Understanding Stocks During Hyperinflation

Hyperinflation is not the end of the world, it is the end of a fiat currency. Currently, the U.S. faces systemic risk due to our demographics, rising costs of government, and out of control deficits. The likelihood of a severe downturn and currency crisis, in our opinion, is extremely high in the next 1-5 years. encourages all of its members to be prepared for the worst. However, remember in times of crisis, the rich get richer and the poor get poorer. So, it is important that you do not act or think like a poor person.
Don’t look to the government for help, don’t assume the government is going to take care of you now or in the future. Avoid mainstream investments like the plague and never follow the crowd into a buying frenzy or a selling panic.
Also, start asking yourself what did the rich do in previous times of crisis to get richer?
Over the next few weeks, will analyze 4 modern economic downturns, Germany-1920’s, United States-1930’s, United States-1970’s, and Zimbabwe-2000’s.
The Stock Market Vs. Fiat Currency
Many people will make the mistake of going to all cash over the years to come, they will feel safe, nominally they will even think that they haven’t lost a penny. Yet, fiat currency is backed by nothing more than perception, the perception that the government says it has value, therefore, the people treat it as something with value.
Stocks are also valued by perception, only they are also backed by something real. For example, an energy company is backed by resources in the ground, equipment, manpower, and the business itself. As Charles Biderman has noted in his research, it’s all about liquidity. Take a small micro-cap for example, it doesn’t matter how great a story they have, with no volume the price doesn’t move.
During times of hyperinflation, times are tough for societies, yet there is a lot of liquidity.
During Zimbabwe’s recent experience with hyperinflation, prices literally more than doubled everyday for food and fuel. The economy was in shambles (still is) and the stock market rallied!
Kind of hard for most people to wrap their heads around since they have been conditioned to believe that our stock market reflects our economy or even somehow that it is forecasting our economic growth. The idea that the market forecasts anything is nonsense put out by the mainstream media, who could forget Dow 14,000 October 2007.
The market is reacting to liquidity, and liquidity comes from either real growth or the federal reserve. It doesn’t matter to the market where this liquidity comes from, this is important since most who think we are headed into a depression also think the market will collapse. Can it, yes. In fact, we would put the odds at just over 50% of seeing a major market downturn in the next 18 months, however, timing it is literally impossible since any market collapse will be a product of the FED attempting to tee up its next big wave of printing.
We know the money printers are going to print, we know that Bernanke has said deflation is what he is fighting, and that he has vowed to never allow another depression to happen, especially on his watch as he is a media-described expert on the great depression. believes that from 2012-2025 Americans will enter a time of higher prices, lower wages, and an economy that ‘feels’ like it is in a recession despite economic indicators that will all be inflated from the money printers. Markets will be volatile, gold WILL SEE multi-hundred up and down days, especially once gold breaks the $2,000 level and moves past $2,600 in the months to follow.
The Dow Jones may see 6,000, however, it won’t be long until it sees 60,000, and then 600,000.
Our main point in part one of this article is to forget about the economy when thinking about stocks, focus on the liquidity in the market itself.
Please take the time to watch this short 3 minutes video to get a clearer picture of what we are seeing for the future of global stock exchanges.
The video is from January 2008 and shows a struggling Zimbabwe economy as stocks make record highs daily.
We are NOT saying that it’s just going to be a straight line up, especially in the beginning, as the currency crisis escalates. In order to get rich during a time of crisis, you have to be able to stay the trade, stomach the volatility, and hold to your convictions.
A good example of this is two of our favorite investments, silver and oil, both of which we believe have peaked in production growth and have a tight supply. In the past several years oil has gone from $30-$147, back to $30 and is currently at just over $100 per barrel. Silver has had the same volatility, up to $21, down to $9, up to $49, and is currently trading for just over $30 per ounce.

Look for further updates on why the rich get richer during times of crisis next week!