The most important factor in a hyper-inflationary scenario is knowing when it will occur. HI crushes institutions which operate using debt. If a bank thinks they are entering a HI period (although there is not much they can do), they aren’t going to give you a great deal.
Assuming you have foreseen HI, the most straight-forward means of making money is by purchasing hard-assets through debt. This could mean:
• Highly leveraged REITs - the value of the debt will be eradicated leaving you with a portfolio of assets
• Highly leveraged mining companies - the value of mining companies should increase significantly in response to hyperinflation while the debt would be eroded. This is a very risky option, as it involves a lot of market timing. Timing that the HI will erode the value of the debt at the same time the prices reaches its apex. But if you got it right… it could be immensely profitable.
• Highly leveraged farmland - Farmland is liquid gold. It will always retain value, because we need it to survive.
An important thing to remember is that the assets must retain their intrinsic value. This is especially important in a disruptive environment such as the one we live in today.
e.g. If you were to buy a highly leveraged railroad company during HI… one which transported coal, copper, cobalt, lithium and other important commodities…that would be the perfect HI investment. But today, driverless trucks threaten to disrupt railroad companies.
What was a hard asset yesterday… is not always a hard asset today
If you are predicting a doomsday scenario, it is important to take into account depreciation of assets…
If you own a farmland adjacent to a town, it is very likely people will scavenge your farm as the supply of resources becomes quite thin.
Also, it would be important to retain some form of stealth-wealth as people would likely become very resentful at your financial successes. Hyper-inflation is tragic because it distributes wealth very rapidly and very unevenly meaning that some people become insanely rich and others are wiped out…
The biggest losers in a HI scenario are people with savings and those fully-invested in debt-instruments. In order to protect your downside, avoid all forms of cash and bonds - their value will be wiped out fast!
But before you do any of this… its important to recognise that HI does not simply occur, it occurs in very certain political conditions.
Hanke and Kraus wrote a report on HI. They recalled 56 episodes of hyperinflation since the beginning of the first WW.
They found a few interesting observations.
Hyperinflation is a modern phenomenon. Every instance of HI has occurred wince the beginning of the first world war.
Most times of hyperinflation occurred in historical clusters - central Europe after WW1, after WW2 and Eastern bloc countries after the collapse of the Soviet Union…
The main conclusion is… HI is the result of a political system on the brink of collapse.