The Coming Inflation Trade

Making the case for Real Estate, Master Limited Partnerships and Alternative Hard Asset Investments

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Inflation Trade

Inflation is coming! Not tame, controlled increases in prices and wages that make everyone feel richer; this inflation will be nasty, double digit, 70's style inflation that will erode purchasing power and destroy the fixed income markets. Annuities, bonds, and pensions will provide the same income, but it will cost much more to buy everything... not just petroleum-based products, but water, utilities, food, clothing, and all the necessities of life.

The massive debt accumulated by the US Government will be repaid with dollars 90%, 80%, or 50% of their current value; the debt will be monetized! This inflationary period should start to become apparent at the end of the 4th quarter of 2010 or the 1st quarter of 2011. There is time to prepare and protect income and wealth, as well as reap enormous profits.

"The stage has been set to reap "generational" profits from the financial turmoil of the past few years..."

The premise of my article is the accumulation of assets that generate income and will grow and benefit from rising prices. The focus is on the inflation-hedged asset class of single-family residential homes purchased for the express purpose of rental income and capital gains. Those who have identified the trend and positioned themselves early in the "Inflation Trade" should reap explosive profits. These rentals can be easily accumulated: individually, conservatively, and dependably. The stage has been set to reap "generational" profits from the financial turmoil of the past few years, and create a lifeboat to protect the investor and his family against future economic cycle troughs.

This article has been written to prepare the individual investor for the coming economic change that I view inevitable. I hope to provide an incentive to individuals to execute a plan to create lasting wealth that can be used immediately, and that can also be passed along to future generations as an income legacy.

The extraordinary times present in the US will likely allow the traditional time frame of 10 years, which is needed to accumulate and season a rental portfolio, to be reduced to 4 years. I strongly believe the combination of: historically low fixed rate mortgages; the developing housing shortage, due to the lack of new construction necessary to keep pace with our expanding population; and the explosion of government debt, will drive those wishing to protect purchasing power into tangibles and income producing Real Estate.

I hope to provide a recipe to accumulate, manage, and harvest the profits during the coming "Boom Years," and to prepare the reader for the inevitable downturn needed to contain the inflation unleashed by government action. My wish is to provide economic signposts to gauge the cycles' progress, as well as an exit strategy to be employed prior to the next recession, which will potentially be worse than the 2007 - 2009 downturn.

A dire and yet highly possible scenario for the future is a 70's style true inflation across all sectors of the economy. While visiting Australia this past summer, I met with school teachers who were striking for higher pay. The Nurses Union had just been awarded a 21% pay increase, and the government had offered the teachers a 12% raise, which was turned down. The teachers' demand was for a 16% increase in pay. This behavior is typical in an economy entering into a Price-Wage Spiral. As prices go up, more income is needed to afford the prices, in turn causing a need to raise prices to afford the wages. The cycle invariably ends badly.

However, huge gains can be made by those positioned in inflation hedged assets such as master limited partnerships typical with commodity based products such as gas, oil, coal, pipelines, iron ores, etc, as well as tangibles such as art, stamps, and coins. Real estate rental properties have an income stream that can grow significantly during an inflationary "boom." Furthermore, property value/price generally exceeds the rate of inflation adding a "value-on" component.

Editor's Note:

