by Steve McDonald, Bond Strategist, The Oxford Club
Friday, March 22, 2013
In focus today; four kinds of inflation driven by money printing, Apple (Nasdaq: AAPL) is a buy again and the slap-in-the-face award.
When most people think of inflation they think of price and wage inflation.
But there are five types of inflation:
- Wage and price
- Economic output\GDP
- Savings and debt repayment or default
- Financial asset inflation
- Trade deficit inflation
Money printing drives four of the five and we are in the midst of the money printing Olympics. So this is something we need to address.
Goods and services, the inflation most of us watch as a measure of overall inflation, isn’t always driven by the printing presses in D.C.
In the 60’s we had output or GDP growth inflation, in the 70’s goods and services inflation and in the 90’s, and early 2000’s, we had investment or asset inflation. Trade deficit inflation, the fifth types is too complex to explain in the short time I have here and is the one that has the least effect on individual’s portfolios.
A recent Seeking Alpha article recommended several ways to protect your portfolio and at the same time benefit from the effects of all types of inflation. But most interesting were three big surprises about inflation.
The best way to protect yourself from inflation of good and services, according to the Seeking Alpha article, is with TIPS; inflation adjusted treasuries. Gold traditionally has been thought of as the best inflation hedge, but it has a terrible .22 correlation factor.
That means only 2.2 times out of 10, gold moved up in price with goods and price inflation. Surprise number one!
The other big surprise was the stock market. There appears to be no correlation between the stock market and GDP inflation or over heated growth. Corporate bonds and preferred stocks do better when the GDP is roaring. Surprise number two.
Obviously stocks do best during times of asset inflation, but the pick for outperforming during these periods; a broad market play like SPY or a similar ETF. Number three!
During savings or debt repayment inflation, treasuries are the play. Treasury prices run up during periods like these.
The conclusion of the SA article, you can protect yourself and benefit from all forms of inflation by holding treasuries, stocks, corporate bonds and TIPs. That should sound very familiar to Oxford Club members.
[Editor’s Note: We all like to throw around the term “money printing.” But the fact is that 93% of U.S. currency now exists only in a computer - simply as a series of ones and zeros.
And things are only going to get worse.
Soon, physical currency may actually become extinct as we know it. And our friends at The Oxford Club have just uncovered the inconvenient truth that this could happen as soon as this year. But there are ways to profit handsomely from this “extinction,” of sorts.
For all the details, click here.]
Apple – The Market King – is Back
Brett Jensen of RealMoney says AAPL, despite its drop from the highest market cap in the world, is back in a buy range.
Jansen stated in a recent article that $420 was its bottom and all the numbers point to another run up in price.
In a down market day recently the disappointing debut of Samsung’s newest smart phone was good for a 2% jump in AAPL’s price.
Positive comments by the legendary Bill Miller are adding to the renewed interest in the stock as well. Miller said in a CNBC interview that AAPL is trading at a lower EV to EBITDA multiple than even HP and he’s buying January calls on it. If you remember the EV to EBITDA was the primary measure for buying a company.
Miller also talked about the likelihood of a major payout by the company as a regular dividend increase or a special dividend. According to Miller, either will cause a great deal of anticipation in the stock price.
And, in recent trading, AAPL has posted both higher highs and higher lows and on almost any sort of valuation basis this stock looks cheap. It is priced at just seven times forward earnings, has $140B in cash, is expected to have double digit revenue growth and has a PEG of .53, under 1 is considered a buy.
If you’ve been waiting for a jumping in point now may be it. Of course, no one can ever call the exact bottom, but the numbers are pointing to a run up in price. The 2.5% dividend and expected dividend increase are icing on the cake.
SITFA: Morgan Housel Edition
And now – the real reason you watch this video – the SITFA
This week, two pearls of wisdom from one of my favorites, Morgan Housel.
These are brutal. First up, a snipe at our business:
“There is virtually no accountability in the financial pundit arena. People who have been wrong about everything for years still draw crowds.”
And the truest of all Morgan’s bits of wisdom…
“The analyst who talks about his mistakes is the guy you want to listen to. Avoid the guy who doesn’t – his mistakes are even bigger.”
SteveApple (Nasdaq: AAPL) Is a "Buy" Again... and Money Printing,