters Champs in Annual Pizza Contest
Pittsfield Sets Community Conversation on Violence
iBerkshire Tag Sales: Aug. 23-24
Williamstown ZBA OKs Phased Completion of Weston Field
Pittsfield Parks Commission Questions Lack of Capital Funds
BRPC Developing Community Plan For Reuse of Lee Mills
State, FAA Put Off Finishing Details for North Adams Airport
Stamford School Bus Routes 2014-15
Bianchi Outlines Plan To Move Inspectors To 100 North Street
Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (141)
Independent Investor (193)
Archives:
August 2014 (4)
August 2013 (3)
July 2014 (2)
June 2014 (6)
May 2014 (9)
April 2014 (8)
March 2014 (6)
February 2014 (6)
January 2014 (7)
December 2013 (8)
November 2013 (7)
October 2013 (6)
September 2013 (6)
Tags:
Jobs Currency Interest Rates Stimulus Deficit Commodities Bailout Congress Energy Greece Crisis Oil Euro Recession Debt Ceiling Markets Rally Fiscal Cliff Election Taxes Japan Metals Selloff Banks Economy Fed Retirement Federal Reserve Pullback Europe Stock Market Housing Debt Stocks Europe
Popular Entries:
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Don't Fight the Fed
The Independent Investor: Does Cash Mean Currencies?
@theMarket: QE II Supports the Markets
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
The Independent Investor: Financing ISIS
@theMarket: Geopolitical Risk Trumps Economic Growth
The Independent Investor: Beware the Russian Bear
The Independent Investor: Why Some Corporations Are Leaving America
The Independent Investor: How Much Is Too Much to Spend in Retirement?
The Independent Investor: The Fed Turns Off the Spigot
The Independent Investor: Should You Pay Off Mortgage Before Retiring?
The Independent Investor: Retirement should be a part-time job
The Independent Investor: Unhappily Ever After
@theMarket: June Swoon


View All
Chamber Nite @MountainOne
A who's who was at the MountainOne-hosted Berkshire Chamber...
Third Thursday Aug. 21, 2014
The August Third Thursday event in Pittsfield included a...
High School Football
High School football practice got under way on Monday.
Giorgi League Semis: B&B vs...
Burr and Burton held a steady lead over Bennington, Vt.'s,...
Giorgi League Semis: Drury vs...
Alex Heck scored 19 points to lead the Drury boys...
Mill Children Opening
The 5 Hoosac Street Gallery held its grand opening Friday...
Downtown Celebration 2014
North Adams held its annual street fair on Main Street on...
Worcester Bravehearts vs...
Key at bat helps the Worcester Bravehearts defeat the...
9th Annual Rock, Rattle &...
This year's theme is "Living in Harmony, Fulfilling Our...
Softball Series: Berkshire...
Lanesborough Block Party 2014
The 6th annual Lanesborough Firemen's Association Block...
Softball Series: Berkshire...
The Berkshire Force played in its 14th and final game...
Softball Series: Berkshire...
The Berkshire Force wins one of two games Monday morning to...
United Africans of the...
Softball Series: Berkshire...
The Force was eliminated from the tournament's...
Softball Series: Berkshire...
The Berkshire Force continued play on Sunday afternoon for...
Chamber Nite @MountainOne
A who's who was at the MountainOne-hosted Berkshire Chamber...
Third Thursday Aug. 21, 2014
The August Third Thursday event in Pittsfield included a...
High School Football
High School football practice got under way on Monday.
Giorgi League Semis: B&B vs...
Burr and Burton held a steady lead over Bennington, Vt.'s,...
Giorgi League Semis: Drury vs...
Alex Heck scored 19 points to lead the Drury boys...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved