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Hyperinflation and Property Investment
- Thread starter milic
- Start date
I agree - hence i think you should stop hawking the damn thing.
The only reason you are up is the euro lost a bucket of value against the dollar. Correct me if i am wrong, but every gold bug last year was predicting the demise of the dollar. That didn't happen as the predicted, so they keep pushing it's collapse out a bit.
That simple chart should illustrate very simply, the potential downside of what you propose.
You are jumping on a wave that is potentially very close to the shore.
Others should be aware of risk before you goad them into the water.
george.shaw
Registered User
- Messages
- 252
Lol !!
Jaysus - give my head peace you crystal ball gazing casino lover !
;-)
Important to always adjust for inflation Cancan:
Gold Less than Half Its Inflation Adjusted High in 1980
http://www.economist.com/finance/displaystory.cfm?story_id=13185396
Long term passive investors are aware of inflation's terrible evils but suppose you hotshot speculators who treat the world as a casino don't need to worry about inflation (pity the widows and orphans !!).
Gold is a hedge against weakness in all major currencies and is near record nominal highs against all currencies:
[broken link removed]
I have some 20% of my portfolio in gold. If it does fall in euro/ dollar or sterling terms Cancan then I am very confident that the rest of my portfolio will be doing well.
That is the whole point of having financal insurance, non correlated assets and or a hedge in your portfolio and the whole point of diversification which you clearly do not understand.
Suggest you head to Cheltenham as probably have as much chance of making money there as you do in your short term leveraged speculations.
;-)
Jaysus - give my head peace you crystal ball gazing casino lover !
;-)
Important to always adjust for inflation Cancan:
Gold Less than Half Its Inflation Adjusted High in 1980
http://www.economist.com/finance/displaystory.cfm?story_id=13185396
Long term passive investors are aware of inflation's terrible evils but suppose you hotshot speculators who treat the world as a casino don't need to worry about inflation (pity the widows and orphans !!).
Gold is a hedge against weakness in all major currencies and is near record nominal highs against all currencies:
[broken link removed]
I have some 20% of my portfolio in gold. If it does fall in euro/ dollar or sterling terms Cancan then I am very confident that the rest of my portfolio will be doing well.
That is the whole point of having financal insurance, non correlated assets and or a hedge in your portfolio and the whole point of diversification which you clearly do not understand.
Suggest you head to Cheltenham as probably have as much chance of making money there as you do in your short term leveraged speculations.
;-)
So I'm a "hot shot speculator" now?
I never once mentioned my positions in anything, so get off your high horse before you lecture me.
Invest away all you want, but don't keep banging on about it. Your opinion are well represented here already.
Time for a new record.
I never once mentioned my positions in anything, so get off your high horse before you lecture me.
Invest away all you want, but don't keep banging on about it. Your opinion are well represented here already.
Time for a new record.
george.shaw
Registered User
- Messages
- 252
You can give it but cannot take it Cancan.
Really can't handle the cut and thrust of debate and dealing with the facts presented.
Why were you suggested a leveraged "reverse triple ETF"!?! previously?
Hope moderators can have a look and a word in your ear re having a rational debate , not getting personal and throwing the toys out of the pram because someone rationally points out the flaws in your argument.
Haven't banged on about my investments but felt had to point out as I have had my character impugned with suggestions that my comments are motivated by profit or commissions.
What do you advise people and investors do in these uncertain times pray tell?
Give us some constructive pearls of wisdom rather than your broken record fundamentalist and simplistic guff - gold is bad, very bad, nay evil - beware of the gold!!
;-)
Really can't handle the cut and thrust of debate and dealing with the facts presented.
Why were you suggested a leveraged "reverse triple ETF"!?! previously?
Hope moderators can have a look and a word in your ear re having a rational debate , not getting personal and throwing the toys out of the pram because someone rationally points out the flaws in your argument.
Haven't banged on about my investments but felt had to point out as I have had my character impugned with suggestions that my comments are motivated by profit or commissions.
