Say you are Nassim Taleb and hyperinflation hits

[Misthos]

Always think of the bright side of life

 

[Martinghoul]

Quote from Misthos:

You're being sarcastic, right? This is quite un-MartinG of you.

Sorry to disappoint you, Misthos... I'll try to stay serious from now on .

BTW, you guys might be interested to know that, in general, the mkt has been falling a bit out of love with the whole hyperinflation story. TIPS and inflation swaps can't find a decent bid, all of a sudden. Might be a temporary phenomenon, of course, but fwiw.

 

[loza]

This is nothing new, it happened in history and will happen again.
1) the Gummint will issue coupons/per families to buy essencials gas/ food
2) national guard will patrol the street so no mad max scenarios at least not in my mind.
3) all other activities will be conducted in silver, gold chains/coins. canned food and other goods.
eventually they will stabilize the currency by issuing a new one
I do not see this happen anytime soon but when it will it will also go away....stop shitting in your pants, children....

Quote from milktruck:

Say you are Nassim Taleb and hyperinflation hits. You have some super out of the money calls on commodities, equities (???) etc that are now in the money and your fat tail trade has paid off huge in nominal terms.

Supposing we arent all defending our pantry with our rifle at this point and contract law is intact, where do you then put all of the toilet paper dollars your trading account now has in it via the call options? Do you think you will be able to withdraw this money and buy land/precious metals? Do you buy foreign bonds, shares of businesses that can survive currency regime change?

This strategy of preparing for outlier events makes me wonder if the fat tail event will render your trading account and the currency it is denominated in worthless anyways. And holding options when the SHTF really puts a lot of faith in contract law and the government not confiscating whatever they can.

Anyways been turning this over in my head for a few days since the near-failed 30 year auction, any thoughts are appreciated. Please keep gold bug rants on topic, everybody knows that position by now and I know this topic is in the danger zone for those type of tangents...

 

[Kassz007]

Quote from Martinghoul:


BTW, you guys might be interested to know that, in general, the mkt has been falling a bit out of love with the whole hyperinflation story. TIPS and inflation swaps can't find a decent bid, all of a sudden. Might be a temporary phenomenon, of course, but fwiw.

Personally, I am not even seeing signs of inflation let alone HYPER-inflation. Just goes to show how serious the deflation risk is/was. All of the money pumping - just to avoid deflation.

 

[crgarcia]

Quote from milktruck:

Say you are Nassim Taleb and hyperinflation hits. You have some super out of the money calls on commodities, equities (???) etc that are now in the money and your fat tail trade has paid off huge in nominal terms.

Supposing we arent all defending our pantry with our rifle at this point and contract law is intact, where do you then put all of the toilet paper dollars your trading account now has in it via the call options? Do you think you will be able to withdraw this money and buy land/precious metals? Do you buy foreign bonds, shares of businesses that can survive currency regime change?

This strategy of preparing for outlier events makes me wonder if the fat tail event will render your trading account and the currency it is denominated in worthless anyways. And holding options when the SHTF really puts a lot of faith in contract law and the government not confiscating whatever they can.

Anyways been turning this over in my head for a few days since the near-failed 30 year auction, any thoughts are appreciated. Please keep gold bug rants on topic, everybody knows that position by now and I know this topic is in the danger zone for those type of tangents...

There will never be completely worthless currencies.

Say inflation shoots 500% during 5 years (100% price increases per year for 5 years), hyperinflation indeed.

Yet your OTM options yielded 3000%, you beat the hyperinflation.

 

[Misthos]

Quote from milktruck:

Thanks for the link. I was there too actually as an exchange student. I remember people trying like hell to buy land, etc but not being able because either the owner wasnt selling or they were foolishly trying to get a loan in that environment. And dollars got you a 20% discount in retail stores. "I have a foreign bank account" was the best pick up line ever...

Interesting point about the US dollar's value and role in Argentina. I read about the same thing happening in Zimbabwe, that US Dollars functioned as a gold standard of sorts. Obviously, the real thing - gold, was mined and pannned by many people in order to buy bread as well.

But here's my concern. Should the US experience a hyperinflation of sorts, what type of foreign currency could function as a "gold standard?" I've travelled abroad enough to notice that many people have access to dollars and other currencies. In the US, we are rather isolated from other currencies. I think only 5% of the population even has a passport.

So assuming arguendo hyperinflation hits in the US - what would/could become a secondary currency? Is it even possible when your currency is the world's reserve currency?

 

[KINGOFSHORTS]

I am long equities. When you start getting, 100,000 dollar dividends per share you can at least afford the 30,000 dollar loaf of bread.

Gold does not pay dividends, once you sell it off your done. But with good stock, and dividends growing, those 10 billion dollar dividend checks will save the day.

 

[Misthos]

Quote from crgarcia:

There will never be completely worthless currencies.

I don't know. Zimbabwe went pretty damn close. I own a few 100 billion dollar Zimbabwe notes. I read they got as far as a 100 trillion dollar note, rendering the 100B quite worthless in no time.

By the way, my 100 billion dollar Z notes cost me $3.79 each - I wonder if I could break them into smaller bills. Now that's one big wallet I would need.

 

[milktruck]

Quote from Misthos:

Interesting point about the US dollar's value and role in Argentina. I read about the same thing happening in Zimbabwe, that US Dollars functioned as a gold standard of sorts. Obviously, the real thing - gold, was mined and pannned by many people in order to buy bread as well.

But here's my concern. Should the US experience a hyperinflation of sorts, what type of foreign currency could function as a "gold standard?" I've travelled abroad enough to notice that many people have access to dollars and other currencies. In the US, we are rather isolated from other currencies. I think only 5% of the population even has a passport.

So assuming arguendo hyperinflation hits in the US - what would/could become a secondary currency? Is it even possible when your currency is the world's reserve currency?

Yeah thats what Im thinking about. What is the preferred store of value when the world reserve currency must be significantly devalued. It doesnt have to be hyperinflation even. In Arg the depegging of the peso made it go from 1:1 to 2.5:1 overnight and it bottomed around 4:1. The effect wasnt as profound as hyperinflation but it royally sucked for peso holders. Accounts previously interchangeable between dollars and pesos were declared to be in pesos and it was impossible to withdraw anyways.

In a moderate (relative to weimar) scenario like this, I like equities, especially with intl exposure, alot for the cash flows. As long as the devaluation isnt disorderly and make normal goods immediately unaffordble, which is where SHTF in my opinion. And I imagine the call contracts would be honored and mr Taleb would make out alright.

I think TIPS holders will be moderately screwed since adjustments are based on govt inflation stats. Arg inflation stats are so ridiculously understated by the govt its a complete joke.

 

[Ghost of Cutten]

Quote from Martinghoul:



BTW, you guys might be interested to know that, in general, the mkt has been falling a bit out of love with the whole hyperinflation story. TIPS and inflation swaps can't find a decent bid, all of a sudden. Might be a temporary phenomenon, of course, but fwiw.

OP was asking how to profit/survive in a financial meltdown scenario, not for inflation predictions.

Avoiding the fallout of economic collapse is an important skill for anyone who lives outside the 1st world, and sometimes for people in it (see: Iceland). If you knew anyone well who had gone through that kind of experience, you would understand.