Following World War I the German Mark lost all of its purchasing power. However,
before its ultimate demise, the Mark experienced several meaningful rallies
despite the continuous increase in its circulation. While one may think that
economic or political news and rumors led to the Mark's rallies, it is more
likely that they resulted from investors becoming overly pessimistic and too
one-sided in their positioning - as is the case today with the US Dollar. Investors
have universally embraced the belief that additional quantitative easing by
the Federal Reserve will destroy the Dollar's purchasing power and thus boost
all asset prices. Similar to the German Mark, it is possible that the Dollar
will experience meaningful rallies before becoming valueless.
Figure 1 demonstrates that the increase in the circulation of the Mark from
October 1918 through February 1920 coincided with a continual depreciation
of the Mark's value. However, the Mark then rallied by 60% from February 1920
through June 1920 despite the continual increase in its circulation (Figure
2).
Figure 1. German Mark Depreciation (October 1918 - February 1920) Source: The Economics of Inflation by Constantino Bresciani
- Turroni
Figure 2. German Mark Appreciation (February 1920 - May 1921) Source: The Economics of Inflation by Constantino Bresciani
- Turroni
After June 1920, the Mark resumed its terminal decline as shown in Figure
3.
Figure 3. German Mark Collapse (July 1922 - June 1923) Source: The Economics of Inflation by Constantino Bresciani
- Turroni
The stock market is approaching its highs of the year because of the Dollar's
weakness. However, if a currency as doomed as the German Mark could rally,
then so can the Dollar. Given that it has become a nearly universal view that
the Dollar will continue to fall it is likely that it will soon rally and thus
force asset prices lower.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
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