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Friday, March 04, 2011

ECRI Global Inflation Numbers Heating Up - Fed Behind the Curve

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released its latest readings for its proprietary monthly Future Inflation Gauges this morning. (More about ECRI)
Five of the seven regions covered show increasing inflationary pressure with Japan and Australia going against the global trend.
Commenting on the US report, Lakshman Achuthan, co-founder and Chief Operations Officer of ECRI, said, "With the USFIG rising to a 29-month high, underlying inflation pressures remain in a cyclical upswing."
See my exclusive article at Seeking Alpha for a full summary of today's data:
Here is a video interview on CNBC where Lakshman says the Fed has been behind the curve for a decade on inflation.

Then read my artilce "How to Play Expected Inflation From the TIPS Spread."  The 30-year individual TIPS I recommended in that article for purchase last month on Feb. 17, 2011 are up nearly 5% already.

Also note the IMM says high food prices may be here to stay. 
Record Food Prices May Persist as Economic Growth Boosts Demand, IMF Says

"Elevated food prices could be part of the new reality, says the IMF, as it will take years for farmers to expand production enough to meet increased demand and drive down prices. "The main reasons for rising demand for food reflect structural changes in the global economy that will not be reversed," including higher demand for meat in developing countries, and increased demand for biofuels is contributing to a tightened supply."

I'm not predicting run-a-way inflation, but the Federal Reserve's preferred inflation indicator, the PCE index, went up 0.3% the last two months.  If it continues at that rate for 10 more months, annual inflation will be
  • 0.3% / Month x 12 months = 3.6% per year!
My individual TIPS paying inflation plus 2.1% will then have an effective yield of 5.7% which is pretty good if you expect the Fed to keep rates low for awhile.

Long Term Results that Speak for Themselves
Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 239% (a triple plus another 12%!!)vs. the S&P500 UP only 32% vs. NASDAQ UP only 27% (All through 3/4/11)   
For 2011 , "Kirk's Newsletter Explore Portfolio" is up 8.6% YTD as of 3/4/11
(Currently my explore portfolio has about 66% in equities and 34% in fixed income so the stocks are doing very, very well.)

In 2010, "Kirk's Newsletter Explore Portfolio" gained 20.4% vs. the DJIA up 11.0%
In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%

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KEY ECRI Articles:

Lakshman Achuthan - Beating the Business Cycle

“This easy-to-read book tells you how the respected ECRI calls turning points, and how you can, too.”
—Jane Bryant Quinn, Newsweek columnist

" The Economic Cycle Research Institute can justify a certain smugness now that business cycles are back in fashion."
--Harvard Business Review

“Shows... how far the state of the art in cycle forecasting has advanced, and how investors can profit from it.”
—Jon Markman, award-winning CNBC/MSN financial columnist 

Kirk Lindstrom's Investment Letter Performance

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