The 1921-1923 hyperinflation in Germany and Austria was blamed on the 1918 Spanish Flu. The 202X hyperinflation will be blamed on Covid-19. History is repeating itself.
For some inspiration, it’s worth revisiting one Hugo Stinnes. Hugo was a cunning bugger who became Germany’s richest man during the 1920s.
Now, how is this relevant today?
Well, the US has announced another stimulus package in the amount of $1.9 trillion. Put another way, this is ONE THOUSAND billion dollars! This comes on the back of over $4 trillion spent in 2020. Laughingly they called it the “Covid-19 Spending & Tax Relief.”
This, of course, isn’t solely a US phenomenon. Globally governments have borrowed trillions of dollars they’ll not be able to ever pay back.
Returning to Hugo here, what he did was figure out that the inflation of the money supply was going to ultimately lead to a loss of purchasing power, and so he went out and borrowed gargantuan amounts of money and then invested it in hard assets. Now, this typically works over time anyway, provided you can pay the coupon on the debt and manage to make it through business cycles. What vaulted Hugo into the stratosphere was simply the fact that this all happened exceedingly quickly and that Hugo took what were no doubt perceived to be (at the time) great risks in borrowing money. As the value of the currency fell Hugo was left with tangible assets and the amounts borrowed became smaller and smaller as a percentage of his assets.
It really makes us view our world with a certain amount of incredulity as we’ve the lowest interest rates in history with the highest debt levels in history, and simultaneously we came out of a bear market in hard assets a mere couple of years ago.
NEW PODCAST WITH CHRIS
Chris recently joined Tim Price and Paul Rodriguez on the State of the Markets podcast.
In nearly two hours, they dug into what’s happening in the world (and by extension, markets) today — from investing in a world where trust in big institutions and governments is fast eroding, Chris’ take on gold, bond markets and inflation, and much more.
ALL THINGS TRANSITORY…
Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.
Member Jon shared this email from his tree care service.
They were paying $220/ton for fertilizer last summer. By December, the price soared to over $600/ton. That’s a nearly 3x increase in just a few months. And that was before Russia invaded Ukraine (as we mentioned last week, Russia’s the world’s biggest exporter of fertilizer).
Luckily, these guys were smart enough to lock in two years’ worth of supply last summer.
H/T to member Sean for this one.
BRACE FOR A FOOD CRISIS
While on the topic of fertilizer (and food supply in general)…
Our view is that we’re going to have a food crisis and resource nationalism is going to become more popular than a “cancel Joe Rogan party” at Gavin Newsom’s place.
Bloomberg provides a good overview of the situation in this article (and keep in mind this was written before the Russian invasion).
As Europe’s farmers prepare to spread fertilizers on fields after winter, sky-high nutrient prices are leaving them little choice but to use less and try to pass on the cost down the food chain.
For growers of staples like corn and wheat, it’s the first time they’ve really been exposed to a fertilizer crisis fueled by an energy crunch, export curbs and trade sanctions. It now costs much more to buy chemicals needed for winter crops coming out of dormancy, and the extra expense could prompt smaller spring plantings that make up roughly a third of European grain.
Europe has been hardest hit by fertilizer-plant cutbacks on soaring costs of natural gas used to run them — and nutrient prices there remain at a record even as the pressure eased in North America. Europe could face a deficit of about 9% of its annual nitrogen-fertilizer needs in the first half, VTB Capital estimates. Food may get even pricier if harvests suffer or crop prices rise.
We’ve mentioned it before, but it’s super important. When food prices rise to a point where they exceed 30% of disposable income, civil unrest and revolution become highly probable. Maybe not this year, but at some point in the next few years we’re almost guaranteed a revolution. Perhaps more than one in countries which you’d never have thought such a thing possible.
This gem (from an absolutely clueless person on Facebook) is just too good to pass up.
As we said in the past — the West is due to fall off the 10th story, while other parts of the world will be falling off the first. One twists an ankle. The other breaks its neck.
Have a great start of the week!