Inflation Hedge Question - is there a way to "go long" the CPI?

Discussion in 'Economics' started by bettles, Apr 26, 2009.

  1. If you assume that inflation is accompanied by a weak dollar (not an unreasonable assumption), EURUSD should perform, if you also assume Mr Trichet is as hard as they say.
    #31     Apr 27, 2009
  2. It was kind of a (silly) joke that Europe would persue a hard currency policy in times of global currency devaluation obviously.

    If we can take history as a guide anyway.

    Still, some kind of exposure to foreign currency could be wise.

    I read how when FDR devalued the $ and banned gold those with their money in foreign currency did quite well fwiw.
    #32     Apr 27, 2009
  3. bettles


    Thanks for the responses. I'm definitely going to look into getting TIPS exposure in my retirement account. Already have exposure to gold and energy.

    #33     Apr 28, 2009
  4. pathus21


    What about just picking up RTP/BHP/PTR commodities stocks themselves that are also diversified away from the dollar?
    #34     Apr 28, 2009
  5. bettles


    I may include some of these in my portfolio. However, I don't think it is a no-brainer that just because the US has big inflation, the dollar has to go down. I think the inflation is likely to occur globally, since most other countries are in pretty much the same shape as the US. I won't try to guess which country will inflate faster, only that there will be significant inflation.

    #35     Apr 29, 2009
  6. buy some farmland, solar panels and a gun - you can create your own food and energy
    #36     Apr 29, 2009
  7. Cutten


    Unless you live in a tax haven, anything that generates taxable profits each year is a poor hedge against hyperinflation. If prices rise 100-fold, your 110 fold profit becomes only 66-fold, assuming 40% taxation. Thus you lose 34% despite a decent nominal performance. And that's before fees, which are charged on nominal, not real performance. 4-5 years of that and you have almost nothing left. There's also the problem of capital controls and regulation, which almost always accompany hyperinflation.

    TIPS are also risky because in a hyperinflation they will probably be defaulted on and converted into nominal debt obligations.

    I suspect the best hedge against hyperinflation is to own a basket of currencies in countries that don't hyperinflate. These also have the advantage of not collapsing massively if the inflation scare is a false alarm. In the unlikely event of a co-ordinated global hyperinflation, gold would probably be best. You need your capital (and preferably your person) out of the hyperinflating country, and should "buy & hold" non-hyperinflating currency/assets until PPP values in the hyperinflating country become absurdly cheap and/or steps are taken to stop the inflation for good.
    #37     Apr 30, 2009
  8. pathus21


    What about Global Commodity ETFS/Underlying Products. If you are long the global commodities you won't have to worry about what the individual currencies are doing.
    #38     May 1, 2009