Tuesday, 23 August 2011
My father and I had a long conversation the other day about his fears for the future of his pension, home and standard of living.
He has spent almost 30 years working for the City of Philadelphia, climbing his way up. He’s finally nearing retirement. These years should be the best for him. He should be looking forward to the freedoms that come with the hard work he has put in, a time for him to enjoy his family and his hobbies and maybe even spoil himself with some of the money he has saved for this day.
But he can’t.
Fixed-Income Hardship
Like most of us, he has serious doubts about the future. He sees costs of all his necessities rising, and is forced to watch the value of his home continue to drop. It’s lost almost 40% of its value in the past two years and is still not stabilizing. The value of his conservative IRA has also dropped.
All this and he is NOT making any more money this year than last. Unfortunately, this is the case for most folks. The chart below shows the quarterly change in wages from 2009-today. This is not the sort of chart you want to see your income — or EKG — look like.
This kind of stagnant income can’t keep up with rising costs. The cost of everything — from food and fuel to insurance and clothing — is up and climbing in a big way. Compare the Consumer Price Index (CPI) chart below to the flat income chart and you can see why things don’t add up for most of us.
Home Sale Prices Are Still Hurting
Last month, Case-Shiller reported home sale prices are barely at 2003 levels and are still moving lower in some areas. Housing prices will come under more pressure as theunemployment rate rises and lending standards get tougher.
Five-percent-down mortgages may soon be a thing of the past. Thanks to the Fed, interest rates are expected to stay very low until 2013. That means there’s no sense of urgency to lock in a low rate mortgage now, which is not helping demand.
The crazy thing is that rent rates in major cities are at record highs, making it more cost effective to buy a home. But not many people are buying. In fact, Standard & Poor’s estimates that it will take 47 months to clear the supply of homes on the market in the U.S.
The conundrum is that my father now has to worry about the real value of his fixed-income dollars in this inflationary environment where home sale prices are not keeping up with inflation. It’s scary to say the least!
Some have turned to hoarding cash, which is NOT the thing to do. Others have turned to precious metals. The skyrocketing price of gold is one result of this fear as the world is looking for protection from inflation.
The Fed’s Hands Are Tied (To a Printing Press)
There is little to nothing the Fed or U.S. government can do to spur growth in the short term. Our fragmented, election-driven politicians and lawmakers are too selfish to create real changes in our economy. They haven’t inspired any confidence to spur consumer fiscal growth or even spending.
The folks in D.C. forget that it is dreams, aspirations and ideas that spur our ingenuity, growth and wealth. The U.S. government has stifled small- and large-business growth and thus much of American confidence as a whole. This becomes a self-fulfilling prophecy for failure.
The sad truth is that the only weapon left for the Fed is more bond-buying with printed money, which translates into a weaker and weaker U.S. dollar.
That means higher inflation and less purchasing power for my father… and everyone else out there.
On Friday, Ben Bernanke is expected to offer his comments (and solutions?) about the ailing economy. It was this time last year that Bernanke hinted on the start of QE2, which has been a failure.
QE3 won’t be announced Friday. But if Bernanke believes inflation is transitory, another round of bond buying may not be far away.
What Are Your Options?
Sara offered some great advice in yesterday’s issue. Commodities (gold, silver, coffee, sugar, metals, etc.) can all offer inflation hedges and have been relatively stable in this crazy marketplace.
If the printing presses come back on, commodity prices will get a boost.
If you are comfortable with covered calls, you might look at buying shares of the PowerShares DB Agriculture fund (DBA:NYSE) and selling covered calls against it. It is an ETF that holds soft commodities, such as coffee and sugar. The ETF has been relatively stable over the past several months and has shown moderate appreciation — making it a great covered call candidate.
Back on June 14, I told readers to check out Essex Property Trust, Inc. (ESS:NYSE) and Camden Property Trust (CPT:NYSE), which are apartment REITS. After I recommended them, they both rallied about 10%. Since the market correction, they are both back around June 14 levels.
These are big dividend-yielding stocks, with ESS throwing back $4.16 a year to investors and CPT dishing out $1.96. Both yield about 3%. These two can add inflation and volatility protection to your portfolios.
As we move forward and America’s fate is determined, protecting what’s yours is paramount.
Publisher’s Note: Another proven way to take advantage of a surge in commodity prices is rare earth metals. In fact, within the next few months, our award-winning analyst expects an announcement that could shock the world. The world is about to discover just how valuable these materials are. Follow the link to learn about the situation that is about to create a windfall for a few select companies. Learn more by reading American Wealth Underground…
Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.
Other Related Topics: Commodity Investment , Housing Market , Jared Levy , Option Strategies Weekly , Retirement , Unemployment Rate
Also By This Author
Other Related Articles:
- America’s New Inflation Hedge is Real Estate
- A New Economic Strategy for America
- The Only Place Real Estate Is Booming