How Will You Beat Inflation?

Inflation is back, even if it's stealth inflation. There are good reasons for serious concern that we could be entering a period of high-inflation.

In times of high-inflation, it makes sense to purchase anything you are going to need as soon as possible. Of course, you have to weigh that against storage cost and spoilage. You can by ammo years in advance, but you can only buy eggs a few days in advance.

Other options include working harder, asking for a raise, or reducing your standard of living. Lots of people are already delaying purchases of everything from clothes to cars, but delaying purchases doesn't make a lot of economic sense in a period of high inflation and low return on investment. Inflation motivates people to spend their money today, because it will be worth less tomorrow.

If high inflation rates do appear, how will you respond?

 

i drank a dasani water the other day, regular size and it was smaller than usual.

 

Stocks in the long run appreciate with the inflation - cash accounts draw a higher rate of return. Seems a Little premature to have inflation when the economy is still stymied by a recession.

 

Own things people need to survive. People will always need clothing, food, and shelter, no matter how pricey it gets.

Periods of high inflation create opportunities to prey on those less fortunate than you. I used to be amazed watching the more wealthy people in Central America(environment with high inflation, socialism, and high government regulation) sell the basic necessities to the poorest amongst them at outrageously inflated prices. The poor, having no choice, would often finance the purchases of these necessities at rates sometimes approaching 3% per month. On the reverse side, when the poor were loosing their assets, the rich would swoop in and buy those assets for pennies on the dollar.

Right now there are daily "fire sales" on just about everything under the sun. Home furnishings, appliances, luxury cars, pianos, real estate. Lots of very expensive stuff people bought when they had a job that they will sell just to make one more house payment, or put food on the table.

As your boy in the video mentioned, income is king. So long as you have a stream of income and use it to wisely buy up distressed property, you will be rolling large.

Sorry if this sounds overly predatory, but this is what is already happening. A friend of mine is grouped up with a group of investors buying groups of foreclosure properties, sometimes 100 at a time(prices around 30% of market). The divide between rich and poor in this nation will continue to widen, with many of the formal middle class joining the poor. Ought to set a perfect voting environment in 2012 for a 3 term president to operate a nanny state with loads of social programs. Sound familiar?

You should have your own financial show Breeze.

 

Recession and high-inflation are not incompatible. Read up on stagflation as one example of this type of phenomena.

 

Real estate has lost its meaning with rates at unrealistic levels. A few years ago, equivalent of 20 to 25 years of rent used to justify ownership costs, now it's reached moon with values of 50 -60 years' rent. Gas, food and all other bills defy normal earning levels, rate of interest and ROI. Out of all the things you said, working hard/more and asking for a raise makes sense.

I am dealing with monthly bills individually, wherever possible. switching to efficient light bulbs, walking to nearby places and so on.

I didn't quite understand how Inflation motivates people to spend their money today? There could be a small number of people rushing ahead with purchases but a majority would always want to wait and watch.

 

If you know that the exchange rates will be $1 for 1 light bulb today and $2 for one light bulb tomorrow, the smart move is to buy as many light bulbs as possible today.

Inflation motivates people to spend money as soon as they receive it, because if they don't spend it immediately, it is worth less when they do.

 

Look at it from another angle. This could work the way you said in the short term but things begin to collapse after it reaches, say, what if rises to $100 for 1 light bulb in 100 days? Certainly you don't want more than a few to gather dust in your cupboard, or worse, damage a couple of them to lose 100 times more than what you would today. People hardly invest in / buy real estate during inflation, you don't normally change or buy a new car in inflation and so on. However, this doesn't apply to essentials, but still, you can't stock things such as electricity, gas and the like. So you are most likely to go through the motion. Remember, this is why inflation is always followed by long bouts of recessions. It's different that smart people make their hay in both the cases.

 

Buying homes is one side, on the other hand I doubt if the majority will even venture to remodel their homes in inflation although future recession is hardly any factor to influence this decision.

 

No you cant stock them, but you can own the stock of the companies that sell them. Getting involved in a business that sells essentials puts you into the profit cycle on the "essentials". Perhaps not inflation proof, but I would imagine power generation companies do rather well during inflationary cycles.

Regarding buying cars and real estate, perhaps the market isn't so hot if you are trying to flip these properties/cars, but lets not forget that everyone needs a place to live and a means of transportation. When inflation strikes, perhaps it isn't so bad to be the guy holding some low rent housing. You can charge more than ever, and you are guaranteed demand. Better still, the government may subsidize you. Buy the property on a short sale going into the recession, and sell it for a profit at the end. Beats leaving your wealth in cash and watching it devalue.

 

This closely matches the advice of David Rosenberg in The Case for Commodities, Credit and Canucks.

That's what Peter Schiff recommends in CrashProof 2.0.

 

Heavy inflation often means very high corruption somewhere , keep an watch on your politicians,oil mafias ,etc.
Someone may be siphoning of huge amount of real resources like gold , food,oil ,etc in exchange of fake currency ,etc.