Wal-Mart Warning – Here’s How to Protect Yourself

Long time readers know I’m not an economist. I leave the market predictions to my colleague Kevin Raymond. He delivers stock info, economic forecasts and financial news to you every Monday morning.

Because of that I steer clear of talking about market forces…until today.

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I read an article last week that made me sit straight up in bed. When the CEO of Wal-Mart, says inflation is coming and it’s going to be serious, I listen.

This isn’t just something to brush off. Regardless of what you think about Wal-Mart as a company, it’s safe to say they know a thing or two about the prices of goods around the world.  Wal-Mart is the largest retailer in the entire world. It has “access to any factory in any country around the globe to mitigate the effect of inflation.” If the largest retailer can’t stop inflation no one can.

Inflation is coming and it’s going to affect all of us. We need to protect ourselves as best we can so it doesn’t erode away our purchasing power and the value of our money.

What is inflation? It’s defined as a general rise of prices for goods and services. It’s why a Coke that cost fifty cents ten years ago now costs a dollar. It’s why my Grandpa’s house cost $13,000 when he bought it in 1959 and could sell for around $89,000 today.

A slow, steady rise in inflation is considered to be good for an economy. But when a country’s government prints gobs of money and injects it into the economy hand over fist, it erodes the purchasing power of our dollar. When the U.S. government “rescued” us from the brink of what they have dubbed “a nuclear meltdown of the U.S. financial system” by flooding the economy with money they sentenced us to higher than average inflation for many years to come.

We haven’t had much trouble with it yet. Gas prices and food prices are highly volatile so higher fluctuations in these two areas don’t always sound the alarm. The Consumer Price Index (CPI) is a statistical estimate of the price level of consumer goods and services in America. It’s constructed using the prices of a smattering of items in different categories whose prices are collected periodically. The CPI is one of three most anticipated national statistics. The annual percentage change in the CPI is used as a measure of inflation.

In February the CPI rose half a percentage point, the biggest jump since the middle of 2009. Experts are predicting we will feel the effects of inflation by this June, just two short months away.

I don’t want to pay more for goods or services in two months. And I know my fellow Easy Street readers don’t as well. Fear not! Your trusty Spending Advisor knows how to protect ourselves from inflation.

Buy a House

What’s one of the advantages of taking out a mortgage to buy house? A fixed, repayment plan in which your monthly payments don’t increase. This isn’t true for renters. They risk their landlord passing on the effects of rising inflation onto them in the form of higher monthly rental payments. By buying a house you lock in a rate, your payments can’t go up no matter how much inflation we see. The higher inflation is, the cheaper owning your house becomes.

Combine this protection with the fact that interest rates are near all-time lows and you’ve got yourself one good looking investment. If you rent, now is the time to buy. If you already own a house, I’d suggest you look into putting your money towards an income property. Make sure the rent you could get on it would more than cover your monthly mortgage, taxes and insurance on the property. In my opinion, this may be one of the best times in a long time to buy real estate.  With the real estate market being as beat up as it has been the last few years these opportunities are out there.  In south Florida for example I’m seeing some properties sell for 5 to 7 times current annual rent.  Plus with inflation you’ll be able to charge higher rents as inflation rises!

Buy Gold and Other Precious Metals

I know, I know…you’ve heard Kevin telling us to buy gold for the past several years. He’s a huge advocate of having it in one’s investment portfolio for both investment and protection purposes. I’m looking at it here more for the protection.

Money is a storage of value. To act as a store of value, money in any form must be able to be saved and used at a later time to purchase goods and services. When money holds its value, people feel safe holding onto it and saving it. Inflation weakens money’s ability to keep its value because each unit of money is worth less and less with the passage of time.

When paper money loses its value, people look for other forms of it that can play the role of “storage of value.” Traditionally that’s been gold.

If the US dollar fails you can take your gold to another country to purchase goods there or exchange it for their currency. The dollar, or paper money, would be worthless, but your gold would still have value.

Gold is considered a hedge against inflation. Consider investing in ETF’s focused on gold, purchase gold coins, or increase your positions in gold stocks.

The only downside is that gold is expensive. It’s currently trading around $1,453 an ounce. That’s big money when you’re trying to buy several thousand units. A great alternative for someone with less capital, is to buy silver. Silver works against inflation in the same way gold does. Silver is a storage of value too. They can be exchanged for other currency or used to purchase goods.

Gold is kind of the older, more popular, trendier sister right now. It’s gained a lot of popularity and experienced a run up in value more than silver has. But don’t count out silver just yet. During the 1980 peak in the gold and silver bull market run, silver topped out at $50 an ounce. Today silver is trading around $40 an ounce. For silver to match its 1980 peak, it would have to hit $125 an ounce. Silver definitely still has room to run up in value as well as provide protection against inflation.

The time to act is NOW. Just because we haven’t experienced massive inflation yet doesn’t mean it isn’t happening. If CEO’s of large companies who are plugged into retailers around the world are saying so, it’s time to start listening. Spend your money smartly and you’ll be able to protect your family from the damaging effects of inflation.

This is not the time to hoard your pennies in a savings account. You need to invest in durable goods and commodities rather than monetary investments like CD’s and bonds. Work towards reducing your consumption of goods most affected by inflation, i.e. short term usage products like gasoline. Try to barter or trade for goods and service without the exchange of money.

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Good luck!

Keeping Money In Your Pocket,

Nancy Patterson

One Response

  1. Jill Reed

    As more and more groups are waking people up to their potential and to the potential damage of a rulng society of only a few hundred, the masses will prosper and live happily. You do a fantastic job of looking at what is and then showing what could be. Making more wealthy is the key to a more free society. Thank you!


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