A Ticking Time Bomb
I’ve been extremely vocal over the past few years about the risk of the U.S. Dollar going into a hyperinflationary state. There is simply too much debt and reckless spending that isn’t stopping. Combine the former with ultralow interest rates and you have a dangerous cocktail brewing in the political big house.
But before we get into my rant about the Federal Government and the debt burden we all face, first a word from our sponsor…
Where to Invest $100,000 Right Now According to Experts
Today, investors face a dilemma. The global pandemic has completely disrupted markets. Nearly every firm from Goldman to BlackRock is projecting equity returns of less than 5% until 2035. And, bond yields can’t keep up with inflation.
Finding promising investments is harder than ever.
Recently, Bloomberg asked investment experts where they’d personally invest $100,000 right now. Their response? They overwhelmingly recommended alternatives like art.
Who am I to argue? I took their advice (and I don’t mean NFTs), and added real multimillion-dollar paintings to my portfolio.
This is why I’m bullish on art:
Contemporary art prices have appreciated 14% annually on average (1995-2020).
Wealthy collectors allocate 10–30% of their portfolios to art.
Lowest correlation to public equities of any major asset class, according to Citi.
But I didn’t have to buy entire paintings myself. That would’ve cost me tens, or even hundreds of millions.
I used Masterworks.io—the first and only tech platform that lets you invest in iconic art without needing millions. By securitizing works by artists like Warhol, Banksy, and Basquiat, everyone can be a bona fide art investor.
They just raised $110M at over a $1B valuation, so their future looks bright, to say the least.
Hyperinflation - the end game
The U.S. National Debt now stands over $28 trillion. This equates to a debt burden of $86,000 per citizen or $228,000 per tax payer. This is a major financial obligation that is staring us directly in the eyes.
Despite the obligation, the probability of the debt ever getting paid off is zilch.
Raising the debt ceiling is not paying off your bills. It is effectively the process of rolling over your credit card debt into another credit card with a higher limit. If the United States paid off its bills we wouldn't have $28 trillion in outstanding debt and a currency that has lost over 99% of its value since inception.
A high debt burden is just something we are going to have to live with. And if you position your portfolio correctly there are ways we can benefit from an over-levered nation.
To be clear, I’m guessing tensions over the debt ceiling will be the main focus of the market for the months to come. That and the supply chain issues.
Market prices will ebb and flow to however the debt ceiling discussions are going. But the likelihood of the U.S. not raising the debt ceiling is very low.
I don’t really care if the debt ceiling is raised or not. Because at this point it doesn’t really matter. What is the difference between $28 trillion in debt and $35 trillion in debt? When you are dealing in large numbers like this the end game is only one outcome: hyperinflation.
Because there is no way the U.S. Government ever pays off this debt. How can you raise taxes on $28 trillion in debt without upsetting populace? It’s not possible. The only way out of this outcome is keeping interest rates as low as possible and hyperinflating all of this away.
If interest rates start to move real inflation will kick in. Discount rates will rise and asset prices will go crazy. Anyone who owns fiat currency will feel the punch and the individuals who own assets that benefit during a hyperinflationary environment will benefit.
Eventually all of this debt will come due and policy makers are likely well aware of that. I am sure they are all positioning their portfolios to take advantage of this.
I have spent a lot of time thinking about what could happen to the United States if we ever hyperinflate. It is a scary thought.
During the Weimar Republic era after World War I food prices went to sky high levels. Ladies sold their bodies for food. If you got paid you spent it all right away because the next day it would become even more worthless. Anything that with scarcity had value. Debt obligations went to zero as the currency rapidly expanded.
I have tried to position my portfolio and personal assets to withstand a potential hyperinflationary environment. I mainly own companies with real assets that should appreciate during a state of hyperinflation. I have also started to acquire hard currency such as gold and cryptocurrencies.
And finally, I am looking to layer on some 30-year debt at historically low interest rates. If we do hyperinflate, a $1,000-2,500/month mortgage becomes almost nothing overnight. $250-500k personal debt obligation will go to zero. Then you have the asset behind that which should continue to appreciate in value over time.
One of my favorite books is Gone With The Wind. It is an incredible story of riches to rags and back to riches. One part that really stood out to me in Gone With The Wind is when the rich southern farmers lose all of their money because they held their wealth in Confederate currency that underwent a hyperinflationary state during the war.
After the war the ones who owned gold became extremely wealthy and in some cases were hunted down by the government so they could confiscate their wealth.
"I've made enough money, and it's in English banks and in gold. None of this worthless paper for me." - Rhett Butler, Gone With The Wind
The end game is simple to me. The U.S. fiat currency will eventually collapse and you will want to be holding a real asset than can’t be diluted into oblivion.
As Kuppy from Adventures in Capitalism stated so beautifully,
It’s not really an investment per se—It’s an escape from government imprudence. You don’t own gold because you expect it to do remarkable things—you own it because you are scared of your government doing remarkable things. Think of gold like the credit rating of world governments. It’s the CDS you buy if you don’t trust the politicians and their stewardship of the currency. - Kuppy, Adventures In Capitalism
Short list of countries that have underwent hyperinflation (this list is not comprehensive)
Soviet Union 1921-1922
Germany Weimer Republic 1922-1923
Poland 1923, 1989-1990
Angola 1991 – 1999
North Korea 2009-2011
Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.
Alpha Letter is a publisher of financial information, not an investment advisor. We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.
THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.
No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.
Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.
The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.
Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.