Betting on Inflation
February 10, 2009 2:54 PM Subscribe
What are some investment strategies that would protect against and profit from (hyper)inflation?
Specifically, I'm looking for info on a strategy to short T-Bonds that would not expose me to an insane amount of risk.
Other ideas are welcome as well.
Specifically, I'm looking for info on a strategy to short T-Bonds that would not expose me to an insane amount of risk.
Other ideas are welcome as well.
short T-Bonds
If you're betting that the american govt starts defaulting on it's debts, I'd say the most obvious place to start would be somewhere off-shore. Maybe a skull-shaped volcano-island?
posted by nomisxid at 3:28 PM on February 10, 2009 [1 favorite]
If you're betting that the american govt starts defaulting on it's debts, I'd say the most obvious place to start would be somewhere off-shore. Maybe a skull-shaped volcano-island?
posted by nomisxid at 3:28 PM on February 10, 2009 [1 favorite]
No one spends more time thinking about hyperinflation than this guy. At the link you'll find his suggestions to his readers.
posted by Joe Beese at 3:29 PM on February 10, 2009
posted by Joe Beese at 3:29 PM on February 10, 2009
There are ETFs for most things now. Ultra Short 20+ Treasuries.
posted by milkrate at 3:37 PM on February 10, 2009 [2 favorites]
posted by milkrate at 3:37 PM on February 10, 2009 [2 favorites]
Best answer: Shorting treasuries is not the same as betting that the American government defaults. It's just a bet that the price of Treasuries go down (and thus interest rates go up). Christ almighty.
I don't want to comment on your "hyper-inflation" strategy, but to answer your specific question on short Treasuries:
Proshares has some ETFs that allow you to take short positions in Treasuries of either long- or short-duration. iShares has various Treasury ETFs that you could sell short (the ETFs themselves are long Treasuries, so you'd have to short the ETF like you would a normal stock).
This kind of thing is risky.
And don't forget TIPS, which are also inflation hedges.
posted by mullacc at 3:40 PM on February 10, 2009 [2 favorites]
I don't want to comment on your "hyper-inflation" strategy, but to answer your specific question on short Treasuries:
Proshares has some ETFs that allow you to take short positions in Treasuries of either long- or short-duration. iShares has various Treasury ETFs that you could sell short (the ETFs themselves are long Treasuries, so you'd have to short the ETF like you would a normal stock).
This kind of thing is risky.
And don't forget TIPS, which are also inflation hedges.
posted by mullacc at 3:40 PM on February 10, 2009 [2 favorites]
In addition to TIPS, there are also I Bonds, a type of savings bond that's indexed to inflation. It pays a fixed interest rate plus inflation (determined using CPI, I think). Right now they are looking pretty safe. You can only buy $10k of them a year; 5k on paper and 5k online via TreasuryDirect.
posted by Kadin2048 at 4:09 PM on February 10, 2009
posted by Kadin2048 at 4:09 PM on February 10, 2009
For inflation, TIPS. For hyperinflation, Krugerrands.
posted by crapmatic at 4:30 PM on February 10, 2009
posted by crapmatic at 4:30 PM on February 10, 2009
The simplest way to bet on US dollar inflation is to buy other currencies or gold. The safest way is inflation index bonds.
posted by eriko at 4:46 PM on February 10, 2009
posted by eriko at 4:46 PM on February 10, 2009
Alternatively, take out a massive loan with a fixed interest rate, and then buy something with it. Like a house.
Inflation, generally, is good for debtors and bad for creditors. As a thought experiment, a debtor benefits from inflation (and more so with hyperinflation) because while the loan is taken out with today's dollars, it is repaid in the future when, because of inflation, the currency is worth less.
If, however, there's some expectation of inflation, you'll see this reflected in interest rates, and thus this effect should be canceled out. One may argue, however, that this is not reflected in the currently very low prime rate.
Just be very, very sure you're confident we'll experience inflation in the next few years before you do that, though.
And thus ends the whole of my undergrad macroeconomics knowledge.
posted by oostevo at 6:05 PM on February 10, 2009 [1 favorite]
Inflation, generally, is good for debtors and bad for creditors. As a thought experiment, a debtor benefits from inflation (and more so with hyperinflation) because while the loan is taken out with today's dollars, it is repaid in the future when, because of inflation, the currency is worth less.
If, however, there's some expectation of inflation, you'll see this reflected in interest rates, and thus this effect should be canceled out. One may argue, however, that this is not reflected in the currently very low prime rate.
