Insurance CEO Tackles Inflation

Edmund "Ted" Kelly,CEO of privately held insurer Liberty Mutual Group,sees high single digit inflation in the 2014-15 time frame.We're in hard assets such as oil and gas,mining and minerals to protect ourselves.
Cheap money is pumping up the financials and making credit too available,and we're concerned about it.
We very much like China,Vietnam,Thailand,Brazil.We're strong on the Iberian Penninsula-Spain and Portugal-as well as Turkey and Poland.What we have seen in China is a remarkable ability to manage the economy,Mr.Kelly noted.
Liberty Mutual does not intend to go public anytime soon,in light of commercial insurers cutting prices recently,which tends to devalue insurance company stock.

Advantage View:Investing In Inflationary Times

With the recent surge in commodity prices,investors may be wondering what their next move should be.In evaluating a company as a possible investment during such times,you must ask how much their input cost is as the cost of final goods;and whether they can pass this cost on or are vulnerable to rising commodity prices.
RiverFront Investment Group sees energy and mining companies as winners in inflationary scenarios.They also like Monsanto,since farmers will plant more crops during such times,and Monsanto produces the seed they need.McDonald's benefits because,with groceries more expensive,McDonald's is more competitive for your food dollars.Commodity firms such as Exxon Mobil would also do well.
Equities in general are an inflation hedge.For goods traded on the global marketplace,we do have inflation issues there,and that's where I would focus,says Doug Sandler,Chief Equity Strategist at RiverFront.
RiverFront Investment Group is an independent,SEC-registered investment advisor,providing asset management,investment advice and leading edge market insights.They are located in Richmond,Virginia.
Monsanto(MON),McDonald's(MCD),Exxon Mobil(XOM)

Bernanke Provides Context

Speaking at Harvard University,Ben Bernanke,Chairman of the U.S. Federal Reserve,has put the current situation in historical context.So far,the U.S. economy has dealt with the oil shock pretty well,Mr.Bernanke said.The Fed has learned the lessons of the 1970s.Maintaining a commitment to price stability remains a top priority.Fixing inequality by limiting economic dynamism is a step in the wrong direction.Inflation today is significantly higher than he would like,but is lower than in the 1970s.There is little indication of the beginnings of a wage-price spiral today.Inflation is up 1% this year,compared to 6% in the 1973 oil shock,which was a result of war in the Middle East.Still,the rise of some inflation expectation indicators is of significant concern to the Federal Reserve,the central banker noted.Crude prices today are up more than four-fold,much like the 1970s,but the economic slowdown today is more due to housing and financial problems than to the price of oil,Mr.Bernanke reflected.

Elephant Shifts Its Weight

Like everything else in California,its pension fund,the California Public Employees' Retirement System,or CalPERS,is gigantic.CalPERS manages about 261 billion dollars U.S. for around 1.5 million employees and retirees.This massive fund is in the midst of a 2-3 year transition to a new asset allocation.Russell Read,chief investment officer of CalPERS,is directing a cutback in stocks and bonds in favor of investments such as private equity,real estate,commodities,infrastructure projects and timber.As well, the equities portion of the portfolio will be moved to a greater proportion of foreign stocks.All of this is needed to ensure a larger return for the workers CalPERS serves.The stocks allotment will go down to 56% from 60%.Indeed,stocks have already been trimmed to about 58%.The current allocation of 36% U.S. stocks will decrease to 28%,while foreign stocks will go from 21.6% of the portfolio to 28%.Bonds will be reduced from 26% to 19%.Mr.Read is fundamentally optimistic about the global economy,although there will be continued softness in financials and a trading range of 13-14,000 in the Standard and Poor's 500 index.Energy and materials are favored.He also likes real estate,including global real estate,for the long term.Private equity investments such as Silver Lake Partners,which buys technology firms,don't necessarily follow the stock market.About 5% of CalPERS' portfolio will go into inflation-linked investments,which tend to do well when inflation ticks up.These include timber,infrastructure and commodities.The real estate portion will rise from 8% to 10%.Alternative investments,including private equity and venture capital,which invests in start-up companies,will go from 6% to 10% of CalPERS' holdings.In its last fiscal year,CalPERS earned a total return of 19.1%.Fiscal 2008,which began last July,will be very challenging,given current market conditions.The new strategy will give CalPERS a better chance of sustaining its great success.