What do you advise people and investors do in these uncertain times pray tell?
Give us some constructive pearls of wisdom rather than your broken record fundamentalist and simplistic guff - gold is bad, very bad, nay evil - beware of the gold!!
;-)
UptheDeise
Registered User
- Messages
- 272
Here is a good pearl of wisdom.
Do the opposite of the general consensus on AAM.
2006 - Buy houses
2007 - Bank shares - they look good
2008 - Gold - $2000 - you can't go wrong!
Short everything that is pushed here, and you can retire early.
I'll leave ye to it and go back to my cave.
Do the opposite of the general consensus on AAM.
2006 - Buy houses
2007 - Bank shares - they look good
2008 - Gold - $2000 - you can't go wrong!
Short everything that is pushed here, and you can retire early.
I'll leave ye to it and go back to my cave.
Yeah, that's fantastic.
But what on earth has any of this argument got to do with hyperinflation and property investment?
The OC could have gone to other threads to continue these arguments about gold. Now, a potentially interesting, specialised thread has been clogged with meaningless noise, arguments, and personal niggling.
But what on earth has any of this argument got to do with hyperinflation and property investment?
The OC could have gone to other threads to continue these arguments about gold. Now, a potentially interesting, specialised thread has been clogged with meaningless noise, arguments, and personal niggling.
Sorry George,
Gold is not a currency, if it was it central banks could create more out of thin air, it is a "finite" commodity, my views in relation to Gold is not that its a good investment or not but whether its a safe bet against the effects of inflation, which evidently it is not.
Theres only key times to invest in gold, and those times are in when there is a bubble caused by a crisis of confidence. However it should only be for the short term, because as soon as the crisis in confidence is over, the price drops off back to the normal levels if you factor in inflation. However the backdrop of the currencies that you buy the gold with and ultimately return to will end up devaluing. Its not a hedge against inflation, otherwise everybody would be buying gold all the time for the last 4 decades.
Supply and Demand is fine, but demand is only really kicks in when theres some crisis going on, however with property , you may have occasional oversupply , but also pent up demand. I personally wouldn't buy property now, mainly because of the risks, although if I was in a position to purchase a property in a prime area for a reasonable price, I might be tempted, but only after considering quite a lot of benefits, such as rental consistency possibilities for my dividend and capital apprectiation possibilities due to proximity to key amenities and services and infrastructure.
Gold however being such "finite" commodity doesn't suffer from oversupply as much as lack of demand when things look more stable in other asset classes.
I think you should try to dispel the inflation hedging myth for all potential Gold investors if you are to be balanced about it. Gold may have periods of capital appreciation that can be exploited, but if as you say the supply is only increasing at 2% per annum, then there is proof in the pudding. Gold naturally devalues by 2% per annum.
Gold is not a currency, if it was it central banks could create more out of thin air, it is a "finite" commodity, my views in relation to Gold is not that its a good investment or not but whether its a safe bet against the effects of inflation, which evidently it is not.
Theres only key times to invest in gold, and those times are in when there is a bubble caused by a crisis of confidence. However it should only be for the short term, because as soon as the crisis in confidence is over, the price drops off back to the normal levels if you factor in inflation. However the backdrop of the currencies that you buy the gold with and ultimately return to will end up devaluing. Its not a hedge against inflation, otherwise everybody would be buying gold all the time for the last 4 decades.
Supply and Demand is fine, but demand is only really kicks in when theres some crisis going on, however with property , you may have occasional oversupply , but also pent up demand. I personally wouldn't buy property now, mainly because of the risks, although if I was in a position to purchase a property in a prime area for a reasonable price, I might be tempted, but only after considering quite a lot of benefits, such as rental consistency possibilities for my dividend and capital apprectiation possibilities due to proximity to key amenities and services and infrastructure.
Gold however being such "finite" commodity doesn't suffer from oversupply as much as lack of demand when things look more stable in other asset classes.
