Some people think it’s crazy to worry about hyperinflation. But in reality, we don’t have to see a repeat of Argentina or Germany to experience the results of hyperinflation. If most global currencies inflate along with the US, the hyperinflation could easily be disguised. We’re still in a good bear market rally as of June 2009, but here’s why you should still think about buying gold.
So here’s the short and easy answers first:
(1) Invest in things that will “float with the rising tide,” so to speak. Certain investments are naturally better protected against inflation. Consumer goods producers, in particular, pass off rising prices to their consumers, which leads to a greater net intake of profits. Companies like Proctor & Gamble, Kraft, or other food companies might be good to keep in mind. Equities of central producers of industrial essentials should also be good.
(2) Stay out of things that will disintegrate with the decreasing value of cash. Cash is very bad to hold onto during hyperinflation, as I’m sure you already know. Same with investments denominated in cash, such as GIC’s, CD’s, Treasuries, Canada Savings Bonds, etc. It’s unfortunate because after economic crises such as that of 2008-2009, one longs for the protection and “safety” of bonds and cash, but these are precisely the investments that will erode away should hyperinflation become a real threat. And more people are catching on to the possibility of hyperinflation.
(3) Buy gold and gold stocks. I know you’ve heard this one before, and it probably doesn’t need any more explanation. Suffice to say that during the Great Depression, gold stocks soared through the roof. I would stay away from gold ETFs, except maybe GLD, which actually holds real physical gold. At least if you hold stocks and ETFs you also won’t have to worry about the US Government confiscating your gold (it happened during the Depression – nice, eh?). They actually made it illegal to hold gold. Buying gold in a bear market rally still makes sense, too. You can also buy digital gold through GoldMoney.
(4) Forget about Swiss Banks. They’ve changed their secrecy laws. Recently they just gave over a ton of client information in concession to US pressure to crack down on tax evasion. So I wouldn’t count on holding currency offshore. If I did, I’d also have a plan B just in case. Or take it to Asia. They’re going to be the real economic force coming up, anyway. I don’t think China’s going to stay a sucker for the US for long. Already at the end of March 2009, China proposed a new global reserve currency.
But much of the problem will depend on whether hyperinflation hits only the US or whether, as a result of US economic force, the rest of the world is forced to hyperinflate (I mean, literally, coerced beyond their will) with the US.
If hyperinflation is somehow confined to the US, there will be a way to escape. Simply own foreign equities of blue-chips and producers of essentials. Own foreign currencies, as well. Don’t worry so much about which ones. Definitely own the resource countries: Canada, Australia, New Zealand, Brazil.
If hyperinflation goes global, this would be a disaster and almost all bets are off. I think China would still stand to rebuild in a better position after a scenario like this, and the resource-rich countries will still have their resources. We know that much. Gold might still be good to hold, but if global regulations are put in place regarding its possession or sale, it might not be of any use.
So for a scenario like global hyperinflation, I’d want to put my money in something that will still have SOME value no matter what new currency system is put in place. A company like BHP Billiton, the world’s largest miner, is still going to be around, no matter what currency it is denominated in, because the world will continue to mine even after any potential economic apocalypse.
Hyperinflation won’t happen overnight (if it happens at all). It can be a long process. Just as the Sept. 2008 financial crash didn’t really happen just on September 15th. Most people could see it coming already with Bear Stearns back in March 2008. And some of us were reading about it long before that, even long before the August 2007 “real estate bubble” crash. So when I write about the prospect of hyperinflation, it’s most certainly not due to the short-term actions of an Obama administration. No. The wave they are riding began much earlier.
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Nice article. I am considering investing in gold as a hedge against hyperinflation (the treasury is releasing another $1,000,000,000,000 to financial institutions this week, but I am still not sure if gold’s traditionally poor rate of return is worth accepting as a hedge.
Do you feel that buying land is a good hedge against inflation?
In terms of gold, i looked into that quite a bit before and actually apparently around 30% of something like that, of people still held onto their gold even though it was illegal.
But they aren’t really mentioned investing in commodities like gold or silver as much in the news yet.
So this may be a good time to buy, and probably sell when everyone jumps on the bandwagon.
your thoughts?
Benjamin, I think that if *hyper*inflation ensues, then gold will more than pay off because it will be your *only* source of wealth. As for land, yes; whenever you can buy land I think is a good time to – you know who’s good to ask about this, is Nirav over at livingoffdividends.com – tell him I sent you – he knows a thing or two about buying undeveloped land through a friend.
Tom,
I hadn’t noticed that – you may be right about the popular news media. In the sources I read, they’ve been talking about gold for ages now… I would agree in general terms, though. Once you see stories about gold-buying on the front page of the New York Times, it’s probably not a good time to get in.
I recently heard about the Swiss banks, bummer for the people who’s info got released.
I would vote for Real Estate as a hedge against inflation. If you have a fixed mortgage and high inlfation hits, properties will do really well.
And, not only will your property values go up, with your mortgage fixed, but the rents will go up as well.
Yes right now stock markets are very risky to invest but gold market is very much in safe side so it is good to invest money into a gold and save your wealth.
Just to echo what Bret said, commercial property is quite an attractive buy when it comes to inflation risks, I think. Lots of REITs are still at depressed prices. Inflation will depreciated their debts while unlike a bond they have the ability to raise prices.
All bets off if the inflation is strong enough to derail the global economy, of course.