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Where Money Was Made So Far in 2012

October 29, 2012 | About:
What asset classes were the place to be year to date in 2012?

Bernanke’s ZIRP (Zero Interest Rate Policy) has pushed otherwise safety conscious investors into high-yield (junk-rated) bonds like never before. The availability of bond ETFs and mutual funds mean unsophisticated money can simply buy "yield" without understanding exactly what they own. This will likely end up just as disastrously as the bundled and mis-rated MBS (mortgage-backed securities) did back in 2007 to 2008.

The move towards bonds was not truly a "flight to safety." If it were, U.S. Treasuries and investment-grade bonds would have performed better than the riskier junk debt.

The prolonged rush towards dividend-paying large-cap stocks also helped support the S&P 500, which achieved excellent results thus far in 2012.

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Quantitative Easing (QE) programs are seriously diluting the value of all existing U.S. dollars on a gradual basis. The cumulative theft of our dollar's purchasing power then tends to get lost in the blur of many intersecting factors. Multiple variables make scientific isolation of cause-effect impossible.

What was the cumulative loss in the value of the U.S. dollar? To paraphrase from a classic Seinfeld episode: It’s real and it’s spectacular. Year to date the dollar was down just fractionally only because the European Central Bank (ECB) and International Monetary Fund (IMF) have been end-running regulations against money-printing on a grand scale as well.

See my earlier article on this topic by clicking here… http://www.gurufocus.com/news/190047/qe3-is-stealing-your-money

The dichotomy between gold’s positive 9.1% return and generic commodities’ 0.9% loss might be more logical than it first appears. Gold is viewed by speculators as a hedge against the declining purchasing power of fiat-based paper money.

Traders buy gold to hedge currency exposure. Industrial commodities are more economically sensitive. Hard assets are a hedge against paper money but their main price driver is near-term demand for their actual use. A slowing world economy makes for weak end-user demand which might explain their market-trailing 2012 results.

Inflation-Indexed Treasuries (commonly referred to as TIPs) were a mixed bag. They underperformed corporate issues while outgaining the broader U.S. Treasury category. Anyone who pays their own bills knows gasoline, groceries, utility bills, health care costs and more are elevating at rates much higher than our Bureau of Labor Statistics (BLS) will admit to publicly.

Buying TIPs to insure your long-term buying power isn’t eroded means accepting the government’s version of true inflation. Here are just two recent news blurbs that reflect the reality of what citizens are facing.

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All readers who don’t use food, energy, health services, transportation or insurance please raise your hands. The recently announced change in 2013 social security COLA will be just 1.7%.

Reigning in annual increases to SS payments and government pensions (to less than the true increases in the cost of living) is part of the government’s grand plan to cut deficit spending. It may be necessary, but the American people shouldn’t be lied to about what’s really going on.

Truth in advertising laws might see fit to propose shortening the name BLS, keeper of the official CPI, to just the BS department.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


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