Hyperinflation and the Changes it is Going to Generate Part II

By: Sol Palha | Fri, May 22, 2009
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"Often a noble face hides filthy ways." ~ Euripides BC 480-406, Greek Tragic Poet

Continuing from Part 1 of this series; if you have not read the 1st part please click on the following link Hyperinflation Part 1

Maintaining and upgrading the power grid is another sector that will provide many good paying jobs. Utilities are running low on qualified field personnel who are able to install and maintain power lines and when the US decides it's finally time to upgrade their dying and aging power grid, the demand for already scare labour will soar even more. Virtually, anything with electricity will do well, for some positions such as those of an engineer, degrees are required but for those chaps that work in the field, repairing and installing new power lines, degrees are not required, the pay at times is upwards of $50 hr.

There are many reasons why this hyperinflationary cycle is going to different and possibly even more vicious than previous cycles. We listed some of them in the March 24th update.

One of the main reasons things will be worse has to do with the individual; today's individual has become too used to credit to used to buying something they cannot afford and to used to believing that they deserve the lifestyles of kings with the earnings of a soldier at best and a beggar at worst. In the old days, it was considered very foolish to buy something you could not afford, today it's seen as being cool to buy anything and everything on credit. This kind of mentality can only be broken and disrupted through brute force and extreme pain and this is exactly what is going to occur in the years to come. For those who lived within their means or took our advice and practised living 1 or 2 standards below their means, the transition will be relatively easy, and they will have many chances to deploy this extra money into mouth watering plays, for the rest it could potentially turn out to be their worst nightmare.

Anything that needs to be dug out or grown or created from scratch will start to rise in value. Thus owning a piece of land might not be such a bad idea in the long run. We are not talking about a farm but lots from ½-5 acres in size.

Companies will continue to lay off long after the economy starts to improve; they always acts slowly, they only started to fire when the situation went from bad, to worse to extremely unbearable; they should have started cutting back expenses the moment the outlook started to look dim. This system of mass lay offs creates a domino effect, 5000 workers fired in one city, means that fewer will go out to eat, thus many restaurants might close up or cut the size of their work force down to compensate for the drop in business, this in turn will affect the car dealer and the dry cleaner and so on, thus the total loss is much larger. During moments of fear the reaction is much stronger than during moments of euphoria, thus when companies fire, they fire twice as fast as they were hiring when times were good. This does not mean the situation is going to be dire and there is no light in sight. Think of the situation like this, when you buy a car, you know that one day you are going to have a problem like a flat tyre, or something worse. Now you can sit down and do nothing, or you can make sure that your spare tyre is inflated, that you have the tools to change the tyre etc. for other problems you can take out road side insurance, thus if you break down the towing fees will be free or very low. You can also always have the mechanic check your car before you go on a long trip, etc. Now, even if something goes wrong you are prepared for it, while the other chap who is not prepared is going to be in a lot of trouble. In the same manner, this hyperinflationary phase that is going to hit us should not be viewed as a disaster but as monumental opportunity for those that are prepared; meet it with your eyes wide open and not sealed, and you will be amazed at what opportunities you will spot in the years to come.

Methods to protect or hedge oneself against the upcoming hyperinflationary phase

Solution 1

As we stated last week one of the simplest and easiest methods would be to open an option for those who cannot or do not want to travel will to invest via currency ETF's

FXY= Japanese Yen FXF= Swiss Franc, FXE= Euro FXC= Canadian Dollar
FXA= Australian Dollar FXS= Swedish Krona

Finally, the last option would be to open a Pay Pal account, fund it and then activate the currency option feature. Right now they offer the Euro, Canadian dollar, Swiss Franc and British Pound.

Asia; here we favour the Chinese Yuan and the Singapore and Hong Kong dollar

Europe; our main choice was the Swiss franc but the Swiss National banks decision to weaken the Swiss Franc has us a bit worried; this could possibly be the beginning of a new trend, where each nation starts to devalue its currency in order to make its exports more affordable, something we spoke about several times in the past few years.

Swiss National Bank decision this week to weaken the Swiss franc has raised fears that other central banks will follow suit in a wave of currency devaluations.Since the financial crisis began two years ago, currency intervention from a major central bank had been seen as unlikely because foreign exchange moves were too low a priority to merit attention, much less a consensus among global policymakers. "The Swiss have broken the glass on beggar-thy-neighbour exchange rate policy," said John Normand, global head of currency strategy at JPMorgan.

The SNB, faced with the prospect of deflation, said on Thursday the Swiss franc's strength was an "inappropriate tightening" of monetary conditions. The SNB said it intervened to prevent any further appreciation. Full story

Thus instead of having one strong main choice, we now have to lean towards the Euro and the Franc with equal intensity. To be quite honest we would be more open to putting this money into the Australian and Canadian dollars then investing in the Swiss Franc or Euro.

North America; the Canadian dollar, with its resource based economy it will do very well when hyperinflation hits the world.

Solution 2

Put some money into Gold, Silver and Palladium bullion or any other hard assets such as farm land, antiques (you should know what you are doing when it comes to antiques or work with someone who does otherwise you could be taken for a ride), etc. One can invest in precious metals via the following ETF's.

Gold= GLD
Silver= SLV
Palladium= an ETF is in the works but until it appears, investors can purchase shares in SWC.

Once again individuals should not put all their money into bullion but only a portion of it.

Another option to consider is to deploy a small bit into old valuable coins that are selling close to the price of bullion; examples are Austrian 100 Coronas, $20 St Gaudens, etc; these coins will slowly but surely start to rise in value significantly faster than Gold bullion; at the peak, we believe the differential between bullion and Numismatic coins could be as high as 500%.

