The Intersection of Inflation and Hyperinflation
Our so-called “transitory” inflation woes continue, as you are undoubtedly aware. Honestly, how could anyone not be? John Burns just released an infographic showing year-over-year construction cost increases as of the third quarter 2021. So in one year, these things have increased by the following percentages: framing and block — 15.3%, lumber — 57.2%, house wrap — 8.8%, electrical and lighting — 17.6%, steel and aluminum — 26.8%, flooring — 8.6%, windows and door trim — 15.8%, deck — 37.9%, roofing and shingles — 12.1%, insulation — 11.7%, drywall — 11%, vinyl siding — 16.9%, stucco — 13.7%, fiber cement siding — 9.3%, painting — 11.5%, plumbing and HVAC — 13.5%. These increases are just for one year! But wait…hasn’t the government been telling us that our official inflation rate is around 4–5%? All of these increases are far above the official inflation rate, which would prompt us to ask ourselves another important question: are we being lied to?
Haven’t heard enough? Here are some more increases: appliances — 7.2%, foundations and concrete — 11.7%, and the list goes on. Think about it this way though — as the cost of these items has gone up, all of the homes that you own have increased in value as well. Maybe there’s also been some appreciation, but when the cost of hard materials goes up, so does the value of your home. And that is the beauty of packaged commodities investing.
As people are undoubtedly feeling the effects of inflation around the world, even Jack Dorsey felt compelled to tweet about it, issuing a dire warning as inflation soars under President Biden. He warned that “hyperinflation” would change life as people know it; it’s happening now and it’s coming to the US. So what exactly is hyperinflation? There is no real academic definition of this as Jason has mentioned over the years, but it is generally accepted that hyperinflation is an inflation rate that exceeds 100% annually. But according to Investopedia, their definition of hyperinflation is more extreme. According to them, hyperinflation is a term to describe rapid, excessive and out of control general price increases in an economy, typically measuring more than 50% per month. And don’t forget that inflation compounds! Can you imagine an inflation rate compounding at 50% per month? Prices would go up by another half every single month and the following month, they would compound on the prior month by half again. Disastrous. Just look at the numerous examples in history.
Packaged Commodity Investing
Right now, people want to trade the money declining in value for commodities that are not attached to any one currency. These commodities have intrinsic value. The paper currency does not, but if you trade it for those construction materials listed above which have intrinsic value, you have a winner. Everyone on earth needs them, because when put together, they make up one of our basic human needs: shelter. So let people rent that shelter from you in the form of a house made up of many different construction materials, all of which have intrinsic value, regardless of what currency they are being traded in. Currencies will always fluctuate and lose value, but commodities have the ability to hold and store wealth — one of the many reasons why income property is such a fantastic investment! Not to mention the power of inflation induced debt destruction…
Keep in mind that in very recent history, 1994 to be precise, Brazil had an inflation rate of over 2,000%. This was less than 30 years ago and many people were terribly and tragically impoverished by it, yet others were mysteriously enriched by it. Sound familiar? Sounds like a wealth transfer to me. Also, don’t forget one of the most famous periods of hyperinflation in the 1920s in post WWI Weimar Germany, when levels reached a peak of almost 30,000%.
Will history repeat itself? Only time will tell for sure, but many signs are pointing in that direction, except this time you have the knowledge and agency to do something about it. Jack Dorsey warned you, but Jason Hartman will give you the tools to do something about it. Don’t get stuck at the intersection. Don’t be the victim of inflation. The choice is yours.
Ashley & The Jason Hartman Team