A few publicly traded master limited partnerships include: Alliance Resource Partners L.P. (Nasdaq: ARLP), Alliance Resource Holdings (Nasdaq: AHGP), Atlas Pipeline Partners L.P. (NYSE: APL), Atlas Pipeline Holdings (NYSE: AHD), Atlas Energy Resources (NYSE: ATN), Boardwalk Pipeline Partners (NYSE: BWP), Breitburn Energy Partners (Nasdaq: BBEP), Buckeye Partners (NYSE: BPL), Buckeye Holdings (NYSE: BGH), Calumet Specialty Products (Nasdaq: CLMT), Capital Product Partners (Nasdaq: CPLP), Cheniere Energy Partners (AMEX: CQP), Constellation Energy Partners (PCX: CEP), Copano Energy (Nasdaq: CPNO), Crosstex Energy (Nasdaq: XTEX), DCP Midstream Partners (NYSE: DPM), Dorchester Minerals (Nasdaq: DMLP), Duncan Energy Partners (NYSE: DEP), Eagle Rock Energy Partners (Nasdaq: EROC), El Paso Pipeline Partners (NYSE: EPB), Enbridge Energy Partners (NYSE: EEP), Encore Energy Partners (NYSE: ENP), Energy Transfer Partners (NYSE: ETP), Energy Transfer Equity (NYSE: ETE), Enterprise Products Partners (NYSE: EPD), Enterprise GP Holdings (NYSE: EPE), EV Energy Partners (Nasdaq: EVEP), Exterran Partners (Nasdaq: EXLP), Ferrellgas Partners (NYSE: FGP), Genesis Energy (AMEX: GEL), Global Partners LP (NYSE: GLP), Hiland Partners (Nasdaq: HLND), Holly Energy Partners (NYSE: HEP), Inergy (Nasdaq: NRGY), Inergy Holdings (Nasdaq: NRGP), Kinder Morgan Energy Partners (NYSE: KMP), K-Sea Transportation (NYSE: KSP), Legacy Reserves (Nasdaq: LGCY), Linn Energy (Nasdaq: LINE), Magellan Midstream Partners (NYSE: MMP), MarkWest Energy (NYSE: MWE), Martin Midstream Partners (Nasdaq: MMLP), Natural Resource Partners (NYSE: NRP), Navios Maritime Partners (NYSE: NMM), NuStar Energy (NYSE: NS), NuStar GP Holdings (NYSE: NSH), ONEOK Partners (NYSE: OKS), OSG America (NYSE: OSP), Penn Virginia Resource (NYSE: PVR), Penn Virginia GP Holdings (NYSE: PVG), Plains All American (NYSE: PAA), Quest Energy (Nasdaq: QELP), Quicksilver Gas Services (NYSE: KGS), Regency Energy Partners (Nasdaq: RGNC), Rio Vista Energy (Nasdaq: RVEP), Spectra Energy Partners (NYSE: SEP), Stonemor Partners (Nasdaq: STON), Sunoco Logistics Partners (NYSE: SXL), Targa Resources (Nasdaq: NGLS), TC Pipelines (Nasdaq: TCLP), Teekay LNG Partners (NYSE: TGP), Transmontaigne Partners (NYSE: TLP), Vanguard Natural Resources (NYSE: VNR), Western Gas Partners (NYSE: WES), Williams Partners (NYSE: WPZ) and Williams Pipeline (NYSE: WMZ).


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Business News Summary 11-12-09

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(Tickers: NYSE: WMT, KSS, Nasdaq: SSRX, ADUS, ACM, AFCE, ATSG, ABV, AMAC, APBRF.PK, A03.SI, BCH, BNX, BNGPY.PK, BBI, BPHX, BPA, BRKS, CAAS, DIET, ECA, EDL.PA, EPM, GRS, GSOL, HPJ, HSNI, ILI, KTEC, LIME, MATW, VIVO, JWN, PTSX, RLOG, REP, SPNS, HAWK, TGB, TEF, URBN, VIV.PA, DIS, WEBM, DIA, SPY, QQQQ, NYX, DOG, SDS, QLD, XLF, IWM, TWM, IWD, SDK)

Business News Summary

Wal-Mart posted a profit gain this morning, but its sales missed forecasts and gave investors pause. The discount king benefits from recession as consumers shift downward en masse. However, if sales fell even at Wal-Mart, investors are apt to worry about the rest of retail, not to mention the implications to overall consumer spending and the economy. Add to this distressing news the fact that contracts for new home purchase are waning (mortgage activity analysis below) and folks are still losing their jobs, and the market moves cautiously to start the day.