Solution 3

A portion of your funds should be deployed into stocks, primarily those in the commodities' sector. Stocks in oil, uranium, natural gas, Gold, Palladium, Silver, etc, sectors will one day trade to dizzying heights, and we are sure it will create many more new millionaires.

We have offered 3 solutions, as we are expecting hyperinflation to be the order of the day in the not very distant future, holding onto cash will not be a wise thing and thus the least capital should be deployed into solution 1, more of one's money should be deployed into solution 2 and 3.

Trends

In times of extreme hardship, people want outlets, and we believe that recreational drug usage will start to take off again. The drug ecstasy will probably make a strong come back or a new equivalent or potentially stronger drug might hit the markets. Generally speaking usage of all drugs will start to rise in the years to come as individuals look for a means to escape reality. We are considering putting out a new index and calling it the recreational drug index, we have been privately keeping tabs on the situation for the last 9 months, and it appears that we might be at the crux of a new trend. To date, we have pioneered 4 new indices (the religious provocation Index, the Poverty index, the Adult index and the Asian Edge Index; each of these indices has provided incredibly valuable info that if used could have provided handsome returns).

Universities and colleges

With the cost of education rising and with not too many job prospects out there because most are looking in the wrong fields, the old days of easy money in the fields of Law, investment banking and soon to join them the medical sector will be a thing of the past. Thus expect many colleges to severely cut back on the courses they offer, start to squeeze more students per class room, etc, all in a bid to cut down costs. We suspect that many universities will be forced to shut down also.

Lawyers, Doctors, investment bankers, and many of those related to the financial sector (Auto dealers, auto salesman, high end stores, etc).

Individuals in these sectors are going to get hammered if they have not already been hammered. The days of the big law firms are numbered, law firms who lived like parasites by making a living of suing individuals and companies will find that they will suddenly run out of clients. Hospitals used to raping patients will find that less and less are willing to pay; the biggest threat is going to be medical tourism. Right now the average person can get the same treatment overseas at 1/10th to a ¼ of the cost back home and the service is at minimum 2-3 times better.

Conclusion

It is said that individuals need to be taught a hard lesson in order to appreciate what they have and to prevent them from ever repeating the mistakes that got them into this mess in the first place. This might be true for say perhaps one generation and maybe if you push it to the extreme two generations. The majority is ruled by greed and fear and will continue to be for the foreseeable future. We had so many boom and bust situations, some extremely bad, some mediocre and some in between, but despite this, humans continue to repeat the same mistakes again and again. The current disaster and the coming hyperinflationary disaster will at most teach only those that experienced it a lesson, unless off course parents sit down and carefully explain to their kids what occurred and teach them the value of saving and living within their means; some will do this but the majority will not.

Thus do not waste time or energy in thinking that this or any disaster will bring about long term change; it will not. In the end, we can only change ourselves, but most think they have the capacity to change another without even trying to work on themselves first. Changing oneself is a very hard task, trying to change another without understanding ones self is a mission destined for monumental failure. The reason humanity has not learnt anything from its past lessons is simple (the message, here is esoteric, one needs to take the time to understand it, for simply handing it out will be of no use, remember nothing good comes easily, if it does, it was not worth much in the first place) is because humans fail to understand one thing; this one thing is that the majority can do nothing. What do we mean by this?

In order to do one must see, in order to see, one must know what to look for, so how can one do when one does not see, worse yet even when one thinks that they know the answer, they are usually looking a the wrong picture for they have no concept of what they should be looking for. Thus trying to do without knowing what you are looking for, or what you are looking at results in nothing. If every individual took the time to truly understand how they function, they would in turn gather valuable data in terms of how others function. A life time is spent just telling others what to do, very little is spent on telling oneself what to do and how to do it.

To show you how incapable we are of doing anything; make a list of everything you will like to do next week and then try to do it, 99% of the time you will find that you have a very hard time fulfilling even half of everything you put on that list. Another interesting task is to sit down and attempt to remember in detail what you did the week before; here 100% will fail, unless they have a photographic memory, for most the whole week will have been just a blur and all the upcoming weeks will also be blurred. Thus one can push things even more and ask the question, are we really living or alive? If we were truly alive why don't we remember in detail what we have done for just one week of our lives; we must stop here because we are now opening up another can of worms.

To conclude, life in the next 3-6 years is going to be filled with unprecedented changes; note how fast the world's economies crashed, one moment everyone was partying and having a good time, the next minute almost everyone was broke. Russian billionaires were lighting cigars with 500 euro notes in 2007 and early 2008, those same chaps are now crying tears of blood. Extreme extravagance always results in extreme pain. When you spend money, spend money not to show off but to please yourself, pretend nobody is watching when you are spending, and if you are not happier than you are faking it. Most spend to impress others, and thus they get trod upon by these very same people when they fall down and bite the dust.

As we spot changes, we will notify our subscribers of these impending changes and what measures can be taken to protect ones self and ones assets. Right now it would be very wise to have some money in another country. Individuals should also be investing a portion of their funds into bullion (Gold, Silver and Palladium) and finally some money should be put aside and invested in stocks that primarily are in the commodities' sector.

As we stated last time a disaster is nothing but an unprecedented opportunity in disguise; the trick is to keep your eyes wide open and not allow fear to seal them shut. It is when the streets are flowing with blood that one finds the biggest and greatest opportunities of a life time. Continue to live 1-2 standards below your means and try to get rid of as much debt as possible.

"There are plenty of good five cent cigars in the country. The trouble is they cost a quarter." ~ Franklin P. Adams 1881-1960, American Journalist, Humorist

 


 

Sol Palha

Author: Sol Palha

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

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