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Consumer Price
Index: October 2008
The October estimate
of consumer price index declined -1.0% (-0.961%) m/m and was up 3.7% y/y. The
core ex-food and energy estimate fell -0.1%(-0.071%) m/m and is up 2.2%. The
ex-food estimate saw a sharp drop of -1.2% m/m and the ex-energy component
was flat for the month. Energy prices dropped -8.6% and prices in the
services sector were also flat for the month.
Inside the data, the
housing component, which comprises 42.4% of the overall index was flat and
the owners equivalent rent subcomponent was up 0.1%. The cost of
transportation was down - 5.4%. The cost of food rose 0.3%, apparel declined
-1.0% , gasoline -14.2% and commodities were down -2.3% The cost of medical
care increased 0.2% and education 0.2%.
 
The decline in the
cost of transportation and gasoline were the primary catalysts behind the
single largest decline in consumer prices since the creation of the index in
1947. The second straight record low recorded in the October inflation data
confirms that the risk to the economy from pricing has rapidly moved from
that of rapid inflation to the disinflation that is now moving through the
system. The core rate of inflation is quickly converging on the Fed's implied
target zone of 1-2%. While at this point it does not appear that a general
breakout of deflation is in the cards, the Fed would be wise to employ a
potent communications policy with respect to the implied target rate as a way
to shape market expectations during its experiment with the quantitative
easing policy currently underway and the probability of a extended period of
falling prices in many sectors of the economy.
Joseph Brusuelas
Chief Economist
VP Global Strategy
Merk Investments LLC
Merk Investments LLC is the manager
of Merk Mutual Funds, including the Merk Asian Currency Fund and the Merk
Hard Currency Fund. The Merk Asian Currency Fund invests in a basket of Asian
currencies. Asian currencies the Fund may invest in include, but are not
limited to, the currencies of China, Hong Kong, Japan, India, Indonesia,
Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.
The Merk Hard Currency Fund invests
in a basket of hard currencies. Hard currencies are currencies backed by
sound monetary policy; sound monetary policy focuses on price stability.
The Funds may be appropriate for you
if you are pursuing a long-term goal with a hard or Asian currency component
to your portfolio; are willing to tolerate the risks associated with
investments in foreign currencies; or are looking for a way to potentially
mitigate downside risk in or profit from a secular bear market. For more
information on the Funds and to download a prospectus, please visit www.merkfund.com.
Investors should consider the
investment objectives, risks and charges and expenses of the Merk Funds carefully
before investing. This and other information is in the prospectus, a copy of
which may be obtained by visiting the Funds' website at www.merkfund.com or calling 866-MERK
FUND. Please read the prospectus carefully before you invest.
The Funds primarily invest in
foreign currencies and as such, changes in currency exchange rates will
affect the value of what the Funds own and the price of the Funds' shares.
Investing in foreign instruments bears a greater risk than investing in
domestic instruments for reasons such as volatility of currency exchange
rates and, in some cases, limited geographic focus, political and economic
instability, and relatively illiquid markets. The Funds are subject to
interest rate risk which is the risk that debt securities in the Funds'
portfolio will decline in value because of increases in market interest
rates. The Funds may also invest in derivative securities which can be
volatile and involve various types and degrees of risk. As a non-diversified
fund, the Merk Hard Currency Fund will be subject to more investment risk and
potential for volatility than a diversified fund because its portfolio may,
at times, focus on a limited number of issuers. For a more complete
discussion of these and other Fund risks please refer to the Funds'
prospectuses.
This report was prepared by Merk
Investments LLC, and reflects the current opinion of the authors. It is based
upon sources and data believed to be accurate and reliable. Opinions and
forward-looking statements expressed are subject to change without notice.
This information does not constitute investment advise nor a solicitation or
an offer to buy or sell any products or services. Foreside Fund Services,
LLC, distributor.
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