Weekly Jobless Claims

See our detailed report here: Jobless Claims

Weekly Jobless Claims have held above a troubling 500K rate of labor market outflow, and a mess is piling up in the streets. This week's count kept up the trend, as the Labor Department reported that 502K folks filed for unemployment benefits in the week ending November 7. That compared against a revised prior week count of 514K, and economists consensus estimate for 512K.

Mortgage Activity Report

Usually reported on Wednesday, the Mortgage Bankers Association released its Weekly Mortgage Activity Report on Thursday this time around, due to Veterans Day. A trend matching last week's data continued in the week ending November 6, and intensified. Rates again moderated on contracted 30-year and 15-year mortgages. The 30-year average contract rate on fixed rate mortgages dipped to 4.90%, from 4.97%; 15-year contracts stuck at 4.33%.

Again, as last week, the Market Composite Index improved, this time by 3.2%, on Refinance Index gain of 11.3%. Just like last week though, Purchase Activity offered disturbing information. The Purchase Index fell 11.7%, and sits at its lowest mark since December of 2000.

Last week: For the week ended October 30, the overall Market Composite Index of mortgage activity increased by 8.2%. Purchase Activity, however, declined by 1.8% as American confidence waned. Contracted mortgages on 30-year fixed rate mortgages averaged rates of 4.97%, down from 5.04% the previous week. Rates on 15-year contracts dipped to 4.33% on average, down from 4.53%. Thus, the Refinance Index (+14.5%) drove overall activity.

Petroleum Status Report

Weekly oil inventory data will be reported at 10:30 today. Last week's report for the week ended October 30 noted a decrease in crude stocks of 4.0 million barrels. Still, inventory is near the upper range for this time of year. While this is due to "The Great Recession," OPEC expressed concern yesterday for the long-term demand for oil, given relatively high pricing and its after-effects.

Gasoline stores decreased by 0.3 million barrels in the last reported week, while distillate fuel inventories fell by 0.4 million. Heating oil plays a big role here, and warmer weather in the use-heavy Northeast should have traders expecting soft numbers next week (this report might indicate otherwise).

Corporate News Drivers

Several significant retailers reported results today, including Wal-Mart (NYSE: WMT) and Kohl's (NYSE: KSS). The nation's most important retailer (by far) reported results today, and again showed growth. Wal-Mart shares are up 1.0% to start the morning, as the retail giant managed 3.2% profit growth in its fiscal third quarter (Oct.). The major store operator has benefited throughout the recession, as consumers have shifted decisively down to discount. Wal-Mart beat estimates by three cents and guided higher, but some concern has stricken the rest of the market, because WMT's sales came in lower than forecasts (by Thomson Reuters). Combine this news with the mortgage activity trend and still high jobless filings, and investors are giving pause today.

EPS Reports

Look for data from Kohl's (NYSE: KSS), Wal-Mart (NYSE: WMT), 3SBio (Nasdaq: SSRX), Addus Homecare (Nasdaq: ADUS), AECOM (NYSE: ACM), AFC Enterprises (Nasdaq: AFCE), Air Transport Services (Nasdaq: ATSG), AmBev (NYSE: ABV), American Medical Alert (Nasdaq: AMAC), Asia Pacific Breweries (OTC: APBRF.PK), Asia Power (A03.SI), Banco de Chile (NYSE: BCH), Banks.com (NYSE: BNX), Benetton Group (OTC: BNGPY.PK), Blockbuster (NYSE: BBI), BluePhoenix Solutions (Nasdaq: BPHX), Brasil Foods (NYSE: BPA), Brooks Automation (Nasdaq: BRKS), China Automotive (Nasdaq: CAAS), eDiets.com (Nasdaq: DIET), EnCana (NYSE: ECA), EuroDisney (EDL.PA), Evolution Petroleum (NYSE: EPM), Gammon Gold (NYSE: GRS), Global Sources (Nasdaq: GSOL), Hong Kong Highpower (NYSE: HPJ), HSN, Inc. (Nasdaq: HSNI), Interleukin Genetics (NYSE: ILI), Key Tech (Nasdaq: KTEC), Lime Energy (Nasdaq: LIME), Matthews Int'l (Nasdaq: MATW), Meridian Bioscience (Nasdaq: VIVO), Nordstrom (NYSE: JWN), Point.360 (Nasdaq: PTSX), Rand Logistics (Nasdaq: RLOG), Repsol (NYSE: REP), Sapiens (Nasdaq: SPNS), Seahawk Drilling (Nasdaq: HAWK), Taseko Mines (TGB), Telefonica SA (NYSE: TEF), Urban Outfitters (Nasdaq: URBN), Vivendi (VIV.PA), Walt Disney (NYSE: DIS), WebMediaBrands (Nasdaq: WEBM) and more.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Jobless Claims - How to Analyze the Data

