Inflation is unlikely to explode overnight, it might take a year or more, but you will see it emerge and if you do you can act. Then you need to be in things that go up when the value of currencies go down and they need to be not bubbles already like real estate or stocks.
That is gold. That is bitcoin. That is silver. That is commodities in general but in the end copper, oil, wheat, etc. is a tough way to protect your wealth because it throws you into the den of speculative instruments that can blow up in your face if you haven’t used them before and even then can still remodel your wealth when something goes wrong.
So how bad is it going to get? Well here is a worst case and you can wind this back as much as you like. The U.K.’s government debt to GDP is said to be heading for 120%, up from 80%; it’s got to 105% in a few short weeks. 120% is credible but by no means a certainty. At the end of WW2 the British debt was about 240% of GDP. Now here comes the zinger. While the official figures state prices went up 400% between 1947 and 1975, if you bought an inflation hedge in 1947 and you’d be lucky to have the money to do so, by 1975 it had gone up roughly 20,000%. That’s 200 times not the 4 times that official figures tell you. If you want to check this yourself just get an auction catalogues of Sotheby’s for those years and compare results. As a side note the Dow Jones is up 147 times.
The things that have inflated the most are things that can’t be churned out cheaper and cheaper through new technology, so you get to see the naked effect of increased money supply on such items rather than the cushioning effect on prices brought about by leaps in technology. This cushioning is not going to have time to help soften the blow in the next two to three years but nonetheless the splurge of cash printing is here to stay.
So where to protect your wealth? If most of it is already tied up in things, you are fine. It’s really about protecting your fiat. What are the havens for cash or near cash?
1. Bitcoin (BTC)
With about 2% of new issuance mandated by the system, new bBitcoin can not flood the market. There is merely a sprinkling of it in existence in comparison with the untold trillions of fiat out there and now being birthed. For BTC to suck up as many dollars as gold does today, it would have to be 20-30 times higher in price ($200-$300,000 a coin).
Gold is not being mined at levels beyond ambient consumption, though a big price hike would bring out sellers and there is a lot of gold out there. Even so, gold is the “go to” inflation hedge of those folks with the most to lose—the older, pre-personal computing generation and rich people. They will go to gold and only the fleetest will look at bitcoin.
Silver is at a historical lows to gold. Romans had it at 10 ounces to 1 ounce of gold. The next millennia had it mainly at 20:1 to gold and in modern times its been 40:1. Now its 100:1 with gold. The thing is, silver is a by-product of a lot of other metal production and it has lost photography as a large driver of consumption, but it is still a precious metal. It is still a magnet for those hoarding resources for rainy days.
As long as you don’t think we are headed for a Mad Max future you can get exposure to these assets through proxies like stocks, exchange-traded funds and even futures and options if you want to get spicy, so the awkwardness of stacking the physicals is not necessary unless things start to go really Venezuelan.
The bottom line is even if only to diversify your wealth further in this extremely volatile times, precious metals are a must and if you can get your head around it bitcoin is a very powerful alternative.
Until the day money supply growth syncs up with GDP and budget deficits, inflation risk will grow and after a lag, inflation itself will appear.
In a world where governments claim there has been 50% inflation in the last 20 years while house prices have tripled, we are going to have to rely on our own benchmarking to spot what is happening before us.
Those bright lights shining in our eyes are not going to turn out to be our friends.
Clem Chambers is the CEO of private investors website ADVFN.com and author of 101 Ways to Pick Stock Market Winners and Trading Cryptocurrencies: A Beginner’s Guide .
In November 2018, Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018. Follow me on Twitter or LinkedIn . Check out my website .
I am the CEO of stocks and investment website ADVFN . As well as running Europe and South America’s leading financial market website I am a prolific financial writer. I … Read More
I am the CEO of stocks and investment website ADVFN . As well as running Europe and South America’s leading financial market website I am a prolific financial writer. I wrote a stock column for WIRED – which described me as a ‘Market Maven’ - and am a regular columnist for numerous fina...