If you assume that inflation is accompanied by a weak dollar (not an unreasonable assumption), EURUSD should perform, if you also assume Mr Trichet is as hard as they say.
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Inflation Hedge Question - is there a way to "go long" the CPI?
- Thread starter bettles
- Start date
Quote from makloda:
Even if the EUR declines 30% the US CPI could well be positive over the next 10 years. One could even argue they're somewhat uncorrelated. How does that make the EUR a good hedge?
It was kind of a (silly) joke that Europe would persue a hard currency policy in times of global currency devaluation obviously.
If we can take history as a guide anyway.
Still, some kind of exposure to foreign currency could be wise.
I read how when FDR devalued the $ and banned gold those with their money in foreign currency did quite well fwiw.
Quote from pathus21:
What about just picking up RTP/BHP/PTR commodities stocks themselves that are also diversified away from the dollar?
I may include some of these in my portfolio. However, I don't think it is a no-brainer that just because the US has big inflation, the dollar has to go down. I think the inflation is likely to occur globally, since most other countries are in pretty much the same shape as the US. I won't try to guess which country will inflate faster, only that there will be significant inflation.
Bettles
Quote from makloda:
The best hedge against high or hyperinflation I can think of is a basket of 3-4 trendfollowing CTA funds with 10+ year trackrecords. They will benefit from high asset price volatility and give you leveraged exposure to currency/commodity/interest rate swings.
If however the entire inflation scare is a headfake then these funds should preserve your nominal capital better than long only commodity/metal/TIP bond investments (see 2008 for a beautiful example).
Unless you live in a tax haven, anything that generates taxable profits each year is a poor hedge against hyperinflation. If prices rise 100-fold, your 110 fold profit becomes only 66-fold, assuming 40% taxation. Thus you lose 34% despite a decent nominal performance. And that's before fees, which are charged on nominal, not real performance. 4-5 years of that and you have almost nothing left. There's also the problem of capital controls and regulation, which almost always accompany hyperinflation.
TIPS are also risky because in a hyperinflation they will probably be defaulted on and converted into nominal debt obligations.
I suspect the best hedge against hyperinflation is to own a basket of currencies in countries that don't hyperinflate. These also have the advantage of not collapsing massively if the inflation scare is a false alarm. In the unlikely event of a co-ordinated global hyperinflation, gold would probably be best. You need your capital (and preferably your person) out of the hyperinflating country, and should "buy & hold" non-hyperinflating currency/assets until PPP values in the hyperinflating country become absurdly cheap and/or steps are taken to stop the inflation for good.
Quote from bettles:
I may include some of these in my portfolio. However, I don't think it is a no-brainer that just because the US has big inflation, the dollar has to go down. I think the inflation is likely to occur globally, since most other countries are in pretty much the same shape as the US. I won't try to guess which country will inflate faster, only that there will be significant inflation.
Bettles
What about Global Commodity ETFS/Underlying Products. If you are long the global commodities you won't have to worry about what the individual currencies are doing.