Helping You Make Sense of Jobless Claims Data

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(Tickers: NYSE: RHI, MAN, KFY, MWW, STT, DIA, SPY, QQQQ, NYX, DOG, SDS, QLD, XLF, IWM, TWM, IWD, SDK)

Jobless Claims

Weekly Jobless Claims have held above the 500K rate of labor market outflow, and a mess is piling up in the streets! This week's count kept up the troubling trend, as the Labor Department reported that 502K folks filed for unemployment benefits in the week ending November 7. That compared against a revised prior week count of 514K, and an economists consensus estimate for 512K, as surveyed by Bloomberg.

How to Analyze Jobless Claims - Making Sense of it All

Remember, we do not put much weight into economists' consensus forecasts for jobless claims, as week-to-week changes are not likely to be dramatic and economists know that (as do we). Therefore, not much time is put into the generation of these forecasts. Rather, economists look further ahead to more discernible monthly labor market forecasting.

As you follow the trend in this economic data, you are likely better served to note the four-week moving average changes over time. In this latest reporting, the four-week average improved slightly to 519,750, from the prior week's revised 524,250. As we take note of weekly changes, we can look toward specific industry or even corporate layoffs, but information will be mixed with too much noise for most of us to discern causal factors. Here in the four-week average data for jobless claims we find something more tangible and useful for the typical portfolio manager to understand what is going on in the overall labor market.

State Trends

As incumbent governors approach tough elections (facing blame and all), expect more turnover of party in states where unemployment is highest.

The highest insured unemployment rates in the week ending Oct. 24 were in Puerto Rico (6.4 percent), Oregon (5.4), Nevada (5.2), Pennsylvania (4.9), Alaska (4.8), Arkansas (4.8), California (4.8), Wisconsin (4.8), North Carolina (4.6), Michigan (4.5), and South Carolina (4.5).

The largest increases in initial claims for the week ending Oct. 31 were in Wisconsin (+1,501), Illinois (+1,390), Michigan (+1,135), Puerto Rico (+1,101), and Texas (+965), while the largest decreases were in California (-6,752), Florida (-3,409), Georgia (-2,686), New York (-2,067), and North Carolina
(-1,872).

Extended Benefits

We like to provide helpful information here along with what we hope is useful economic and financial markets analysis. So, for those of you receiving benefits:

Extended benefits were available in Alabama, Alaska, Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, and Wisconsin during the week ending Oct. 24.

Also Smart to Follow

You might keep track of the financial releases and conference calls from employment firms like Robert Half International (NYSE: RHI), Korn Ferry (NYSE: KFY), Monster Worldwide (NYSE: MWW), Manpower (NYSE: MAN) and others to color in missing facets to your analysis. Feel free to ask a question; we are here to help!


