The US Dept of Labor reported this week that consumer prices spiked to a multiyear high. Inflation, as measured by the Consumer Price Index (CPI) hit 5.6 percent for the month of July.
And the headline number, which includes food and fuel costs, is in fact the focus of many dramatic, eye-grabbing article titles in the print and electronic media. But even core CPI, which excludes food and energy, is running at an annual rate of 2.5 percent. It’s up for yet another month, rising from the prior month’s rate of 2.4 percent and showing an upward trend from the past few years’ low of 2 percent.
The core rate is more important for the longer haul. It summarizes price behavior for a broader range of goods and services. Because food and energy costs bobble along up and down from month to month and quarter to quarter, academics--including the guys over on C Street at the Federal Reserve--keep a sharp eye on the core rate.
You might say the core rate is a bunch of mumbo-jumbo made up by the guys on Capitol Hill in an effort to make it seem inflation isn’t such a big issue. And if you receive financial support from the federal government, the lower the core rate, the lower the annual upward adjustments for those payments.
The idea is that if energy and food prices continue to climb, eventually those costs will make it into the core rate. And that’s exactly what’s been happening.
We’re seeing a lot trading in the commodity markets for food and energy as well as other raw materials. Oil has fallen back from its recent peak during the past few weeks, which should eventually result in a lower headline CPI rate. The trailing impact of past months should translate into a few more months of upticks in core CPI.
All of this is academic for most investors and consumers. You know how much goods and services are costing you, and prices aren’t heading lower, despite what the media has to say.
We need to look at other economic numbers, such as data concerning household spending. Embedded within the Personal Consumption Index is an inflationary gauge that showed inflation running at a rate of 5.3 percent through June. And that measure’s been climbing at a rate of 12.7 percent from the trailing 12 month low.
This is the real story about the rising cost of living.
There are more numbers even more disturbing for consumers as well as for investors, who need their portfolios to stay ahead of inflation. On the production front for goods and services, costs on the wholesale level sooner or later will show up on the receipts for our purchases. And the most recent month’s reporting shows that production costs for durables and manufactured goods are rising by 8.1 percent.
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This is scary. But does the Federal Reserve Open Market Committee (FOMC) care? Its failure to tighten money via reserve and margin rate hikes--beyond window-dressing moves such as boosting the fed funds target rate--suggests it doesn’t.
One way to help our portfolios grow ahead of costs is to invest in industries and markets that benefit from the rising costs of their goods and services.
Focus on energy, including petrol producing partnerships or royalty trusts. The more they make, the more you can afford to pay for your next fill-up at the pump or your gas, heating oil or propane bills.
And also take a look at the markets for crops. You’ve likely read about the selloff in grain and other agriculture commodity prices. But the reality is that, although grains have pulled back, foodstuffs are still up substantially in the last year, corn by 62 percent, wheat 21 percent and beans 43 percent. Those are real numbers that will continue push the bottom line on your grocery bill higher.
There are ways to invest, however, to stay ahead. One is to buy actual agriculture commodities via Deutsche Bank Agriculture Fund (AMEX: DBA). The exchange-traded fund tracks an index of underlying agriculture product prices; those who’ve followed my lead are up strongly. The fund is up 33 percent during the past year, even though it’s come back a bit these past few weeks.
The recent selloff only makes for a compelling buying opportunity; it’s just like going to the grocer and seeing a sale or having some coupons on hand. Buy a bit more and keep your pantry a bit flusher while prices are lower. The same applies for your portfolio.
A related issue is the continuing evolution of the agriculture industry. Farmers--both family and corporate--are increasing interested in maximizing production while minimizing risk. Technology--specifically genetically modified organisms (GMO)--makes this possible.
Not everyone is convinced; I’m among the skeptics. I like to consume organic goods from local producers whenever possible. I’ll pay more, but I don’t have a big family or an SUV full of teenagers to feed.
Another fellow who’s drawn news coverage and a big backlash from farmers and even greenies for his opposition to GMOs is Prince Charles. We share the same family name and a liking for locally produced food, but that’s about it.
(By the way, if you like local foods and game and find yourself in London, try a restaurant in the theatre district, Rules. Check it out on the Web at http:www.rules.co.uk.)
