While many of you are already quite aware that I’m bearish on equities and prefer other asset classes at this point, let me simply log two recent charts to bolster my position.

Producer Price Index – I know that many of the adventures commodities have been on have been due to “one-off” events, e.g. cotton due to drought in China, Arabica coffee due to Kenya, oil because of Libya.  That said, we’ve had enough “one-offs” that eventually margins will be squeezed with little opportunity to pass the costs on to the consumer.  Note the recent rise:

Productivity has been up but new hires can’t be forestalled forever.  As the next chart will show, margins are currently sky-high but the combination of increased inputs plus labor, as well as new entrants into the market will force the margins back to the mean.  At today’s current pricing it means the S&P would have a P/E of 24 times earnings.  Rich by any standards.

Given that equities are currently priced to perfection and corporate bonds can’t withstand a whiff of inflation, it may be time to consider one of the most down-trodden asset classes – real estate.  Please give me a call to discuss what residential income property may be able to provide for you!