The Most Unloved Investment

Last Wednesday, I participated in an interesting discussion on CNBC’s Closing Bell regarding what I consider to be the most “unloved” investment.  Most continue to scratch their heads as to why they haven’t cratered with the trillions of the dollars our Fed has created over the past few years.  But there are bigger stories at play. 

For years, most have thought that inflation would really kick into high gear, but that certainly hasn’t happened.  You may have seen it at the pump or at the grocery store, but those are considered “transitional” and easily cured with higher prices.  Think about it.  The higher the price goes for a certain good, the more likely we are to cut back and/or find a substitute.  I am a big chicken eater,  but if the price of chicken doubled, tripled or quadrupled, guess what, I would find something else to eat like turkey.

That may be all well and good for chicken, but what about heating my house with oil?  Aren’t I stuck? After crude oil skyrocketed to $147 in 2008, alternatives really started to sprout up.  Americans dramatically cut back on miles driven and oil used at home.  They also started purchasing wood burning and pellet stoves, solar panels and geo-thermal systems.  In most cases, there are always ways!

Anyway, I digress.  Since 2007, I have believed that our biggest enemy would  be and is deflation, not inflation.  During the credit crisis, trillions and trillions were “vaporized”. Remember all those alphabet soup products that banks were inundated with?  CMOs, CLOs, CDOs, SIVs.  The ones that were AA and AAA but really were junk?  Think of all that money that went away!  Although the Fed has created trillions, it hasn’t come close to replacing the money that was lost. 

Wages are a component of inflation and wage growth has been essentially non existent.  And the elephant in the room, housing?  That’s the largest component of inflation and it would be very tough to argue that housing prices are and have been on the rise.  So in my opinion, we are in need of a little, controllable inflation. 

So I think I uncovered a good future topic.  Enjoy the video.

http://video.cnbc.com/gallery/?video=3000087612&play=1

Stocks at Inflection Point

Here is the article based on my interview with CNBC’s European Closing Bell from May 1.

http://www.cnbc.com/id/47243367

The 2012 bull market still has further to run, according to Paul Schatz, president of Heritage Capital, an independent investment banking and advisory firm. Instead of a major selloff, Schatz believes that the equity markets will only peak later on in the year, or early in 2013. But he’s undecided about whether this will incorporate a “sell in May and go away” mantra.

Fuse | Getty Images
 

“We see two possible paths. One is that the major indices go right back to new 2012 highs in May and then race to all-time highs in the third quarter or early fourth quarter,” he told European Closing Bell. “The other scenario is that stocks use May to pull back and take out the April lows before bottoming and then heading to new 2012 highs in the third quarter.”

Schatz’s reasoning is that the huge amount of central bank liquidity in the system is only going to get bigger.

“The Fed remains, and there’s still a torrent of liquidity in the system,” he said. “The ECB is just warming up. They have printing presses for trillions and trillions of stimulus for the rest of the decade.”

Schatz also downplayed the effect of the euro zone debt crisis on the equity markets. “It’ll be hard-pressed to say that Spain being in a recession[cnbc explains] is going to end this bull market.”

Even though Schatz is bullish in equities, his company still has a sizeable position in U.S. Treasuries.

“The U.S. fiscal house may not be in good shape, but on a relative basis, it’s better than most of Europe and Japan and there remains a sizeable bid under the market from the Fed and foreign governments,” said Schatz.