

Ask HN: Ideas on Unusual Inflation Hedges - DanielBMarkham

For a variety of reasons I've decided to put some money into an inflation hedge.<p>Gold looks way oversold.<p>Here are the criteria: it must be easy to purchase, something I can physically own, and easy to translate back into cash when needed.<p>I figure we hackers have probably already analyzed this problem and come up with multiple solutions. Anybody care to share? I'm  leaning towards collectibles (guns maybe?) but interested in other options.
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jakarta
Here's a bit from Barton Biggs' Hedgehogging that might be insightful:

Gerson Bleichroder was a nineteen-century German Jew who had a life filled
with immense financial triumph, persecution, and personal sadness. Otto Von
Bismarck represented the Old Prussia – aristocratic, agrarian, hierarchic –
and it was his ambition and vision that welded the First Reich into an empire.
In 1859, when he was 37, Bleichroder became the banker and investment adviser
for the rising Junker diplomat, and for 30 years the two leveraged their
insights and power to achieve great wealth and prominence…

Bismarck, the Prince, worked hard at projecting a magnificent exterior and
omnipotence….His primary obsession, other than ruling Germany, was with making
money in the stock market so he could buy more and more timberland. He treated
everyone around him abominably.

However, both men must have had that mystical “seeing eye,” which enabled them
to perceive the future chain of events that would be triggered by an action in
the present. This is what successful investing still is all about. While
suspended in the midst of times that were full of mystery, uncertainty, and
doubts, they had the capacity to maintain their pose and world view and never
to impatiently or irritably reach for a fact or conclusion.

Bleichroder exploited the insights that Bismarck provided to make both his
patron and himself very rich. But he also had what Bismarck once referred to
as “a certain timidity in investing.” He told his clients he would attempt to
get them over the long run a real return (after inflation) of 4% per annum,
which would mean that the purchasing power of their wealth would double every
17 or 18 years. His timidity kept him from becoming engulfed in the new-issues
market of the 1870s or in the mania for colonial investing that later wiped
out so many men and German banking houses. Bismarck was perfectly satisfied
with this return, but always withdrew his profits and invested them in land
and trees.

Bismarck’s appetite for timberland was insatiable. His theory was that the
price of land would gradually appreciate in line with population growth, or
about two percentage points annually. His studies had convinced him that
German forests would grow 2.75% a year, so that his real return for timberland
would be around 4.75% per annum, because inflation at the time was virtually
zero. If there was inflation, he was sure timberland and log prices would
appreciate in line with the inflation. He thought that with very little risk,
this was a spectacular compounding of wealth. As it turned out, Bismarck was
absolutely right.

Over the next half century in Germany of war, inflation, surrender, and
depression, timberland held value far better than anything else.

~~~
anamax
Bismark was in a position to influence the value of his investments.

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dmfdmf
Wouldn't oversold imply gold is a good buy right now?

In terms of your requirements, the precious metals seem to be the best item.
If you think gold is too high then silver might be a good choice too. It also
depends on how much inflation you think needs hedging. If you are talking
hyperinflation then John Williams over at Shadow Stats is recommending cases
of whisky. You could stock pile some incandescent light bulbs since the
average American does not know that they have been outlawed (effective in
2012?) and there is sure to be a run on those when people finally learn about
that (but that's more speculation than inflation hedge). Oddly enough the best
inflation hedge is to go into debt on the longest period possible. When
inflation hits you pay it back in deflated dollars. Buy a new car on a 5yr 0%
interest loan, sell the old one and put the money in gold (bullionvault.com)
or buy inflation adjusted bonds (TIPS). Pretty low risk as long as you can
make the payments. Even better is a house (30yr loan at 5-6% interest) will
almost certainly be a bargain when high inflation hits.

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_delirium
I think "oversold" here hit a conflict between finance-analyst usage and
outside-of-finance usage. In finance, overselling means that too many people
have sold something (i.e. dumped their holdings), which depresses the price.
But outside of finance, overselling most often means that the benefits of
something have been sold too well (i.e. overhyped).

See, e.g.: [http://www.independent.co.uk/news/uk/politics/benefits-of-
na...](http://www.independent.co.uk/news/uk/politics/benefits-of-national-
identity-cards-were-oversold-admits-minister-501394.html) /
<http://www.sciencebasedmedicine.org/?p=3096>

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jmillerinc
1\. Good inflation hedge (and not gold) 2\. Physical ownership 3\. Easy to buy
& sell

Pick two.

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Natsu
What would your answer be if I picked 1 & 2?

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jmillerinc
Timber (the actual land).

Blue-chip art. For example, photography by big-name artists with established
markets. But art has huge transaction costs, so I wouldn't include it in the
easy-to-buy-and-sell category.

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Bn3
Proven hedge: In 03 i bought a <5 yr old boat at a great price - a Marina
repossession. Had 5 summers of fun on the water with friends/family returning
to work after each weekend fully refreshed and ill bet more productive. I sold
my boat in 08 for 90% purchase price. Technically depreciation, second hand
values and rising demand matched my initial purchase discount but for me it
wasn't about real cash gains, it was the best life investment I made. In
summary id advise invest in your life, buy something that makes you smile,
make your dough through your work, and leave hedging to dull finance guys.

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kls
Buy tax notes from your local municipality guaranteed 7% and you get the
property if the taxes are not paid. If you are a benevolent person, you can
offer to sell the properties that default back to the owner at the tax amount
+ 7%. If not you can sell it at open market for more. It is the safest
investment that I know of. Enforced by the government and backed by a hard
asset.

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david927
Platinum, silver, Swiss Franc notes

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tansey
I don't understand the reason to want to "physically own" something, unless
you think the banking/financial system is going to go under. If it does,
inflation will be the last thing you'll have to worry about.

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jmillerinc
The whole banking system may not go under, but there's always a risk that an
individual firm may go bust, like Lehman. If you happen to have financial
assets held in custody by that firm, it might take a while to get them back.

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dmfdmf
John T. Reed is a pretty smart guy, you might look into buying his book.
<http://johntreed.com/hyperinflationdepression.html>

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hga
Collectible guns? Or just guns who's value you expect to hold up?

Something a lot more liquid would be common types of ammunition.

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DanielBMarkham
Guns. I've heard through old wives' tales that you can sell a gun for at least
as much as you bought it for. Not sure if that is true; I am just now
beginning my research.

Coins come to mind -- easy to own and store. Presumably easy to sell? Not sure
of transaction costs

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hga
If you're careful in what you buy and in getting a good price, guns tend to
hold up their value.

However the election of Obama caused a spike in the purchase of "black rifles"
and hanguns (also the latter have been doing very well as more and more states
got shall issue concealed carry license regimes, plus many people are buying
them as they get old(er)) and the last time I checked the value of hunting
guns weren't holding up well due to the Great Recession, but that's perhaps
bottomed out.

Be careful of historical price patterns, with CNC machining and other general
advances it's gotten less expensive to make them and the barriers to entry to
new firms has dropped.

