Author Topic: A fantastic analysis of the looming hyperinflation, the what and the how  (Read 10708 times)

Offline “Mark”

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Gonzalo Lira talks about the current giant bubble in treasuries, what will happen when it pops (commodities sky rocket), how the government will react, and how hyperinflation will result.

He also talks about what the opportunities will be like for those who prepared: e.g. an apartment for a junk car, 100,000% returns on stocks bought after the collapse, etc.

http://gonzalolira.blogspot.com/2010/08/hyperinflation-part-ii-what-it-will.html

Tommy Jefferson

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #1 on: September 06, 2010, 06:47:59 AM »
Holy Wow Cow.  I have been studying economics for 25 years since I took my first "guns versus butter" class at university in the 80's.   I've been an Austrian since 2004.  This guy summed up all my sneaking suspicions and vague beliefs in a single blogpost.

I know I should cash out my 401K stock market retirement account and buy as much $1,250 per ounce gold as I can get my hands on, but for the life of me I cannot bring myself to do it.

I'm going to read this blog post several more times.  I will hammer on it to see if I can find any holes.



Offline “Mark”

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #2 on: September 06, 2010, 04:58:15 PM »
Once your realize that hyper inflation is mathematically inevitable, because politicians loathe to cut entitlements, you know it will happen. Politicians aren't going to evolve that quickly -- instead they'll print money to fulfill the entitlements.

Weill your 401K be worthless? No. If the underlying equities don't go bankrupt, they'll maintain some value. Will you lose a huge amount? Yes.

Instead of gold, I would look at silver. Silver is a better play for a few reasons.
  • Gold is at its all time high. Silver is 70% below its all time high.
  • The historical gold-silver ratio is out of whack. Gold should be worth about 17 times silver. But it's closer to 60 times right now. Silver is undervalued in comparison.
  • Silver is an industrial metal. When the economy recovers, industrial demand will boost silver higher. It's not just an inflation hedge.
  • The available silver inventories are smaller than the available gold inventories. This makes silver more volatile. When the hyperinflation bubble in precious metals occur, the returns on silver will be a multiple of that of gold.

Silver should be going for $50/oz right now based on the ratio.

Gold will need to be over $8000/oz in current terms when fiat currency becomes worthless. Ignoring the slingshot effect, the ratio alone means silver should end up being worth about $500/oz.

Stuff to think about, anyway.

Offline phuttan

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #3 on: September 06, 2010, 07:25:11 PM »
I'm not an economist but this is definitely an interesting read. Thanks.

Pat

Offline LvsChant

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #4 on: September 07, 2010, 05:46:31 PM »
How much should be held in dollars, then? If, as often recommended, a person holds a certain amount of assets in precious metals, stores food, reduces debt, grows a garden, owns land, should a prudent person also hold some amount of assets in dollars? Or some other currency? Or only in metals? without being able to predict how things will go, it is very hard to decide how best to preserve savings...

Offline A Pawn

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After “It’s” over, what then?
« Reply #5 on: September 07, 2010, 06:27:52 PM »
A few days ago I came across the blog of a gentleman named Gonzalo Lira. The blog can be found here: http://gonzalolira.blogspot.com/

In both the first and follow up postings he described what Hyperinflation is as compared to normal inflation and how Hyperinflation might be triggered. The postings can be found here:

http://gonzalolira.blogspot.com/2010/08/how-hyperinflation-will-happen.html
http://gonzalolira.blogspot.com/2010/08/hyperinflation-part-ii-what-it-will.html

There was one event he described that got me to thinking.

He wrote about a friend who managed the account of an old gentleman from Chile who came through the Chilean Hyperinflation of the 1970’s. It seems he came into $3000 dollars from the estate of an American relative. Since it was not really enough to get him out of Chile to start over, he took it down to the Chilean stock market and at the bottom of the crisis bought good solid stocks of companies that had yet been taken over by the socialist government.
In the end he made a fortune because the Chilean Military staged a Coup and the market took off. The gentleman is now worth millions.

