4 ms·

So cars, wood + building supplies, labour, food, shipping all dramatically increased. What’s the best hedge against hyperinflation? Crypto? Ether?

toomuchtodo 5y ago
Equities and real estate. Housing and cash flows never go out of style.
- throw123123123 5y ago
  This is not quite correct. In high inflation credit markets disappear. 80%+ of housing is bought on mortgages. If 80% of housing demand disappears you get a 2008.
  - toomuchtodo 5y ago
    The 2008 global financial crisis was due to a compete failure of risk management in originating mortgages and packaging them as mortgage backed securities. In short, the industry was scraping the barrel and shoveling shit to investors. “If they can fog a mirror, fund the loan” was a phrase common at Countrywide. Lending standards are comparatively tight now, no NINJA loans [1]. The credit market will tighten, but housing demand won’t evaporate, and investors are starved for yield. In high inflation environments, you want to lever up with debt to fund investments because your debt will be inflated away over time while you capture cash flow or asset appreciation. High yield debt (“junk bonds”) are also a great play for such a macro environment. [1] https://en.wikipedia.org/wiki/No_income,_no_asset https://en.wikipedia.org/wiki/No_income,_no_asset (not investing advice, family members were involved with regulators and cleaning up doing put backs for deficient notes)
    - throw123123123 5y ago
      Your debt gets inflated away gradually while your asset crashes today. If housing went down 30%, virtually all debt in housing sold in the last few years would be underwater, which tends to increase delinquency ("they can take the house back"), which then makes the bank eat that loss and having toxic assets. The core issue is that debt is always risky.
      - toomuchtodo 5y ago
        It doesn’t matter if it’s underwater as long as the debt can be serviced. That’s the difference between a margin loan and a mortgage; there is no margin call on a mortgage. It can lose 99% of its value and as long as you still make payments (or your tenants so), you continue to own/control the asset.
        throw123123123 5y ago
        Would you pay 1 mill dollars of debt on a 500k house?
        toomuchtodo 5y ago
        In certain circumstances, absolutely (if rent payments would be higher than the mortgage payments over the holding period, or if the value of the property would accelerate past the mortgage balance during the holding period).
        throw123123123 5y ago
        You are only locking yourself with a loss here, and the price is 500k. Just look at default rates of underwater properties to see how the masses react.
        deleted 5y ago
        [deleted]
  - brutus1213 5y ago
    Interesting counterpoint .. you are right .. why would I lend you a dollar if I expect it to be worth a lot less in the future. Any data to go with this assertion? In Canada, average mortgages are just for 5 years - this is very different than the US. I suspect banks are taking very little risk in such a scheme. In the US, I believe banks sell mortgages off/get insurance via govt. schemes.
    - throw123123123 5y ago
      high inflation countries have low credit. Argentina hasn't had private mortgages in decades (minus a little summer).
granshaw 5y ago
https://www.lynalden.com/inflation/ https://www.lynalden.com/inflation/
paulpauper 5y ago
Stocks, real estate are the best imho. Crypto has too much volatility, low correlation. BTC fell in half. not a reliable hedge.
- adventured 5y ago
  Stocks are vastly superior to real-estate. Businesses with reliable growth and some pricing power. The S&P500 has generated approximately a 266% return in the past 20 years (ex any dividends). The average home sale price has climbed by just under 100% in that time. Real-estate will nail you annually on property taxes (although not in every state) and you have to maintain it (let's assume a best case and you own it without a mortgage). You can sit on a stock you bought for a decade, not sell it, let it appreciate by a lot, and incur zero taxes on the holding the entire time. The average US house incurs ~$2,500 in property taxes each year (a painful expense across a decade). And you have to out that cash every year. If for any reason you can't come up with the taxes, they seize your property; that doesn't happen with a stock holding. The government doesn't care if the real-estate is going up in value or not, they want their property taxes. At least if your equities don't go up, you owe nothing when you sell. Equity trades also have zero commission now in most cases - you can sell a million dollars worth of stock at zero commission; you can't do anything remotely like that in most cases with real-estate. Most real-estate struggles just to keep up with inflation. Average home sale prices haven't managed to outrun the cost inflation in average new car sales in the past 20 years. You're probably as well off sitting on gold ETFs like GLD or IAU as you are typical real-estate as an inflation hedge (IAU only has a 0.25% management fee, far lower than the typical real-estate property tax). In most states your real-estate will also suffer a persistently climbing tax basis if you're lucky enough to see value gains; and local governments love to increase property taxes whenever they can. And last but not least, in most cases you can click a button and liquidate your stock holdings in a matter of seconds or minutes with near zero hassle. Obviously that equation changes if you're an experienced, competent property manager and you can get a healthy yield from your real-estate; however that's a serious job, with an enormous time/effort/labor/legal/mental burden, not a low-effort side task (much less a near zero effort task like sitting on the S&P index).
  - 5y ago
loonster 5y ago
A fully owned business that could run with 0 employees (other than yourself and immediate family).

