Wednesday, March 11, 2009

More Proof Inflation is Coming

With the massive amounts of money our government keeps committing, I've been a believer that inflation, in some form, is coming. Some of the market's best minds share that view, and today we have some more predictions:

Pacific Investment Management Co. which runs the world’s biggest bond fund, joined investors Warren Buffett and Marc Faber in saying inflation will quicken, sounding a warning for Treasury investors.

U.S. government and Federal Reserve efforts to snap the recession will increase costs for goods and services as soon as 2010, Pimco said in a report today on its Web site by Chris Caltagirone and Bob Greer. Commodity producers are also delaying projects, which may limit supply and lead to higher prices when global growth resumes, according to Pimco.

“Inflation will rise,” Pimco said. Treasury securities that give investors protection against higher prices in the economy are “attractive now.”

Pimco is among a growing list of investors who are warning that programs to counter the U.S. slump will increase consumer prices as the economy starts to revive. Investor Jim Rogers, author of the books “Hot Commodities” and “Adventure Capitalist,” said this week U.S. policies will hurt conventional Treasuries, those that don’t offer inflation protection.

I'm interested in buying inflation protected securities, or TIPS, at some point in 2009. In issues like these, I like to use ETFs. Take a look at ishares' fund (TIP), with a 0.2% expense ratio. If you're looking for a diversified bond ETF with low costs, look no further than Vanguard's Total Bond Market ETF (BND), currently yielding 4.64%.

Disclosure: Author owns BND.

Article via Bloomberg.

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