I think you should try to dispel the inflation hedging myth for all potential Gold investors if you are to be balanced about it. Gold may have periods of capital appreciation that can be exploited, but if as you say the supply is only increasing at 2% per annum, then there is proof in the pudding. Gold naturally devalues by 2% per annum.
george.shaw
Registered User
- Messages
- 252
I agree with Damian re staying on message but have to respond to Roro's misconceptions first as they are important in any debate re investing in hyperinflation.
Gold is an extremely finite currency and this is why it is a currency and a monetary asset and foreign exchange reserve. That is why central banks internationally including China's People Bank Of China are diversifying out of their huge $2 trillion dollar stockpile and into gold.
Gold is a very rare and finite commodity and a thus a currency (not a fiat paper currency) and this is why gold has not collapsed like every other commodity (and some currencies such as the Icelandic krona and to a lesser extent sterling) in recent months.
Central banks are rightly increasingly concerned about the prospects of financial, economic and systemic contagion. The German Bundesbank recently clearly stated how they view gold as an essential reserve currency and monetary asset.
“National gold reserves have a confidence and stability-building function for the single currency in a monetary union,” the Bundesbank said.
Suggest you read
[broken link removed]
Property and gold are recognised as hedges against inflation and gold is more of a hedge against hyperinflation as pointed out by David McWilliams recently in The Irish Independent.
The most classic example is Weimar Germany:
[broken link removed]
The last period of significant inflation to challenge the western world was in the 1970's and property and particularly gold did well in this period as per the inflation adjusted gold chart from the Economist below.
During this period of stagflation (inflation and low growth), gold rose by some 24 times or 2,400% from $35/oz to over $850/oz.
The 1980's and 1990's were periods of unprecedented economic growth and low inflation with globalisation and the emergence of the BRIC and other emerging markets.
The bottom line is that in hyperinflation as per Milic's question "investment in carefully selected residential property" may serve a similar function as gold.
In hyperinflation, deposits and savings (paper that can be printed and debased) are decimated and finite tangibles do well - precious metals, select properties (normally residential is safer) and shares of companies that deal in essentials - food, energy, water, utilities.
Diversification into tangible finite assets is key in hyperinflation whereas cash and gold is king in deflation as it was in the 1930's.
Diversify.
Gold is an extremely finite currency and this is why it is a currency and a monetary asset and foreign exchange reserve. That is why central banks internationally including China's People Bank Of China are diversifying out of their huge $2 trillion dollar stockpile and into gold.
Gold is a very rare and finite commodity and a thus a currency (not a fiat paper currency) and this is why gold has not collapsed like every other commodity (and some currencies such as the Icelandic krona and to a lesser extent sterling) in recent months.
Central banks are rightly increasingly concerned about the prospects of financial, economic and systemic contagion. The German Bundesbank recently clearly stated how they view gold as an essential reserve currency and monetary asset.
“National gold reserves have a confidence and stability-building function for the single currency in a monetary union,” the Bundesbank said.
Suggest you read
[broken link removed]
Property and gold are recognised as hedges against inflation and gold is more of a hedge against hyperinflation as pointed out by David McWilliams recently in The Irish Independent.
The most classic example is Weimar Germany:
[broken link removed]
The last period of significant inflation to challenge the western world was in the 1970's and property and particularly gold did well in this period as per the inflation adjusted gold chart from the Economist below.
During this period of stagflation (inflation and low growth), gold rose by some 24 times or 2,400% from $35/oz to over $850/oz.
The 1980's and 1990's were periods of unprecedented economic growth and low inflation with globalisation and the emergence of the BRIC and other emerging markets.
The bottom line is that in hyperinflation as per Milic's question "investment in carefully selected residential property" may serve a similar function as gold.
In hyperinflation, deposits and savings (paper that can be printed and debased) are decimated and finite tangibles do well - precious metals, select properties (normally residential is safer) and shares of companies that deal in essentials - food, energy, water, utilities.