I got to thinking and I ask this question. When the bad times are over and things get back to a ‘new’ normal…what then? Go back to working from paycheck to paycheck? Living off my homestead and spending the rest of my life living like my grandparents?

Some of you (and a part of me) think that may not be bad at all. But what if I (or you) wanted more?

I’d like to start a discussion here about what to do with the precious metals and other valuable goods that we don’t barter away living through the bad times.  When the new (hopefully Gold back) money is issued and faith is restored in it.
What stocks would you invest in at the bottom and hold till times are better? I’m not talking about putting all your assets in the market. Just a percent or two at the bottom and gamble that it will be worth a great deal after the bad times.

I’m looking for ideas. If you have any…let me hear it!

Offline LvsChant

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #6 on: September 07, 2010, 07:25:02 PM »
Same article... topics merged.

Offline ncjeeper

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #7 on: September 07, 2010, 07:50:41 PM »
 :popcorn:

Offline BatonRouge Bill

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #8 on: September 07, 2010, 08:04:27 PM »
 :popcorn: me too!

Tommy Jefferson

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #9 on: September 08, 2010, 07:49:58 AM »
Instead of gold, I would look at silver. Silver is a better play for a few reasons.

Thank you for the silver play advice Mark.  I don't follow the markets, so I'm not up on the latest thinking.

Last night I watched a Biography Channel show about Augusto Pinochet.  If you see this coming up on your TV schedule, DVR it.  They had 70% leftists saying Pinochet's implementation of Milton Friedman's ideas caused suffering, but balanced it with 30% of stuffy old brits saying his move toward free-market policies improved things.

endurance

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #10 on: September 08, 2010, 08:11:57 AM »
I can only take out a 5 or 15 year loan on my retirement and given that the "safest" investment I have available is T-bills, I decided the money was safest out of the market in the form of a loan with a fixed rate that I'm actually paying back to myself.  I know it's a gamble with its own risks, but I have the ability to repay it at any time and since I can't get it out any other way, I figure it's better than doing nothing.

I have a decent hedge of gold and silver, but what I really want is a greater investment in water collection and storage, food production, and energy collection and storage.  Those costs are absolutely going to rise over the next five to ten years.  It's the best sure bet I've ever seen.

My goals for the next five years are:
100% electrical independence through photovoltaics (ideally with a surplus to sell back, but off grid capable)
75% heating energy independent through solar hot water and wood
50% food independence through gardening and permaculture with a longterm goal of 60-75% as trees mature

Tommy Jefferson

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Re: After “It’s” over, what then?
« Reply #11 on: September 08, 2010, 08:17:12 AM »
What stocks would you invest in at the bottom and hold till times are better?

What I got from the article was:

Buy "Consumable Commodities" like petroleum and agriculture going into the crisis.  

Buy "Hard Assets" like land coming out of the crisis.

Somebody correct me if I misunderstood, but I think the guy is saying that commodities drop in price at first because of economic slowdown decreases demand, then skyrocket because they aren't being produced due to lack of demand caused by the crisis.  

When commodities skyrocket, hard assets drop in price as people liquidate them (oversupply) to purchase commodities.  Then when price return to "normal", you bought low and can sell high.

Is that what you guys got?

I've been doing some reading on the economic crises in Brazil, Argentina, and Chile.  Each is unique in significant ways, but they seem to share some features:

* They got rid of the old "dollar" and replaced it with a new "dollar".  Think about what they did when converting to the Euro.  Cruzado to "New Cruzado", etc.   This forces holders of hard assets to run them through the system for revaluation to the new currency (government theft).  To see what this is like, take your most recent investment statement and lop a couple of zero off the end of your balance.

* Price and wage controls cause physical shortages.  Remember how staunch "conservatives" you know in person and on Facebook were demanding the Gov cap gasoline prices a couple of years ago when they couldn't feed their 4x4 double-cab Dodge?)  Extend that to food, rent, lumber, everything.

