A little economic history puzzle

Discussion in 'Economics' started by TimtheEnchanter, Nov 11, 2020.

  1. Does anyone know what happened to the stockmarket in Weimar Germany during hyperinflation?
     
  2. Google does
     
  3. Relentless

    Relentless

    It all ends very badly.

    Ride the horse 'till it dies.
     
    murray t turtle likes this.
  4. I googled and I got a bunch of contradictory shit...it seems people flocked into the markets (kind of like today), but eventually, it crashed...so I am buying canned beans and ammo.
     
    Relentless likes this.
  5. ZBZB

    ZBZB

    Last edited: Nov 11, 2020
  6. You might like this book "This Time Is Different: Eight Centuries of Financial Folly" covers a lot of these scenarios. There have been a lot more that I thought.
     
  7. maler

    maler

  8. https://www.businessinsider.com/her...g-the-german-hyperinflation-2011-11?r=US&IR=T

    Obviously it went up: several million % in mark terms. But it also doubled in USD terms, i.e. did better than inflation. Why?

    Economists answer: Assuming firms have pricing power, and PE ratios are fixed, stock prices should track price indices one to one. PE ratios are influenced by many things, but interest rates are important: lower real interest rates justify higher PE ratios and vice versa. Normally when inflation occurs you'd expect interest rates to go up to fight it, but they didnt: they were pegged at 5%. So real interest rates were insanely negative, hence stocks should have gone up.

    Traders answer: Well, even stocks that were a poor quality inflation hedge would still have been a much better investment than bonds or cash (I'd assume quite a bit of money would also have flowed offshore, although I don't know how strict capital controls were back).

    GAT
     
    TimtheEnchanter likes this.
  9. newwurldmn

    newwurldmn

    mckinsey did a study on the PE vs interest rate and came to the conclusion that lower rates don’t justify higher PE’s
     
    eternaldelight likes this.
  10. ZBZB

    ZBZB

    Mckinsey invest their own money, meant to outperform.
     
    #10     Nov 12, 2020