Diversification into tangible finite assets is key in hyperinflation whereas cash and gold is king in deflation as it was in the 1930's.
Diversify.
M
monkeysee
Guest
i like damians suggestion of buying a property and letting inflation eat the debt. so when can we expect all the dough that has been printed up to hit the real economy? how high will rates go? over what time period? what do people consider good locations to buy? can we really expect rents to go up in a high-inflation environment given the glut of rental properties on the market? i think house prices are going to continue to fall steeply over the next few years but if i thought i could stick the banksters with the tab i'd grab one. can anyone expand on this idea
george.shaw
Registered User
- Messages
- 252
Two good articles here and good website dedicated to "preparing Americans for hyperinflaton":
"Would you like a side of hyper-inflation with your job loss and reduced retirement?"
http://caps.fool.com/blogs/viewpost.aspx?bpid=150826&t=01006128892014518274
The World is Awashed with Dollars [broken link removed]
The National Inflation Association is an organization that is dedicated to preparing Americans for hyperinflation.
[broken link removed]
"Would you like a side of hyper-inflation with your job loss and reduced retirement?"
http://caps.fool.com/blogs/viewpost.aspx?bpid=150826&t=01006128892014518274
The World is Awashed with Dollars [broken link removed]
The National Inflation Association is an organization that is dedicated to preparing Americans for hyperinflation.
[broken link removed]
Z
z109
Guest
This is simply not true. The early to mid 1980s were miserable everywhere. Property tracked inflation, no more. The UK had a property bubble in the late 1980s fuelled by over optimistic reductions in interest rates. Property prices collapsed in 1989 and didn't re-reach their peak until 1999 (inflation adjusted). The Gulf War pushed the global economy back into recession in 1990-1991. It was not until the mid-nineties that economic growth pretty much everywhere gathered speed.The last period of significant inflation to challenge the western world was in the 1970's and property and particularly gold did well in this period as per the inflation adjusted gold chart from the Economist below.
During this period of stagflation (inflation and low growth), gold rose by some 24 times or 2,400% from $35/oz to over $850/oz.
The 1980's and 1990's were periods of unprecedented economic growth and low inflation with globalisation and the emergence of the BRIC and other emerging markets.
For US GDP growth see:
http://static.seekingalpha.com/uploads/2008/1/30/gdpannualized1_2.png
For inflation figures 1973-1984 see here:
http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=2
For US interest rates:
http://en.wikipedia.org/wiki/File:Federal_Funds_Rate_(effective).svg
And as for gold, it promptly lost 80% of its value as soon as peak inflation had passed.
If you bought 1,000 dollars of gold in 1980 @ 2,400 dollars/ounce, you would today have 417 dollars @ 1,000 dollars/ounce.
Put 1,000 dollars in cash in a Federal Funds tracker deposit account and you would have near 10k.
Gold is not a currency. Gold is a panic response to the threat of hyperinflation. Gold is like property. Which, of course, means that you are right to suggest gold as an alternative to property in the event of hyperinflation. Gold as an asset has favourable characteristics to property - it is relatively easy to dispose of, it can be broken into smaller chunks, it is portable, it can be hidden; none of these things are true of property.
But, you must be able to convert it to something. You can't eat it. You can't live in it. It is demand-priced. Demand can drop suddenly and that will result in the same price drops for gold that were seen in the 1980s. If it becomes evident that the central banks of the world (or even just those of the particular currency you happen to earn and have savings in) are going to raise interest rates in response to inflation, the demand for gold will wane.
Fair points yoganmahew, but I would consider good prudent rental property to be an excellent investment and inflation hedge.
I'm not talking about the Irish market here as it is still in a bubble, but there are many areas globally where a rental income stream can be steady and property reasonably valued.
If you can get a steady stream of income and a steady tenant stream, the appreciation potential of the property is irrelevant.
If inflation strikes, interest rates rise, resulting in a stronger rental market.
Investment property can allow you to both protect yourself from inflation and attack inflation (by holding debt).
