Hyperinflation

Hyperinflation refers to out of control or extremely rapid inflation, where prices increase so quickly that the concept of real inflation becomes meaningless. The classical definition of hyperinflation is inflation greater than 50% per month. Recently, Argentina, Brazil and Peru (1989-90) all experienced hyperinflation. Perhaps the most well known example of hyperinflation occurred in Germany from 1922-1923 where the average price for all goods and services increased 20 billion times. Prices doubled every 28 hours for 20 months! Some Germans were seen carrying cash in wheelbarrows to buy a loaf of bread.

Hyperinflation often occurs during periods of economic depression where there is a large increase in the money supply that cannot be supported by economic growth. It can also occur during periods of war where there is a loss of confidence in a country’s currency to maintain its value after the war is over.

Hyperinflation Trading Strategies

• When an investor expects inflation, buy companies that sell or produce gold, as well as other commodities, since tangible assets will increase in price with the rate of inflation. Today, the world’s largest producer of gold is Barrick Gold (ABX)
• Buy physical Gold Bullion coins or bars and keep it at home. In times of Hyperinflation, banks may fail or be closed for “holiday”. Having gold in your hand can buy just about anything when cash becomes worthless.
• Invest in large companies who can easily adjust prices higher in the wake of inflationary times.
• Buy Treasury Inflation-Protected Securities (TIPS) and other inflation protected investment vehicles.
• Buy Real Estate Investment Trusts (REITs) becuase real estate will also rise in value as other prices rise.