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As regards the ever increasing inflation rate, Federal Reserve Bank of Dallas President Richard Fisher expressed the opinion that the central bank should hike interest rates should commodity prices rise uncontrollably and badly affect consumer spending.

Thomas Hoenig of Kansas City and Gary Stern of Minneapolis are among the Federal bank presidents that have spoken up regarding their concern about price increases this month.

Of all the members of the Federal Open Market Committee, Fisher was the only one who expressed a contrary view and dissented thrice from decisions to cut the overnight bank-lending rate as he would rather have either the status quo (no change) or a much less drastic rate reduction.

“If inflationary developments and, more important, inflation expectations continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic [economy]. I don’t know a single person on the committee that isn’t concerned about inflation. The question is, ‘what is the right treatment?’ That is subject to debate,” according to Fisher.

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Credit-default swaps have lately become the norm and is rapidly being assimilated into the mainstream. They have all of a sudden become a sizable chunk in debt portfolios as investors go into riskier markets. This trend started at about the time the US housing market started to decline.

In case the investor incurs losses with regard to bonds and loans, proctection against them are covered by cheaper contracts — much cheaper than purchasing cash securities for the reason that costs have increased following the decline of subprime mortgages.

There was an 87 percent growth for credit derivatives market in 2007 to cover a notional debt of US$62 trillion. As losses mount, we see a surge in default protection costs, which by July have swelled to more than twice the original cost as investors try to find means to protect themselves as conditions get worse at the largest global financial companies.

Taking a leveraged position becomes more expensive with higher funding assets, thus unfunded assets, such as credit-default swaps have increasingly become more appealing to investors. Some of the largest users of credit-default swaps, which also serve as new bond pricing benchmarks, include hedge funds, dealers and insurers, banks,

The thing that makes credit-default swaps quite attractive nowadays is it protects creditors from default in that instead of receiving the underlying securities or their equivalent in cash, buyers are paid at face value, in case the company cannot fulfil its debt obligations.

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The falling prices of oil have decreased corporate bonds’ risk protection costs from default, easing up the concern regarding energy costs eating up consumers’ and companies’ cash alike.

There has been a decrease in credit-default swaps on the Markit CDX North America Investment Grade Index of 125 companies in the U.S. and Canada by 5.5 basis points to 101.5 basis points as they traded in New York, as revealed by Deutsche Bank AG. A rise would mean that there is degradation as regards the perceived credit quality.

The Markit LCDX index, a US leveraged loan market indicator that increases with improving confidence, gained 0.3 percentage point to 99.05, as reported by Goldman Sachs Group Inc.

Being contracts conceived to protect bondholders against default, credit-default swaps pays buyer at face value in return for the securities that underlies or the equivalent in cash in case a company should default in relation to the debt agreements.

Crude oil fell $2.48 per barrel, or 1.9 percent, to $126.37 per barrel that helped fuel a surge in US stock index futures. Oil prices were at their lowest since May 19, at an excess of $5 contract losses in a span of two days.

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The market price for white sugar declined on hunch that overproduction will make sugar market go stale, pulling the price of sugar down to a five month low.

Next season Brazil, the world’s largest sugar cane grower, will be adding to sugar production by 16 percent that translates to approximately 500 metric tons — an 85 percent output, according to Czarnikow Group Ltd. This will boost output on the national level by about 7.5 percent to 35.9 million tons, translating to a global glut increasing from 1.1 to 1.6 million tons by the next season, Czarnikow said further.

Referring to sugar futures, Czarnikow also said that it will “reflect a more bullish outlook linked to rising ethanol demand … encouraging producers to stay committed to sugar. The market will struggle to absorb the build-up in stock that has accumulated during the two previous seasons.”

White sugar intended for August came down to a low $2.80, or 0.9 percent, to $321 per ton, the lowest ever counting from January 2 closing prices.

Sugar traded at $321.50 today in London. Sugar’s decline is at 4.6 percent this month.

July delivery prices dropped 0.01 cents, or 0.1 percent to 10.08 cents per pound on ICE Futures U.S., with futures for July 2009 delivery trading at 13.43 cents per pound.

“Prices for 2009 now represent a hope for a more bullish future that, almost month-by-month, appears to be receding before us,” added Czarnikow.

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There are a lot of people who see life Insurance as an Investment. Some of them are very close to me, and are stuck in long term policies that are touted as great investments. This is so patently false, that it’s a miracle that agents selling Life Insurance have got away with it so far.

The first reason is common sense (More specific reasons are listed below!) - It’s too good to be true! What agents selling this stuff are telling you, is that you can essentially have a great equity linked investment, and be covered with a death benefit. Your alarm bells should be ringing by now already. Nothing comes for free, and if it sounds too good to be true, it usually is.

Life insurance carries hefty fees, costs, and commissions that erode your returns. This makes some sense, as otherwise, how would life insurance companies make their money? What about the agent who sold you the insurance? He gets a commission as well.

I’m not against Life insurance per se. I understand that it provides a layer of security in case of mishap, but I certainly do object to calling it a mainstream investment, and to make matters worse, calling it better than other long term investments. You need to buy life insurance for the right reasons. Not as an investment option.

Many of us have at some point or the other heard that great works of art, are a good investment. Recent figures posted by Christie’s and Southby’s have been impressive, and have raised further questions and added more fuel to the debate on whether or not Fine art can be considered a valid investment option.