Charles gave a chat warning of calamity based on Europe’s acceptance of more GMO products as well as local production of GMO crops. The earful he got in response might perhaps send him back to the country palace rather than to the pulpit of another press conference.
One key attribute of GMOs is they can reduce the amount of fertilizer and water required to grow a crop. Fresh water is becoming scarcer and more valuable, and dead zones in bays and the oceans are getting larger and more threatening to fish populations around the planet. Even greenies are coming around to GMOs.
And the global warming crowd sees the value in increasing the efficiency of crop production. Crop-based biofuels are a major part of its arsenal to combat carbon dioxide, nitrous oxide and other greenhouse gases, including those produced by the agriculture industry.
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Another way to ensure your portfolio outgrows inflation by beating the cost of food is to focus on companies in the lead on GMO technology, including products, processing and distribution.
GMO crop acreage is advancing at double-digit annual rates; companies in the middle of this major growth trend will see tremendous windfalls. Focus on those companies developing as well as those adopting newer technologies that help make the most of what comes out of the ground.
Personal Finance Growth Portfolio Long Hauler Bunge (NYSE: BG) and UAP Holdings (NSDQ: UAPH) are US-based companies showing a lot of success in the space, and Israel Chemicals (Tel Aviv: ICL, OTC: ISCHF) and Makhteshim-Agan Industries (Tele Aviv: MAIN, OTC: MAIDF) will continue to be big growers for investors.
Another precious resource provides opportunities to keep your portfolio ahead of inflation: water. Veolia Environnement (NYSE: VE) is a longtime favorite of ours in PF, and the spinoff from the Suez/Gaz de France merger, Suez Environnement (Paris: SEV), provides a new way to play the wet stuff, which we’ve been doing in my trading service Inner Circle.
A Cruise to Grow On
A little one-on-one time with me and my pals Elliott Gue and Roger Conrad may be just the thing to help figure out how to grow your portfolio.
Even though 2008 has been a difficult year for many of our favorite stocks, bonds and funds, we can commiserate and plan our regrouping for 2009 over a glass of cognac and a fine cigar while cruising the warm waters of the Caribbean.
We’ll talk about out what investments will help our portfolios grow while enjoying warm waters from Miami, on to island stops including St. Barthelemy, through the Panama Canal and finally to Costa Rica.
Click here for details.
Dead Guys of the Week
A man who spent his career helping to grow students’ minds died at a mere 65 years.
Art Sandler was a kid from the Bronx who went to City College of New York and made the most of it. After finishing off multiple degrees at other institutions, he headed west to the Gateway City, my hometown, St. Louis. Art joined up with the venerable Webster University, where my father is president and I serve as an adjunct professor and board member of the School of Business & Technology.
A professor of philosophy, Art made the most of his mind to create a major, one of the first of its kind in the world, International Human Rights. Along with another departed professor, Harry Cargas, and financial support from many people, including NBC’s Bob Costas, Art traveled the world to lecture at Webster’s many locations on how to ensure better political leadership.
Another fellow who tried to grow a new form of power died at 75.
Hydrogen fuel cells are cited by many as one potential alternative energy source, for cars and other vehicles to consumer electronics devices and perhaps even our homes.
In fact, Honda Motor (NYSE: HMC) this week rolled out its second series of hydrogen fuel cell-powered cars for a select group of celebrity customers in and about the Los Angeles metropolitan area.
Geoffrey Ballard loved the concept and the technology of fuel cells. Using the technology developed by General Motors (NYSE: GM) back in the 1960s and utilized in NASA projects, Geoffrey founded Ballard Power Systems (TSX: BLD, NSDQ: BLDP) and made significant inroads toward growing the capabilities and adoption of hydrogen fuel cells.
Speaking Engagements
Fall is the perfect time to enjoy Washington, DC’s outdoor treasures and catch a glimpse of nature’s splendor. And this year you can enjoy the immediate aftermath of the presidential election in the seat of the federal government.
Join Roger Conrad, Elliott Gue and me for the DC Money Show Nov. 6-8, 2008, at The Wardman Park Marriott.
Click here or call 800-970-4355 and refer to priority code 011363 to register as my guest.
I’ll also be appearing at the following events:
- The Financial Advisors Investment Conference, October 2008
- The World Money Show, London, England, November 2008
- The 2008 KCI Investing Cruise, Dec. 1-12, 2008
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