* Local "economic boards" use the new economic laws to rip off everyone via prosecution for "black marketeering".  Imagine your local City Council scumbags with 1,000 time more power to send cops to your business and employing your neighbors as a "citizen's watch" to report you.  Kindly old retired Mr. Jones across the street now works part-time for the "Economic Fairness Board".  He threatens to report your egg selling if you don't give him a cut.

These aren't suppositions.  These are things which DID happened.  They are so common as to be guaranteed to happen when we crash.

Offline BatonRouge Bill

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #12 on: September 08, 2010, 08:00:56 PM »
How can you use your 401k to buy silver???

Offline C.J.

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How Hyperinflation Will Happen
« Reply #13 on: September 21, 2010, 03:30:29 PM »
This is one of the best articles I have ever read on this subject. The author puts everything in simple, easy to understand terminology and outlines EXACTLY the causes of the economic mess we are in. A must read!!

http://gonzalolira.blogspot.com/2010/08/how-hyperinflation-will-happen.html

Part 2:  http://gonzalolira.blogspot.com/2010/08/hyperinflation-part-ii-what-it-will.html

Offline LvsChant

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #14 on: September 21, 2010, 03:37:56 PM »
Merged... duplicate link. I really like this blog, too. He has some really amazing articles.

LvsChant

Offline C.J.

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #15 on: September 21, 2010, 03:52:18 PM »
Merged... duplicate link. I really like this blog, too. He has some really amazing articles.

LvsChant

Thanks and sorry! I'm new and still learning around here :)

Offline LvsChant

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #16 on: September 21, 2010, 08:32:01 PM »
No problem, C.J.! It happens all the time around here... as Jack often mentions on the podcast, it is often true that several forum members and podcast listeners are in sync with each other...

I have gone back several times to gonzalo lira's blog since reading the link Mark posted... he always has good stuff. He also apparently has had at least one article posted on Lew Rockwell.com.

Offline chrisdfw

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #17 on: September 24, 2010, 04:16:33 PM »
How can you use your 401k to buy silver???

Take the money out of take a loan....

but if you have an old 401k you can roll it into an IRA and invest the IRA into silver.

Offline akdentist

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #18 on: December 27, 2010, 10:07:37 PM »
Recently, Gonzola Lira had a webinar on how to prepare and take advantage of the hyper-inflation event on the horizon.  It was well worth the $75 and the 3 hours of my time to listen in.  The webinar basically outlined all the counties that have experienced a hyper-inflation event, what caused it and how it ended.  The causes:  war, socialist mismanagement or debt.  And since war and socialist mismanagement cause debt, over-indebtedness is the root cause of hyper-inflation.  Well, since the US has basically been on a war footing since 1941 and began our socialist mismanagement even earlier, and factoring in the recent decade of 2 shooting wars, the increase in people on welfare, food stamps, medicaid, SCHIP, etc.  It is a wonder that we have not already had our hyper-inflation. 

Okay, in the middle, he describes what transpires in countries that are going through it.  Basically, it is chaos, short lived and in the end, a strongman dictator assumes control and a new currency is introduced. 

His plan is to invest in silver, and there was quite a discussion on this, including selling your home, or if you can't sell it, then refinance it with the lowest payment possible.  Another tangent to this was refinancing it and taking out all the equity and investing that in silver and he and the host both admitted this was a ballsy move.  Anyway, the next step would be to sell the silver when it hits the peak of the bubble created when everyone and their brothers are all moving to silver.  It WILL BE OVER-VALUED at that point.  At the same time, most assets will be way under-valued.  Then sell your silver and convert to blue chip stocks and real estate.  Live happily ever after. 

He did not think much of storing food.  I thought that was interesting, but since he seemed not to own a home, perhaps he wants to be mobile.  From reading his blogs and listening to him on other shows, it seems he has assets around the world ready to take advantage of this when it occurs.

Any thoughts on what to invest in should be shared.  Personally, I think companies that make the things we use every day will be dragged down with the rest, but the underlying companies will be healthy and a good buy.  Also farm companies, like John Deehr, will also do well as the price of commodities will go higher and farmers will use their new wealth to upgrade and replace equipment.  Farmers are practical like that.  Financial sector companies should be avoided.