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Veterans Day - Markets Mostly Open

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(Tickers: NYSE: TOL, AAP, ANW, Nasdaq: AEZS, AMAT, AMEX: BLD, CAE, CAMT, CPHC, GRRF, CHLN, CSC, CTRP, DAC, MSN, FLO, GMCR, ING, JCDA, M, PHC, RA, TTEK, PGR, USHS, WES, XRIT, UBET, ZOLL, DIA, SPY, QQQQ, NYX, DOG, SDS, QLD, XLF, IWM, TWM, IWD, SDK, AIG)

Today marks Veteran's Day, but stock and futures markets are open for business. Fixed income markets are closed today though, as we honor our nation's war heroes. After a relatively flat day of trading on Tuesday, early indicators seem to indicate the same in store for Wednesday, barring any breaking market moving news. We have a quiet news day to report, but several important foreign and international organizations made headlines with some market moving comments. Toll Brothers (NYSE: TOL) and Macy's (NYSE: M) lead U.S. news makers.

Overseas Action

There's plenty of overseas action this morning, with news out of OPEC, The World Bank and Bank of England. World Bank President Robert Zoellick warned that high unemployment threatened American (and global) recovery. He noted a few of the thorns we've discussed here over recent months. Ongoing credit defaults and consumer spending should hamper the robustness of economic recovery, and even threaten to "double dip" us back into recession. Zoellick sees U.S. unemployment sticking high in 2010.

Bank of England (BOE) Governor Mervyn King discussed the BOE's quarterly forecast, and noted that he still has an "open mind" regarding stimulus tools, including bond purchases. He said that while the Kingdom's economy has stabilized, it continues to have quite a way to go to return to recent past levels of health.

OPEC warned that high priced crude threatens demand in 2010. In an environment of unstable economic recovery, OPEC is concerned that the price of oil (and clearly alternative energy advancements) threaten crude demand. We'll have more to say about this in a near-term article.

Gates in NYC

I'm not talking about Hell's Gate Bridge here... Rather, for $50 you could have seen Bill Gates today in Manhattan. The iconic technology innovator and Microsoft (Nasdaq: MSFT) legend will appear with Economist Editor Matthew Bishop at the 92nd Street Y in Manhattan. We checked though, and tickets appear to be sold out or already prebooked fully. "The Greek" would consider playing financial markets paparazzi today, to grab a photo of the king of software, if not for a busy schedule.

Corporate News Drivers

Toll Brothers (NYSE: TOL) is up over 13% in the early going Wednesday, after the homebuilder reported signed contracts soared 42% in its fiscal fourth quarter ended October 31. That news far outweighed a sharp drop in revenue, and has the shares moving today.

Macy's (NYSE: M) is down 6% to start the day, on its lower than consensus forecast. The company reported a lower loss for its third quarter, and raised its outlook. Unfortunately for shareholders, its lifting of its EPS forecast did not reach the level analysts were looking for.

The day's earnings schedule includes Advance Auto Parts (NYSE: AAP), Aegean Marine Petroleum (NYSE: ANW), Aeterna Zentaris (Nasdaq: AEZS), Applied Materials (Nasdaq: AMAT), Baldwin Technology (AMEX: BLD), CAE, Inc. (NYSE: CAE), Camtek (Nasdaq: CAMT), Canterbury Park Holdings (Nasdaq: CPHC), China Grentech (Nasdaq: GRRF), China Housing & Land (Nasdaq: CHLN), Computer Sciences (NYSE: CSC), Ctrip.com Int'l (Nasdaq: CTRP), Danaos (NYSE: DAC), Emerson Radio (NYSE: MSN), Flowers Foods (NYSE: FLO), Green Mountain Coffee (Nasdaq: GMCR), ING Groep NV (NYSE: ING), Jacada (Nasdaq: JCDA), Macy's (NYSE: M), Pioneer Behavioral Health (NYSE: PHC), RailAmerica (NYSE: RA), Tetra Tech (Nasdaq: TTEK), The Progressive (NYSE: PGR), U.S. Home Systems (Nasdaq: USHS), Western Gas Partners (NYSE: WES), X Rite (Nasdaq: XRIT), Youbet.com (Nasdaq: UBET), Zoll Medical (Nasdaq: ZOLL) and more.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.