Economists say there is little inflation, but the document argues rising costs in energy, food, and mortgages will significantly impact consumers' budgets in 2011. An average family can expect their monthly costs to rise by $500 due to increases in transportation, food, and mortgage payments. The document proposes investing in exchange-traded funds related to agriculture, energy, and bonds to potentially offset budget increases from inflation. Specific portfolios are outlined using puts and calls on DBA, TBT, and ERX ETFs that could gain $6,000 to match a $500 monthly budget rise, and an RRSP portfolio is suggested for $11,050.

1. Article #96
Economists who base their opinions on official statistics say there is no inflation and for 2011 nothing
much will change. In 2010 CPI rose 2.4% relative to 2009 year end levels. Consensus is that despite the
13% rise in gasoline prices, 6.2 % rise in electricity costs and 9.2% in natural gas there is nothing to worry
about. Energy and food prices are volatile and irrelevant to the big picture-core inflation. It’s as if these
economic forecasters do not fill up their gas tanks and shop for food. In 2010 food prices rose only 1.7%
and mortgage costs decreased by 2.5%.
In 2011 consumers can expect a large increase in mortgage costs. Payments for an average $250,000
mortgage with annual fixed rate of 2.5% and an amortization period of 20 years that has to be renewed
will most likely cost $300 more per month. Transportation budget is also likey to increase by about 5%
and food prices can be expected to rise by 5%. As a consequence an average family with 2 children will
witness an increase of $500 per month.
By investing in securities that increase in price as gasoline, food and interest rates rise, one will
compensate.
In the example above the investor needs a gain of $6,000 to equal the expected monthly budget
increase of $500. I propose the following portfolio named Inflation:
1. Sale of 5 DBA April 34 puts @ $1.40 resulting in a total credit of US$700(minus commissions).
Minimum collateral required is US$ 6,000.
2. Buy 10 DBA April 34 calls @ 1.45 for a total cost(debit) of US$1450
3. sell 5 TBT June 39 puts @ $3.15 for total credit of US$ 1,600. Minimum collateral required US$6,000
4. Buy 10 TBT June 39 calls @ $3.15. Total cost US$3150.
5. Sell 3 ERX April 66 puts @ US$6.50. Total credit US$1950. Minimum collateral required US$6,000
6. Buy 5 ERX April 67 calls @ US$6.00 for total cost of $US$3,000
The toatal cost/debit for this portfolio is US$3,350. Minimum total collateral required is US$18,000. The
reason being that the sale of puts resulting in overall credit of US$4250 can result in acquisition of 500
DBA shares @ $34, 500 TBT shares @ US$39 and 300 ERX shares @ US$66. A total value of US$56,300 if
fully paid. DBA is the symbol for PowerShares DB Agriculture Fund. TBT is ProShares UltraShort 20+
Year Treasury and ERX Direxion Daily Energy Bull 3X. All 3 trade on the New York Stock exchange and
invest liquidities in wheat, corn, soy beans, sugar for DBA, rising bond yields-TBT and energy-ERX. It’s
possible that a $3,350 investment + minimum required collateral of US$18,000 can produce gains equal
to the increase in the annual budget.
For RRSP this year I propose the following portfolio: 100 DBA @ #$.75: 100 TBT @ $39.50 and 50 ERX
shares @ $72.56. The toal cost US$11,050