Yesterday, before the opening bell news came out that the June inflation CPI numbers showed an annualized growth of 5.4%. The price gains are being led by cars, rents, and the cost of energy. Real estate prices are up over 14% in the past twelve months. They are actually up even more if you date the growth back to last April.
I’m an investor in commodities and gold and actually believe that the inflation growth numbers will moderate over the next few months, however, even if the CPI goes down to 3%, the reality is the financial markets are completely ignoring inflation. For instance, the yield on the ten year Treasury bond closed yesterday at 1.38%.
When the ten year Treasury bond yields 1.38% and the CPI is well over 2% what it means is that if you buy a treasury bond you are going to lose value on your money. The bond market is useless now as a safe haven. If you buy short-term bonds you basically make nothing. The zero interest rate policy by the Fed and their QE bond buying programs are making this happen.
The problem is when interest rates are below the rate of inflation it causes people to speculate to make money and create all sorts of market distortions. This is one reason the stock market has gone up so much in the past twelve months and real estate too. I think real estate is actually a good investment and talked about how I am investing in REIT’s in an update the other day I posted here. We also, I believe, have a decent entry point in commodity funds right now.
I talked about this and more with Jim Goddard of www.howestreet.com in this interview I did with him yesterday.
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-Mike