I'm not talking about the Irish market here as it is still in a bubble, but there are many areas globally where a rental income stream can be steady and property reasonably valued.
If you can get a steady stream of income and a steady tenant stream, the appreciation potential of the property is irrelevant.
If inflation strikes, interest rates rise, resulting in a stronger rental market.
Investment property can allow you to both protect yourself from inflation and attack inflation (by holding debt).
Z
z109
Guest
You are assuming purchasing with cash?
I would suggest TIPS (inflation-linked bonds) to be both more efficient and less hassle...
george.shaw
Registered User
- Messages
- 252
Some valid points, others extremely inaccurate, misleading and untrue Yogi.
I said "The 1980's and 1990's were periods of unprecedented economic growth and low inflation with globalisation and the emergence of the BRIC and other emerging markets."
This was a generalisation for purposes of brevity but besides the Wall Street Crash in 1987 and property slumps in early 1990's - the period was one of substantial economic growth, macroeconomic and geopolitical stability and corresponding rises in property and equity markets. The end of the Cold War helped matters and then the mid 1990's and the Clinton era really saw economic growth take off and this was sustained by Greenspans irresponsible cheap money policies in the late 1990's and 2000's.
Why do you and gold's detractors always conveniently pick the very top of the market - the very, very brief nominal high in January 1980 of $850/oz?
Lies, damn lies and statistics come to mind.
Gold was at this price for a matter of minutes on one day and only a tiny, tiny, tiny handful of investors internationally will have bought at this price.
The average price of gold in 1979 was less than $400/oz.
The average price of gold in 1980 was less than $650/oz.
Most would have bought closer to this average price.
The average price in the 1970's was less than $200/oz.
The average price in the 1980's was less than $500/oz.
The majority of investors will have bought closer to these average prices.
And if they had been adhering to portfolio theory and diversifying and not having all their eggs in any basket then they only would have had some 10% in gold and the rest in cash, bonds, equities and property.
By being diversified - 90% of their portfolio would have performed extremely well and their allocation to gold will have acted as a hedge against macroeconomic, systemic, inflation, hyperinflation, deflation and geopolitical risk.
And finally gold is a currency and to suggest otherwise is simply silly:
Gold: The only currency that can't be printed
http://moneycentral.msn.com/content/P113717.asp
Gold is an extremely finite currency and this is why it is a currency and a monetary asset and foreign exchange reserve. That is why central banks internationally including China's People Bank Of China are diversifying out of their huge (China some $2 trillion alone) dollar stockpiles and into gold today.
Gold is a very rare and finite commodity and a that is precisely why it is a currency (not a fiat paper currency) and this is why gold has not collapsed like every other commodity (and some currencies such as the Icelandic krona and to a lesser extent sterling) in recent months.
Central banks are rightly increasingly concerned about the prospects of financial, economic and systemic contagion. The German Bundesbank recently clearly stated how they view gold as an essential reserve currency and monetary asset.
“National gold reserves have a confidence and stability-building function for the single currency in a monetary union,” the Bundesbank said.
Suggest you read
[broken link removed]
Or even better the FT editorial:
Gold is the new global currency
[broken link removed]
[broken link removed]
DIVERSIFY
I said "The 1980's and 1990's were periods of unprecedented economic growth and low inflation with globalisation and the emergence of the BRIC and other emerging markets."
This was a generalisation for purposes of brevity but besides the Wall Street Crash in 1987 and property slumps in early 1990's - the period was one of substantial economic growth, macroeconomic and geopolitical stability and corresponding rises in property and equity markets. The end of the Cold War helped matters and then the mid 1990's and the Clinton era really saw economic growth take off and this was sustained by Greenspans irresponsible cheap money policies in the late 1990's and 2000's.
Why do you and gold's detractors always conveniently pick the very top of the market - the very, very brief nominal high in January 1980 of $850/oz?
Lies, damn lies and statistics come to mind.
Gold was at this price for a matter of minutes on one day and only a tiny, tiny, tiny handful of investors internationally will have bought at this price.
