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I’m not saying that hyperinflation can’t happen. But if you really believe in that hypothesis, you’d do much better to buy deep OTM call options on TIPs and gol

I’m not saying that hyperinflation can’t happen. But if you really believe in that hypothesis, you’d do much better to buy deep OTM call options on TIPs and gold instead of real estate.

KirillPanov 6y ago
The TIP "inflation rate" is a total farce. Hedonic mumbo jumbo, etc. Also, it is far from clear that TIPs would be honored in a hyperinflative scenario. I can easily imagine a "100% windfall profits tax" on TIP gains.
nostrademons 6y ago
Yeah, as someone else mentioned, TIPS are terrible investments for actual hyperinflation. In other instances of hyperinflation, "official" inflation estimates (which is what TIPS are benchmarked on) seriously lag the actual inflation rate on the ground. Most layperson financial assets aren't secure investments in this case, because their value depends only on what you can sell them for and it's far from guaranteed that you'll be able to sell them for anything in a crisis. Your strategy for preparing for hyperinflation is to lever up on debt and then buy controlling interests in real assets that people need to live - real estate, food suppliers, weapon/ammunition suppliers, energy, utilities. When hyperinflation hits the debt inflates away to nothing and then you can name your price in the black market that inevitably ensues. Then you use the profits from your control over essential supplies to hire mercenaries to protect and enforce your rights to them, because hyperinflation is very frequently followed with a collapse of state control along with lawlessness, anarchy, and civil disorder. (See eg. Russian oligarchs.) Note that folks who are buying up real estate with debt are following part of this playbook. Folks buying up gold and Bitcoin are following another part of it: their buyers expect that those will be the currencies of choice in the black market. I have no intel on whether gun & ammunition manufacturers are also getting bought up for outsize prices, but would be extremely curious if they are.
- imtringued 6y ago
  Come on, you must be aware that the risk with this strategy. Asset prices could just as well go down, especially if PCE/PCI inflation goes up, which will cause the Fed to stop fighting deflation and then it will start fighting inflation and the tools for fighting inflation have had far better track record than the tools for fighting deflation. If you must get into debt, then buy assets that net a future return based on productive investments. If you were to buy real estate, you would have to buy it because you are expecting to receive enough rent to pay the mortgage back based on current rents. If everyone gets into debt and uses it for speculation then we would probably get to see the opposite, an even stronger deflationary wave than what we have had so far.

I’m not saying that hyperinflation can’t happen. But if you really believe in that hypothesis, you’d do much better to buy deep OTM call options on TIPs and gold instead of real estate.

KirillPanov 6y ago

The TIP "inflation rate" is a total farce. Hedonic mumbo jumbo, etc. Also, it is far from clear that TIPs would be honored in a hyperinflative scenario. I can easily imagine a "100% windfall profits tax" on TIP gains.

nostrademons 6y ago

Yeah, as someone else mentioned, TIPS are terrible investments for actual hyperinflation. In other instances of hyperinflation, "official" inflation estimates (which is what TIPS are benchmarked on) seriously lag the actual inflation rate on the ground. Most layperson financial assets aren't secure investments in this case, because their value depends only on what you can sell them for and it's far from guaranteed that you'll be able to sell them for anything in a crisis. Your strategy for preparing for hyperinflation is to lever up on debt and then buy controlling interests in real assets that people need to live - real estate, food suppliers, weapon/ammunition suppliers, energy, utilities. When hyperinflation hits the debt inflates away to nothing and then you can name your price in the black market that inevitably ensues. Then you use the profits from your control over essential supplies to hire mercenaries to protect and enforce your rights to them, because hyperinflation is very frequently followed with a collapse of state control along with lawlessness, anarchy, and civil disorder. (See eg. Russian oligarchs.) Note that folks who are buying up real estate with debt are following part of this playbook. Folks buying up gold and Bitcoin are following another part of it: their buyers expect that those will be the currencies of choice in the black market. I have no intel on whether gun & ammunition manufacturers are also getting bought up for outsize prices, but would be extremely curious if they are.

imtringued 6y ago
Come on, you must be aware that the risk with this strategy. Asset prices could just as well go down, especially if PCE/PCI inflation goes up, which will cause the Fed to stop fighting deflation and then it will start fighting inflation and the tools for fighting inflation have had far better track record than the tools for fighting deflation. If you must get into debt, then buy assets that net a future return based on productive investments. If you were to buy real estate, you would have to buy it because you are expecting to receive enough rent to pay the mortgage back based on current rents. If everyone gets into debt and uses it for speculation then we would probably get to see the opposite, an even stronger deflationary wave than what we have had so far.