Japan’s Liquidity-Pumping Impacts the Entire Investment World
Events in Japan this week will impact global investing. The Bank of Japan announced on Tuesday of this week that it will work to achieve a 2 percent inflation rate to reverse the deflation/stagnation trends of the last 20 years. The bank will also make an “open ended” pledge to buy a potentially unlimited amount of government bonds to stimulate the Japanese economy. The bank also moved this week to increase the QE that is currently being undertaken in Japan by a substantial amount, beginning in 2014. At that time (we project that) Japanese stimulus will rise to13 trillion yen (147 billion U.S. dollars) per month. This is an immense amount of liquidity pumping for any economy. Obviously, Japan wants to lower the yen and get real estate and stock market prices rising again, stimulate economic growth, and reverse the negative trends afflicting its economy. Recently, several prominent economists have raised their predictions for Japanese GDP growth in 2013.
However, this is not the whole story…
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Conference Call Announcement
We will be hosting our Global Market Conference Call Friday February 15th, 2013 for our Gold Subscribers. During the call participants can ask direct questions to Guild Investment Management Portfolio Managers.
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A Few Important Facts About Oil…
Oil is an extremely important component of the cost of living and the cost of manufacturing. Accordingly, the prices and availabilities of oil, natural gas, and coal are key components of the standard of living of a nation and its ability to manufacture and transport goods. Having a large domestic supply of oil, natural gas, and coal — as the U.S. does — is extremely fortunate. Other fortunate oil, gas, and coal-producing countries include Canada, Indonesia, Australia, Brazil, Mexico, Colombia, Russia, China, Nigeria, some East African states, and the Middle Eastern oil producers.
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Guild Basic Needs IndexTM
Tracking the Prices of Basic Necessities
Last week, the Government’s final inflation data for 2012 was released. December Consumer Price Index (CPI) was flat with November due to falling energy prices offsetting rising food prices. The full-year inflation came in at 1.7 percent, well below the Federal Reserve’s 2.5 percent target that might prompt an end to their monetary stimulus programs. 1.7 percent may not sound like a big number, but if you look deeper into the inflation number, and you look over a longer period of time, the numbers get big. For example, the prices of basic, essential needs items found in our Guild Basic Needs IndexTM (GBNI) which measures the prices of food, clothing, shelter, and energy (used for heating, cooking, and transportation) in the U.S. have risen almost 80 percent since January 2000. The CPI’s increase over that period is 36.4 percent. When you consider that household incomes in the U.S. have not grown much at all over that period of time, the decline in Americans’ standard of living is evident.
When prices of basic elements of daily consumption go up, something on the more discretionary side must get cut back unless income rises as well. Of course what more Americans are choosing to do to support their standard of living is lean on the government’s generosity. With stagnating wages and rising prices, it is no surprise that a record number of Americans are relying on government assistance programs like the Supplemental Nutrition Assistance Program (SNAP), formerly referred to as food stamps, to help them meet basic needs.
Government assistance can ameliorate the impact of this declining standard of living for some people in the short term, yet it actually just spreads it around among taxpayers and defers it to future generations…but perhaps this might be a better discussion for another letter. The bottom line is price increases in basic, essential needs can be expected to continue, and they can be expected to outstrip the CPI, which includes many non-necessities.
Guild Basic Needs Index (December 2012)
…Meanwhile, the U.S. Government’s Consumer Price Measure Has Risen Less than 37%.
In this week’s Premium Global Market Commentary available to Gold Subscribers, we discuss:
- Our Analysis on Mexico
- Mali’s Gold Producers Largely Untouched by Turmoil
French Action Protects Longstanding Interests
Gold’s Long History in West Africa
French Imperial History Still Ties France to Francophone Africa
Most Malian Mines Out of the Conflict Zone
- Global Shipping Prices: Current Landscape Favors LNG Shippers
Seasonal and cyclical movements are making life difficult for many categories of the shipping sector, but two bright spots are liquid natural gas (LNG) and petroleum product shipping, both areas where spot rates are strong due to high demand and tight capacity…
Bulk, Crude, and Container Shippers Face Daunting Price Levels…
…But the Picture is Better for Petroleum Products and LNG
- Guild Investment Management Weekly Global Market Summary
Find out what investments Guild Investment Management favors in this environment and we have one new recommendation this week.
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