Investing in Obama's Inflationary Economy

Andrew Snyder of Inside Investing Daily wrote this week that even though he didn't vote for Obama, the President's financial plans are not all that bad. And by, “not all that bad”, he means if you read between the lines, there are some investments—including real estate—that will benefit from the Obama inflationary management style. Snyder points out that the day after Obama's re-election -- the same day the stock market tanked -- gun sales soared.  I say this comes down to—for every action there’s an equal and opposite reaction--you just have to understand how to react.

On Nov. 7, the day after Obama’s reelection, the government recorded the highest-ever level of firearms-related background checks. This is the check that precedes a civilian gun purchase. We won't know for sure until the full figures for the month are calculated. But we do know there were 1.6 million background checks in October -- more than 20% over the same time last year.  These are folks who share two concerns, one is that they may—at some point—need a gun, and secondly they think the President may promote new regulations which will curtail citizens access to the purchase of guns.

A new acronym, called SWAGGR, is a term for an investment “bundle” that should be relatively inflation-proof.  The SWAGGR market is comprised of the investments that will most likely flourish during the time period of high inflation.  Guns, ammo and all the self-defense industry is all part of what we call the SWAGGR market. The letters in the acronym stand for Silver, Wine, Art, Gold, Guns and Real estate... all the things I've talked about in these columns. These are the things -- maybe even the only things – that will generate real, lasting wealth in the inflationary economy.

Of course I've been a proponent of real estate as a method to avoid the rampant inflation which is sure to creep into our daily conversations as the federal printing presses crank out mountains of paper money—money with no real value.  Leaving cash in a bank account today is a sure way to lose about 10% to 20% of your BUYING POWER each year.  And Wall Street is LasVegas in New York. Why would any sane person want to occupy Wall Street?

I have discussed real estate, silver and gold as appropriate alternatives to sitting on a bank account but SWAGGR also adds wine, art and guns—these are other investments that will also provide some security as the dollar tanks. I would also add fine jewelry (generally silver, gold and gems) as well as stocks in companies that will profit from the SWAGGR categories together with long-lifespan personal property (like home additions) together with expensive items that you plan to purchase or replace over the next couple of years.

These are the assets that can't be manipulated by a government gone wild. These unconventional investments lie outside the nation's zombie economy.

You may say you don’t need or want to own a gun. But that doesn't mean you can't take advantage of the nation's fear of future fire-arm regulations. And you may not have the funds it takes to bid on a high-end piece of fine art, but investments in companies that will profit from the sale of art—like Christies.  You might not have the kind of investment portfolio it takes to buy an orange grove or a waterfront lot. Again, that's fine.

There are alternative investments.

Sturm, Ruger & Co (RGR:NYSE), the gunmaker, just declared a special dividend of $4.50 per share. That payout is equal to nearly 10% of their closing price. Or for about $10 you can buy shares of Smith and Wesson (SWHC:NASDAQ). You can get into a Real Estate Investment Trust like Plum Creek (PCL:NYSE) for under $45. These are players in the SWAGGR market... and both will probably increase in value as the herd seeks safety.

It doesn't matter which political party you voted for, you can still take advantage of the Obama effect on our stock market. One leading financial magazine refers to the pending inflationary event as "a time bomb." In short, if your money is connected in ANY way to the stock market, I urge you to be in touch with a financial planner to reallocate it into investments that will be inflation protected. And do it soon. The tipping point will likely occur whether we go over the “fiscal cliff” or not—so think January at the latest. Before that all comes to pass you should have moved the funds you hope to preserve into some solid investments.

And don't be shocked by the plans that our government has in store for us. Tax increases for everyone are almost a certainty.  I would expect to see the home mortgage deduction (earned for us all by the constant efforts of the National association of Realtors) slip away together with many other deductions we have enjoyed over the years.

In inflationary times, cash does not have the appeal that we have given it over the years, because if everything gets more expensive week by week, then it’s smarter to spend cash today before the prices go any higher.  So the SWAGGR message says stop saving money and start investing in the things that you can profit from in the future, things that people will want, which due to inflation, regulations and shortages will likely increase in value (and therefore get more expensive over time relative to the dollar).

Dane Hahn is a real estate professional serving Florida’s Charlotte and Sarasota Counties, you can reach him at dane.hahn@gmail.com or by phone at 941-681-0312.  See him on the web at www.danesellsflorida.com.