What not to do with your money now…

It has been the worst June in 77 years, says Bloomberg. In June of 1930, the Dow lost 18%. So far, it is down 9.4% this month. Since this is the last day of the month, we presume that is where it will stay.

The rest of the news is not much better. Oil closed over $140 a barrel on Friday. OPEC's president says it could go to $170 by the end of the year.

And the New York Times says the number of people who can't pay their mortgages continues to grow. There were 2.6 million of them six months ago. Now, the figure has risen to 3 million.

The combination of '30s-style asset deflation and '70s-style consumer price inflation has spooked investors everywhere.

"Falling prices grip stock markets around the world," reports the Financial Times.

Where can you turn for relief, the paper asks? "Nowhere," is the answer it gives.

Nowhere?

All the world's stock markets have taken losses, most of them bigger losses than those on Wall Street. Property prices, too, are headed down in most places. So, don't bother to diversify. It barely matters where you look - asset prices are sinking.

"Diversification no longer works," writes Tony Jackson in the Financial Times. Mr. Jackson says rising inflation rates are playing hell with all sorts of investments. Bonds, equities, real estate - anything that produces a fairly steady stream of income - is vulnerable, because the money you receive, whether as dividends, rent or interest, becomes less and less valuable. Result: big drop in assets prices.

So, how do you protect yourself? You already know the answer, dear reader. But let's look at the possibilities to make sure we haven't missed something.

Let's begin with real estate. Over the long run, property usually stays even with inflation. But the trouble now is that this bout with inflation begins when property prices are already high…and coming down. Real estate prices are adjusting downward after a record bull market. Inflation just makes the correction worse, since wherever prices end up in nominal terms, they'll be even lower in real terms.

The same could be said of stocks, but with slightly less conviction. U.S. stocks fell heavily last week. But they're still down less than 15% from their all-time high. You could even argue that they're cheap; that is, if you take current super-low bond yields into account. But as inflation rates go up, so do bond yields - normally. Then, stocks go down with bond prices. Why? Because when bond prices go down, yields go up, making bonds more attractive than stocks.

Of course, not all stocks will do badly. If we are replaying the '70s, we'll find that oil stocks provide a return above inflation. Gold stocks too could produce spectacular rates of return for a few years. But most stocks will probably go down.

Bonds are always vulnerable to inflation. Remember the 'bond vigilantes'? These were the guys who dumped bonds as soon as they caught a whiff of higher inflation in the air. These fellows went to sleep during the Reagan Era. Paul Volcker had inflation under control; bonds were in a long-term bull market; the vigilantes had nothing to do. Once in the land of nod, they stayed asleep for the next 20 years. Only recently have they begun to stretch and yawn.

But real yields are still so low; the vigilantes still have not completely wiped the sleep from their eyes. In the United States, for example, the real yield on a 10-year T-Note is MINUS 2%. And last week, the yield on the 10-year T-note fell below 4%. We don't know what to make of it. But as inflation increases, that yield is going to rise - meaning, the value of bonds will go down.

No, dear reader, bonds are no country for old men, at least not for old men with money. Not when inflation is going up.

How about treasury bonds linked to inflation, or TIPS as they are called? Nope. Don't even think about it. For one thing, when the bond market goes down, inflation-adjusted bonds go down too. Because there are two parts to the value of these bonds - there's the regular part, which acts like any other bond, and there's the inflation-adjusted part, designed to offset the loss from inflation. The inflation-adjustment only offsets inflation, not the loss from the bond market.

And even the inflation-adjustment is no sure thing. The people who decide how much inflation compensation you get are the same people who have to pay you for it. It is a bit like letting the undertakers decide when you are ready to die; the conflict of interest may be good for their business, but it might be bad for you. What is good from the government's point of view is a low official inflation number. Billions and billions of dollars depend on the CPI calculation- everything from tax rate adjustments, Social Security payments, to monetary and fiscal policies. In a better world, perhaps we would have honest inflation numbers. But in a better world, we wouldn't need them.

*** Stocks are out. Bonds are out. Real estate is out.

Commodities? That's where the money has been made lately. Commodities have just had their best 6 months in 35 years. But our guess is that many are in bubble mode and will continue to rise as the U.S. Fed pumps more liquidity into the system. But betting on commodities is not a one-way wager. Tony Jackson tells us that in the 1970s, commodity prices, adjusted for inflation, were flat in the United States and down in the United Kingdom. Besides, remember that high prices cure high prices. As commodity inflation bubbles over to retail price inflation, consumers cut back. Demand falls. The economy slows. Commodity prices drop.

It may be true that commodity prices will continue to rise for a few years more. It may even be true that real commodity prices will be higher 10 years from now than they are today. But at today's prices, looking for safety in the commodities market is like protecting your son from bicycle mishaps by buying him a motorcycle. You're simply trading a slow risk for a fast one.

How about emerging markets? Same problem. They're risky anyway. Inflation doesn't make them safer. It just makes alternatives to them less safe too.

So, what does that leave? Nowhere? Nah… the FT is wrong. There's no such place as "nowhere."

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.