Just be very, very sure you're confident we'll experience inflation in the next few years before you do that, though.
And thus ends the whole of my undergrad macroeconomics knowledge.
posted by oostevo at 6:05 PM on February 10, 2009 [1 favorite]
I'm in the hyper-inflation camp and I'll stick my neck out it and say it will happen in the next 12 months. Seconding Kruggerands. Gold moves up in hyper-inflation scenarios. I believe deflation is just a temporary downdraft... an after effect of the recent oil shock coupled with the unprecedented global mortgage tranche debacle, resultant run on funds and enormous contraction that followed.
As the goverment throws money at the problem by printing trillions of dollars to quell the bleeding on numerous fronts, hyper inflation would appear unavoidable. History is on my side. Gold, ironically, may be the next great bubble. Gold bugs may finally get their "told 'ya so."
posted by Muirwylde at 9:16 PM on February 10, 2009
As the goverment throws money at the problem by printing trillions of dollars to quell the bleeding on numerous fronts, hyper inflation would appear unavoidable. History is on my side. Gold, ironically, may be the next great bubble. Gold bugs may finally get their "told 'ya so."
posted by Muirwylde at 9:16 PM on February 10, 2009
"Past performance is not an indication of future results."
In other words, don't participate in above plans unless you're more than willing to lose all the money you put into the position, but you know that already surely.
Hyperinflation is a rare event and would require a series of breakdowns in fiscal policy that would make the current crisis look like naptime. Again, stuff you already know, right? Gold has the nifty quality of never becoming worthless. That's where I'd look if I wanted to hedge against inflation.
posted by incessant at 1:00 AM on February 11, 2009
In other words, don't participate in above plans unless you're more than willing to lose all the money you put into the position, but you know that already surely.
Hyperinflation is a rare event and would require a series of breakdowns in fiscal policy that would make the current crisis look like naptime. Again, stuff you already know, right? Gold has the nifty quality of never becoming worthless. That's where I'd look if I wanted to hedge against inflation.
posted by incessant at 1:00 AM on February 11, 2009
Commodities, either in futures or ETFs. TIPS, either in TIP ishares or the actual bonds, and their foreign equivalents, particularly in commodity countries. Canadian Real Return Bonds, for example, either bonds or with the XRB ETF.
posted by Chuckles McLaughy du Haha, the depressed clown at 7:17 AM on February 11, 2009
posted by Chuckles McLaughy du Haha, the depressed clown at 7:17 AM on February 11, 2009
Response by poster: thanks for the input and to clarify, (like a couple of you pointed out) I'm not saying the US government is about to default on its bonds and revert to mixture of nation states.
I do believe that we will be headed into a strong inflationary period and possibly hyper inflation.
I'm not looking to get into an investment/speculation like this with no risk, just a manageable amount of risk. The tips bonds are a nice 'hedge' but they don't really provide much upside. What I was hoping to hear are some specific strategies.
the etf's and gold seem to be the best ideas out of this post (for my situation)
thanks again.
posted by Wallzatcha at 11:50 AM on February 11, 2009
I do believe that we will be headed into a strong inflationary period and possibly hyper inflation.
I'm not looking to get into an investment/speculation like this with no risk, just a manageable amount of risk. The tips bonds are a nice 'hedge' but they don't really provide much upside. What I was hoping to hear are some specific strategies.
the etf's and gold seem to be the best ideas out of this post (for my situation)
thanks again.
posted by Wallzatcha at 11:50 AM on February 11, 2009
Response by poster: That depends on what you mean by manageable.
You can control the amount of your loss, so I consider that manageable.
If you were to construct a strategy that consisted solely of buying/selling options without covering your exposure, then your exposure would be unlimited and risk unlimited....or unmanageable.
posted by Wallzatcha at 8:11 AM on February 15, 2009
You can control the amount of your loss, so I consider that manageable.
If you were to construct a strategy that consisted solely of buying/selling options without covering your exposure, then your exposure would be unlimited and risk unlimited....or unmanageable.
posted by Wallzatcha at 8:11 AM on February 15, 2009
This thread is closed to new comments.
In any case, buying real things, i.e. real estate and commodities, are a surefire way to avoid the effects of inflation and hyperinflation. Whether or not those are actually ways of increasing your net work is a different question, but you'll avoid the problem if your asset decreasing in "value" because of its denomination.
Still, what you're asking for is a safe way to engage in currency manipulation. There is a problem with this, and it's relatively straightforward.
There are no safe ways to engage in currency manipulation.
posted by valkyryn at 3:24 PM on February 10, 2009