Jubak's Journal Recent articles: • 5 stocks taking advantage of oil prices, 8/11/2004 • What I would pay for Google, 8/10/2004 • Why Wall Street wants Google to fail, 8/6/2004 More... | Jubak's Journal 10 inflation-fighting stocks Some protect your portfolio by making money off rising demand for oil, metals or soybeans. Others are attractive simply because they deliver more value at a better price. By Jim Jubak My, even by the Federal Reserves own standards, its Aug. 10 economic announcement was murky. Inflation is rising . . . kind of. Growth is OK but deserves watching. And well raise interest rates in September and November. Or maybe not. Investors expecting economic clarity from the Fed should stop holding their breath. But dont despair. Where Alan Greenspan and Co. fear to tread, Jubaks Journal will rush in. Im not only going to explain inflation to you in this column, but Im going to tell you what to do about it. And with the help of readers Im going to give you a list of 10 stocks that you can use to protect and grow your portfolio. (This column is the promised follow-up to my July 27 column, The high cost of do-it-yourself cost cutting.") Heres the key concept: In this economy, there are two different kinds of inflation with independent causes that are moving at different speeds. If you dont divide inflation into these two pieces, you tie yourself in knots like those youll find in the Federal Reserves Aug. 10 press release about its decision to raise interest rates by a quarter of a percentage point. (Heres a link to the full text.) If you divide inflation into separate parts, this economy begins to make sense, and it becomes much, much clearer what to do about it if youre an investor. Inflation No. 1: Good old commodity inflation This is caused by too much demand chasing stuff thats in (temporarily, at least) short supply. You want a list? Oil. Natural gas. Copper. Nickel. Metallurgic coal. Chicken. Pork. Soybeans. Coffee. Cocoa. Lumber. Cement. Vacant land reasonably close to a job. I think you know the cause of this type of inflation. Take a couple of billion potential consumers in the developing world, give a large minority of them enough income to start buying the things that the consumers of the developed world routinely purchase and Whammo! -- shortages in oil as Chinese and Indian factories gobble electricity and roads fill up with cars, trucks and motorbikes; shortages in copper, lumber and cement as demand for housing mushrooms; shortages in metallurgic coal as steel becomes the foundation for new factories churning out everything from cars to washing machines.
This type of inflation is easy to see, easy to understand and so familiar that we can all think of investments that will not just protect a portfolio from the effects of this kind of inflation, but actually profit from it. Here are five such stocks that Ive previously mentioned: Land -- The St. Joe Co. You can quibble with this list. Certainly you should feel free to substitute your favorite stocks in these sectors. Its much more important to make sure your portfolio has solid exposure to these kinds of stocks than it is to worry about picking the perfect inflation hedge. That brings me to the second kind of inflation. Inflation No. 2: Economywide price inflation The Consumer Price Index (CPI) and the Producer Price Index (PPI) measure general economywide inflation, which the Fed worries the most about and tries to contain. Its the kind of inflation thats been puzzlingly slow to show itself. Economic growth started to accelerate in 2001. In 2002, the economy grew at almost 2%, and in 2003, at 3%. The acceleration is stunning if you look at 2003 quarter by quarter: First-quarter growth was 1.9%, second quarter 4.1%, third quarter 7.4% and fourth quarter 4.2%. Yet inflation, even inflation including food and energy, didnt kick up. The CPI climbed just 1.6% in 2001, 2.4% in 2002 and 1.9% in 2003. Only this year has it passed 3%, registering 3.3% year-over-year in June. Even then, if you look at core inflation, thats inflation minus volatile energy and food prices, it measured just 2% in June. Related news and commentary on MSN Money Its not logical that the costs of the commodities used to make everything from houses to Cocoa Puffs should be going up, but not the prices that consumers pay for the end products. A number of factors help explain this seeming paradox:
5 DIY cost-cutting winners Last month, I argued that the companies that would prosper in a world of do-it-yourself cost-cutting were those that offered customers real value in the trade-off of free time for lower prices. The biggest winners are those companies, I wrote, that have combined lower prices and efficient transactions. They havent just found a successful cost-cutting strategy, but a positive competitive weapon in this economy. And I asked you for examples of these winners from your own experience and promised to share the best of these with you. Here are the five most likely do-it-yourself cost-cutting winners from the hundreds of suggestions I received in e-mail.
As helpful as readers were in suggesting companies that will win because of their combination of service and price, they were vitriolic when it came to companies where service was so poor that it didnt justify any potential savings. Ill report on the dark side of do-it-yourself cost cutting in my next column. New developments on past columns What I would pay for Google Google ended the registration of new bidders on Thursday, Aug. 12, and Im closing the voting on what I should pay for Google so that I can get a bid in. This should be a very interesting auction. Just 7% of the readers on the MSN Money poll voted for a price between $108 and $135, the price range suggested by Googles management. My own calculation of $92 didnt fare much better with 8% of the vote. Another 16% was clustered at $81, and again at $68. But by far, the biggest vote was for $50 a share. Putting all the votes that name a price together (if you dont bid in the auction, you dont help set the price) gives me a weighted average price of $72. Ill put in my bid at $72, and well see what happens when the issue prices next week. (Remember, any profits after a year go to the charity The Smile Train.) And by the way, 21% of you voted for paying nothing at all in Googles IPO. High returns in a low-interest-rate world; 5 keys Well, Warren Buffetts opinion of the dollar hasnt exactly improved. Last year, Buffett told Berkshire Hathaway 3 techs that could buck the market tide The tide continues to run heavily against the technology sector with new downgrades of Cisco Systems Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday. E-mail Jim Jubak at jjmail@microsoft.com. At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Berkshire Hathaway, St. Joe, Schlumberger, and Southern Peru Copper. He does not own short positions in any stock mentioned in this column. | ||||||||||||||||||
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