Go!
There are a number of iron-clad reasons inflation is likely headed higher and the dollar is destined to move lower. These separate but related macroeconomic tidal forces can exert tremendous pull on the market -- and they are both tugging in the same direction. That's why the environment is starting to look conducive for Treasury Inflation-Protected Securities (TIPS), but which of these asset classes has history shown to thrive even more under these hostile conditions?

A.) AAA Corporate bonds
B.) Commodities
C.) Real estate
D.) Small-cap stocks
E.) Municipal bonds
Published: December 4, 2009

The correct answer is     (B.) Commodities

There are several reasons a depreciating dollar is a sure-fire recipe for rising commodity prices. The simplest is that goods denominated in dollars, like commodities, suddenly become cheaper for foreign buyers. And when inflation is on the rampage, investors like the reassurance of owning hard assets. Instead of watching prices for things like steel and gasoline rise all around you, why not convert your dollars into these commodities directly and enjoy the ride?

Some illuminating stats demonstrate this. When the Consumer Price Index shot through the roof between May 1972 and December 1974, the S&P Commodities Index more than tripled. During the next decade, as stagflation made life miserable for equity and fixed income investors, commodities posted a whopping cumulative return of +479%.

Investors have a dizzying array of options here, but the central idea is that companies that bring us these goods can deliver much "more reliable" gains than the futures pits. With that in mind, StreetAuthority editor Nathan Slaughter evaluated the commodities universe as part of the weeks of research and collaborative discussion that went into StreetAuthority's "Top 10 Stocks for 2010" list. Available in the latest issue of the Market Advisor newsletter, this list is an invaluable resource for self-directed investors who want to earn above-average profits in the equity markets. To get the full list, and to learn more about Market Advisor, please visit this link.

Want to answer more trivia questions? Visit our archives here!


 

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