Cheers.

Offline LvsChant

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #19 on: December 28, 2010, 01:22:08 PM »
+1 for sharing info. about the webinar, akdentist. I was wondering about the webinar. Didn't spend the $75 to listen in, but wondered, nonetheless.

So... he basically thinks silver still has a great deal of movement upward before it peaks? The move to putting so much into silver on the gamble does seem very risky to me. That being said, I am interested in ideas from folks like him about where we are headed.

Offline akdentist

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #20 on: January 08, 2011, 03:12:21 AM »
The $75 was cheap.  Right now, besides all the usual preps, my biggest prep is the gathering of knowledge.  Peter Schiff is a great source of information on all things economic and his new radio show is being pod-casted for about $5 a month.  He has tons of guests and is a wealth of information.  Have read several books on the economy, including Meltdown, Aftershock, Crashproof, and How and Economy Grows and Why it Crashes.  There are many lines of agreement among those regarding investing in gold, silver and oil.  They all agree that there is going to be hyperinflation. 

Then there is Harry S. Dent, Jr and his book The Great Depression Ahead.  Seems to me he thinks everyone ought to sell everything and hold cash to hedge against Deflation.  But I think that Gonzolo Lira has done the research of history that indicates that no country with a fiat currency has ever let it deflate. 

Am really considering being a ballsy investor....

Cheers.

Offline Mastoo

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #21 on: January 08, 2011, 10:55:51 AM »
Am really considering being a ballsy investor....

By ballsy investor, you mean keeping your life savings in paper and hoping that the gubment has your best interest as its primary concern?  Or did you mean buying something that has a couple thousands years of acting as a means of storing wealth?  hehe, risk would seem to be in the eye of the beholder.

endurance

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #22 on: January 09, 2011, 08:13:38 AM »
I liked Crashproof and it's clear the guy has his ear to the ground and can hear the trouble coming.  However, if you look at his performance through the crash, he missed the mark.  Too much of his strategy is buying foreign debt.  Given the past year, I think more defaults will be inevitable.  I'd much rather invest in the tangible; things that eliminate or reduce future expenses or can be readily converted to cash later on.  While precious metals have their place, so do economical used cars, surplus food, homemade wood stoves, and the capacity to make your own alcohol.

Offline akdentist

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #23 on: January 11, 2011, 10:47:54 PM »
By ballsy investor, you mean keeping your life savings in paper and hoping that the gubment has your best interest as its primary concern?  Or did you mean buying something that has a couple thousands years of acting as a means of storing wealth?  hehe, risk would seem to be in the eye of the beholder.
Meaning refinance my home and invest the equity in PM.  What is the worst that can happen?  I lose my home.  But if silver continues to climb... it could be a good move.  I guess it all depends on how much of a gambler I am.  I could refinance my home, extend the payments and lower my mortgage payment and pull out a lot of money to reinvest. 

Need to sleep on this one for a few more nights.

Offline akdentist

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Re: A fantastic analysis of the looming hyperinflation, the what and the how
« Reply #24 on: January 11, 2011, 10:51:58 PM »
I liked Crashproof and it's clear the guy has his ear to the ground and can hear the trouble coming.  However, if you look at his performance through the crash, he missed the mark.  Too much of his strategy is buying foreign debt.  Given the past year, I think more defaults will be inevitable.  I'd much rather invest in the tangible; things that eliminate or reduce future expenses or can be readily converted to cash later on.  While precious metals have their place, so do economical used cars, surplus food, homemade wood stoves, and the capacity to make your own alcohol.

Peter Schiff really understands what is happening with monetary supply and deficit spending.  That being said, I think you are right that he does not see everything.  Read all the books that I listed in a previous post and you will get a well rounded look at the dynamics that will be shaping the future.  Also, check out Chris Martensen's Crash Course.  Also, I think Gonzolo Lira has good insights.  In the end, I think all of them have parts of it right, but only time will tell how it all plays out.