In a Wall Street Journal article dated December 26, 2009, (A Savvy Bond Man Bets Big on Inflation) reporter Jeff D. Opdyke writes:
Bill Tedford is encouraging investors to bet against remarks by Federal Reserve Chairman Ben Bernanke, who told a group of Washington-area business leaders this month that “inflation could move lower from here.”
For more than 20 years, Mr. Tedford has run a benchmark-beating bond portfolio for Little Rock, Ark.,-based Stephens Inc. [not widely known in the general public, because it chooses to be a low-key firm, but one of the nation’s largest investment banking firms, measured by its net worth]. And though Mr. Bernanke sees slack in the economy that could push inflation down, Mr. Tedford says inflation already is evident in the consumer-price index and will lurch higher in 2010 and 2011.
He and Stephens have begun encouraging clients to invest more money in timber, oil and gas, agricultural commodities and industrial and precious metals—historically good places to be amid rising inflation…
For instance, he notes, in the 40 years to 2007 the U.S. monetary base grew at 7.08% a year. Gross domestic product, meanwhile, grew at 3.04%. The resulting surplus monetary-base growth of 4.04% closely matches CPI and the personal-consumption-expenditures price index, another measure of overall inflation.
In the wake of the U.S.-inspired global financial crisis, the nation’s monetary base has ballooned to more than $2 trillion at the end of November from less than $850 million in August 2008, before the crisis began, according to Federal Reserve data. Even subtracting the more than $1 trillion in excess reserves, the nation’s monetary base has grown by more than 11% in the past 15 months, “one of the highest changes I’ve ever measured.” Mr. Tedford says.
U.S. GDP during that period shrank by about 2%.
“The weight of that sharply increased monetary base points to significant inflation in 2010 and into 2011,” he says.
Mr. Tedford is not the only astute investment manager who is restructuring portfolios in anticipation of damaging inflation. Both Warren Buffet and Bill Gross, chief investment officer of PIMCO, the world’s largest bond fund, are doing the same.
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