The average price of gold in 1979 was less than $400/oz.
The average price of gold in 1980 was less than $650/oz.
Most would have bought closer to this average price.
The average price in the 1970's was less than $200/oz.
The average price in the 1980's was less than $500/oz.
The majority of investors will have bought closer to these average prices.
And if they had been adhering to portfolio theory and diversifying and not having all their eggs in any basket then they only would have had some 10% in gold and the rest in cash, bonds, equities and property.
By being diversified - 90% of their portfolio would have performed extremely well and their allocation to gold will have acted as a hedge against macroeconomic, systemic, inflation, hyperinflation, deflation and geopolitical risk.
And finally gold is a currency and to suggest otherwise is simply silly:
Gold: The only currency that can't be printed
http://moneycentral.msn.com/content/P113717.asp
Gold is an extremely finite currency and this is why it is a currency and a monetary asset and foreign exchange reserve. That is why central banks internationally including China's People Bank Of China are diversifying out of their huge (China some $2 trillion alone) dollar stockpiles and into gold today.
Gold is a very rare and finite commodity and a that is precisely why it is a currency (not a fiat paper currency) and this is why gold has not collapsed like every other commodity (and some currencies such as the Icelandic krona and to a lesser extent sterling) in recent months.
Central banks are rightly increasingly concerned about the prospects of financial, economic and systemic contagion. The German Bundesbank recently clearly stated how they view gold as an essential reserve currency and monetary asset.
“National gold reserves have a confidence and stability-building function for the single currency in a monetary union,” the Bundesbank said.
Suggest you read
[broken link removed]
Or even better the FT editorial:
Gold is the new global currency
[broken link removed]
[broken link removed]
DIVERSIFY
george.shaw
Registered User
- Messages
- 252
Good points re quality, highly selective property Damian.
And good point re TIPS Yogi.
Both could and should be in a properly diversified portfolio.
Issue with TIPs is that there are currently negative real interest rates, there is significant currency risk in the dollar - not too mention the risk of default.
Best to stick with German inflation protected bonds or better again AAA rated short dated bond fund (with range of different AAA bonds) which reduces default risk and sovereign risk.
And good point re TIPS Yogi.
Both could and should be in a properly diversified portfolio.
Issue with TIPs is that there are currently negative real interest rates, there is significant currency risk in the dollar - not too mention the risk of default.
Best to stick with German inflation protected bonds or better again AAA rated short dated bond fund (with range of different AAA bonds) which reduces default risk and sovereign risk.
[/quote]
This is an interesting line of thinking and I would have to agree that TIPS have some interesting characteristics but they are not without their risks.
1) Currency risk
If you buy Sterling Index linked bonds or US$ TIPS as a € investor you are exposed to currency risk.
Research shows that movements in currency can swamp the returns from fixed interest investments in an unhedged portfolio.
2) Term risk
Inflation-linked bonds tend to of long duration and therefore behave more like long-term government bonds. These are therefore affected by changes in real interest rates. If real interest rates rise, as they would if inflation started to increase, you get crushed by the fall in the price of your bonds and the increase in the value of your capital from inflation index-linking might not offset this.
Therefore, although in theory Inflation-linked bonds offer some protection against inflation the pay-off for investors is more volatile than from an investment in short-term bonds.
On balance, therefore I would argue that a position in a short-government bond fund should be used in conjunction with a smaller allocation to inflation -linked bonds as this should offer a better hedge over the long term.
see my post here:
http://www.askaboutmoney.com/showthread.php?t=107356
Z
z109
Guest
Sorry all, I was using TIPS as short-hand, as mentioned above, currency risk would preclude me from buying in other than euro at the moment, so French, German or Italian inflation-linked bonds would be my inflation hedge.
Thanks for the info Marc, will have a look.
Thanks for the info Marc, will have a look.
george.shaw
Registered User
- Messages
- 252
No problem Yogi.
;-)
;-)