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Two Professors Michael Moses and Jiangping Mei at the New York University’s Stern School of Business, have taken to compiling what they call, the Mei Moses Fine Art Index. Basically, they take the original sales price of a work of art, and then they see the latest selling price at an auction house, and annualize the returns.

On an average, they found that over the last 50 years, the index returned an average of 10.5%, which only marginally underperforms the stock market. However, there are significant difference in terms of liquidity, obviously.

Warren Buffet however, feels that art comes nowhere close to the stock market. He took the Mona Lisa, and found that it had sold in 1540 for $20,000. If that had been invested in the stock market at a modest 6% ROI, it would have become 1 quadrillion dollars by this time. That’s way above what the Mona Lisa is worth now (Around $100 Million)!

This argument seems to put the final nail in the coffin with regard to art as a long term investment.

In another earlier post, I had discussed the metric of Earnings Per Share or EPS. These allow us to gauge whether or not the share market is currently over pricing them.

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However, there is another strategy to employ when you’re looking for long term growth - Mid Cap companies. The logic works like this - Large companies are already stable, and their growth in the market is more or less assured. This means less risk. Along with this risk, comes lower returns. Assuming all other market factors will be stable, you can expect a growth from them that is not phenomenally above what the market is giving you.

This is also because they have passed their period of rapid growth, and are not in mostly stable markets with stable product life cycles. However, smaller companies have tremendous potential to zoom up. These are the mid cap companies. Firms that have an established business model, and are on a growth path. However, the path is slippery, and not all firms make it. That is why it is a high risk strategy to invest in them.

But if you have a long investment horizon, and a reasonably competent fund manager, it stands to reason that the risk will even out over the long term, and you should be able to get returns that consistently outperform the markets. Of course, substantial research needs to be done before your fund invests in them, but isn’t that what you’re paying them for?

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Japanese stocks incurred heavy losses in six weeks as escalating commodities prices ignited fears that inflation will eat up corporate earnings, as the wavering US housing market crossed out chances for the US economy’s recovery.

Tiremaker Bridgestone Corp. led other tire manufacturers lower following the rise of rubber futures, which was to be the highest in 28 years. On the other hand Daihatsu Motor Co. suffered the most in nine months when Daiwa Securities Group Inc. announced that the costs of materials will pare profit. Meanwhile, Nissan Motor Co. went downhill when Merrill Lynch & Co. downgraded shares. The number of properties that are unsold in the United States surged to record high.

“We’re not going to see any significant reasons to buy in the next few months, and benchmarks are in for some declines. Inflation is an extremely big problem, as it means profit margins are going to be squeezed,” said head of investment management Koshi Kumagai, BNP Paribas Asset Management, Tokyo.

The Nikkei 225 Stock Average declined by 322.01, or 2.3 percent, to 13,690.19 when Tokyo trading closed. The Topix index fell 32.51, or 2.4 percent, to 1,344.18. The decline of both gauges was the worst since April 14. As if on cue, all 33 industry groups in the Topix also fell.

Thailand’s stocks, Southeast Asia’s best performers in 2008, face the possibility of extending gains due to a number of factors, such as increased government spending, tax cuts, and higher exports all contributing to a favorable forecast, and boosting economic growth, according to Mark Mobius of Templeton Asset Management Ltd.

“Thai stocks have a good chance to rise further because the new government has policies which are very positive toward businesses,” said Mobius further.

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The benchmark of Thailand — SET Index - increased by 2 percent in 2008 as of May 23, which is among the best performers of the six Southeast Asian countries with stock markets. Foreign investors purchased around 14 billion baht, which is roughly $436 million, far exceeding the Thai stocks sold this month.

Prime Minister Samak Sundaravej’s has been aiming for at least 6 percent growth in the country’s economy. This he intended to accomplish by increasing the spending on power plants, mass transit systems, and other infrastructure projects. In April Thailand’s government pared tax rates as regards property purchases to encourage consumer spending on new houses that could also mean increase in cement and steel sales.

“The government’s higher spending on infrastructure projects will increase public and private investments. Thailand is a very vibrant exporter of agricultural commodities and manufacturing products,” Mobius said.

Indeed the Thai economy swelled 6 percent during the first quarter, which is the fastest growth rate the country has witnessed in two years, increasing further consumer confidence and spending, according to the state economic advisory agency.

According to Nomura Holdings Inc., Japanese companies’ losing investments in each other’s shares have caused tremendous losses for their respective stockholders. These losses totaled $3.2 billion during the previous fiscal year.

In 2008, there were about 130 companies that posted losses in their securities investments, an increase by 13 company’s during the same period the previous year, following the decline of Topix index by 29 percent in the 12 months ended March 31, as revealed by Tokyo Stock Exchange filings.

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Even the a giant trading company in Japan such as Mitsui & Co. incurred heavy losses that reached $354 million on stockholdings, thereby missing its forecast on earnings. Hikari Tsushin, mobile phone retailer, suffered a severe blow as a total of $220 million seeped out of its earnings because of miscalculations in its investments in SFCG Co, a consumer lender.

The practice of cross-shareholding began during the 19th century and was initiated by the zaibatsu holding groups. Their purpose for doing so is to weld together strategic relationships in order to defend against takeovers that can prove fatal to these companies, said strategist Kengo Nishiyama of Nomura, Tokyo.

“Companies involved in long-term cross shareholdings are taking body blows. We’d like companies to explain their intentions regarding cross holdings, and if there aren’t any clear merits then we don’t want such moves.” said Taku Yamamoto of the Pension Fund Association, Tokyo.