toomuchtodo 5y ago

Equities and real estate. Housing and cash flows never go out of style.

throw123123123 5y ago
This is not quite correct. In high inflation credit markets disappear. 80%+ of housing is bought on mortgages. If 80% of housing demand disappears you get a 2008.
- toomuchtodo 5y ago
  The 2008 global financial crisis was due to a compete failure of risk management in originating mortgages and packaging them as mortgage backed securities. In short, the industry was scraping the barrel and shoveling shit to investors. “If they can fog a mirror, fund the loan” was a phrase common at Countrywide. Lending standards are comparatively tight now, no NINJA loans [1]. The credit market will tighten, but housing demand won’t evaporate, and investors are starved for yield. In high inflation environments, you want to lever up with debt to fund investments because your debt will be inflated away over time while you capture cash flow or asset appreciation. High yield debt (“junk bonds”) are also a great play for such a macro environment. [1] https://en.wikipedia.org/wiki/No_income,_no_asset https://en.wikipedia.org/wiki/No_income,_no_asset (not investing advice, family members were involved with regulators and cleaning up doing put backs for deficient notes)
  - throw123123123 5y ago
    Your debt gets inflated away gradually while your asset crashes today. If housing went down 30%, virtually all debt in housing sold in the last few years would be underwater, which tends to increase delinquency ("they can take the house back"), which then makes the bank eat that loss and having toxic assets. The core issue is that debt is always risky.
    - toomuchtodo 5y ago
      It doesn’t matter if it’s underwater as long as the debt can be serviced. That’s the difference between a margin loan and a mortgage; there is no margin call on a mortgage. It can lose 99% of its value and as long as you still make payments (or your tenants so), you continue to own/control the asset.
      - throw123123123 5y ago
        Would you pay 1 mill dollars of debt on a 500k house?
        toomuchtodo 5y ago
        In certain circumstances, absolutely (if rent payments would be higher than the mortgage payments over the holding period, or if the value of the property would accelerate past the mortgage balance during the holding period).
        throw123123123 5y ago
        You are only locking yourself with a loss here, and the price is 500k. Just look at default rates of underwater properties to see how the masses react.
        deleted 5y ago
        [deleted]
- brutus1213 5y ago
  Interesting counterpoint .. you are right .. why would I lend you a dollar if I expect it to be worth a lot less in the future. Any data to go with this assertion? In Canada, average mortgages are just for 5 years - this is very different than the US. I suspect banks are taking very little risk in such a scheme. In the US, I believe banks sell mortgages off/get insurance via govt. schemes.
  - throw123123123 5y ago
    high inflation countries have low credit. Argentina hasn't had private mortgages in decades (minus a little summer).

granshaw 5y ago

https://www.lynalden.com/inflation/ https://www.lynalden.com/inflation/

paulpauper 5y ago

Stocks, real estate are the best imho. Crypto has too much volatility, low correlation. BTC fell in half. not a reliable hedge.

adventured 5y ago
Stocks are vastly superior to real-estate. Businesses with reliable growth and some pricing power. The S&P500 has generated approximately a 266% return in the past 20 years (ex any dividends). The average home sale price has climbed by just under 100% in that time. Real-estate will nail you annually on property taxes (although not in every state) and you have to maintain it (let's assume a best case and you own it without a mortgage). You can sit on a stock you bought for a decade, not sell it, let it appreciate by a lot, and incur zero taxes on the holding the entire time. The average US house incurs ~$2,500 in property taxes each year (a painful expense across a decade). And you have to out that cash every year. If for any reason you can't come up with the taxes, they seize your property; that doesn't happen with a stock holding. The government doesn't care if the real-estate is going up in value or not, they want their property taxes. At least if your equities don't go up, you owe nothing when you sell. Equity trades also have zero commission now in most cases - you can sell a million dollars worth of stock at zero commission; you can't do anything remotely like that in most cases with real-estate. Most real-estate struggles just to keep up with inflation. Average home sale prices haven't managed to outrun the cost inflation in average new car sales in the past 20 years. You're probably as well off sitting on gold ETFs like GLD or IAU as you are typical real-estate as an inflation hedge (IAU only has a 0.25% management fee, far lower than the typical real-estate property tax). In most states your real-estate will also suffer a persistently climbing tax basis if you're lucky enough to see value gains; and local governments love to increase property taxes whenever they can. And last but not least, in most cases you can click a button and liquidate your stock holdings in a matter of seconds or minutes with near zero hassle. Obviously that equation changes if you're an experienced, competent property manager and you can get a healthy yield from your real-estate; however that's a serious job, with an enormous time/effort/labor/legal/mental burden, not a low-effort side task (much less a near zero effort task like sitting on the S&P index).
- 5y ago

loonster 5y ago

A fully owned business that could run with 0 employees (other than yourself and immediate family).