John T. Reed was back this year for another lively talk at the MoneyShow San Francisco. I've followed his writings for several years and I attended his talk at the 2012 MoneyShow. The dude shared a wealth of minute details assembled from research he conducted for his book How to Protect Your Life Savings from Hyperinflation and Depression, 2nd Edition. I got the first edition and I've taken many of his suggestions very seriously.
John's talk this year introduced a ton of tips from his book and his recent exploration of the US-Canadian border. His overall approach is still familiar to his longtime readers, that managing hyperinflation or depression risks is like having homeowner's insurance. "Being early is the same as being wrong" is a bad strategy only if it's pursued at high cost or high risk, like hedge fund manager John Paulson's gold strategy.
John wants us to owe US dollar denominated debts and not own dollar-based fixed-income instruments. Liquidity is important to pay US bills during hyperinflation and owning hard assets isn't enough. John's book goes into detail on liquid hard assets that are suitable for barter but bill paying requires access to currency. The currency of choice should not be contaminated by US hyperinflation and must lie beyond the reach of US capital controls. I believe CurrencyShares ETFs held in US brokerage accounts can accomplish this goal but John prefers solid currencies held in banks. My readers know that I am long FXA, FXC, and FXF in my own US accounts (that's money from Australia, Canada, and Switzerland). Check out his writings on the subject; he explains his approach better than I can. I intend to have a Canadian bank account open just as soon as I determine which one has the strongest capital adequacy numbers under the Basel III accord.
Speaking of currencies, John expects the currency markets to be the harbinger of US hyperinflation if non-US investors decide to sell dollar holdings all at once. Foreign investors and central banks that get fed up with Fed QE will cause a run on the dollar that will shock Americans in no time flat. We can then watch the graphs at MIT's Billion Prices Project turn sharply vertical and stay that way.
John adapts his real estate knowledge into concepts that work as inflation/deflation hedges. He likes life estates, Home Equity Conversion Mortgages (HECMs), and a special concept he calls "reverse defeasance" that converts US dollar annuities into foreign currency lump sums. He also expects hyperinflation to destroy the value of long-term leases in commercial properties, so landlords should protect themselves by only making month-to-month lease agreements that they can can raise to keep up with inflation. John considers REITS in self-storage and timber harvesting to be acceptable inflation hedges in a liquid portfolio.
I only had one comment during John's talk. Buying preserved food is a good hedge against rising food prices but I mentioned that we need not worry about the expiration dates on canned goods. I've read about studies conducted by both the US Department of Agriculture and US Army that validated the nutritional content of ordinary canned food more than forty years after the canning date. Here's an NPR story from 2012 that validates the discovery that canned food retains much of its quality for decades, based on research that was done in the 1970s on canned food from the 1930s! The USDA even has a handy-dandy Complete Guide to Home Canning, in care of the University of Georgia's National Center for Home Food Preservation. I wonder whether Uncle Sam will be able to keep this excellent research funded during hyperinflation.
Hey John, here are two action items to consider for one of your future articles. They make sense to me as additional tools your readers can use as inflation/deflation hedges.
Item 1: Home food production with aquaponics. Backyard gardening is a diet supplement and affordable alternative to paying inflated prices in stores. Consider an aquaponics installation as a closed-system production method that produces food constantly regardless of weather or available space. Aquaponics systems can be maintained indoors, out of the view of potential food thieves in the neighborhood. The only downside is that buying the implements may attract the attention of law enforcement agencies who monitor gardening shops to see who's cultivating illicit stuff. Maybe it would be wise to invite the local chief of police over for a tour of one's aquaponics installation so the brass knows it's legal. Here's a YouTube video produced by Purdue University demonstrating aquaponics. I think this can be done in a garage, basement, commercial warehouse, or self-storage unit.
Item 2: Common stocks in hard asset sectors. Thanks for mentioning my currency ETF ideas in your Reed Theory Fund article. There are other things investors can select if they don't want to abandon their IRAs or other tax-advantaged US investment accounts. Common stocks in companies that generate revenue from hard assets - specifically mining, energy, and agribusiness - already have geologically confirmed hard asset inventories that they liquidate on world markets. Some of the world's largest basic materials companies are domiciled outside the US and earn revenue in currencies other than dollars. BHP Billiton (mining, energy) is in Australia and Potash Corp. (fertilizer for agribusiness) is in Canada, two of your choice countries. These types of stocks typically pay cash dividends and have option chains available for covered call writing. If desperate consumers in Europe, Japan, and the US crave food, fuel, and basic commodities, these types of producers stand to benefit.
Excuse me, but I need to get over to my bank and pick up a few rolls of pennies and nickels as soon as the MoneyShow is over. Those are John's equivalent of put options that retain their face value in deflation but have tremendous intrinsic value in hyperinflation if changes to legal tender laws allow investors to unlock the coins' melt value.
Full disclosure: John T. Reed did not compensate me in any way for this article. I do not receive any royalties from his books or other engagements. I'm sharing these insights because John does great work and investors need all the information they can handle.
John's talk this year introduced a ton of tips from his book and his recent exploration of the US-Canadian border. His overall approach is still familiar to his longtime readers, that managing hyperinflation or depression risks is like having homeowner's insurance. "Being early is the same as being wrong" is a bad strategy only if it's pursued at high cost or high risk, like hedge fund manager John Paulson's gold strategy.
John wants us to owe US dollar denominated debts and not own dollar-based fixed-income instruments. Liquidity is important to pay US bills during hyperinflation and owning hard assets isn't enough. John's book goes into detail on liquid hard assets that are suitable for barter but bill paying requires access to currency. The currency of choice should not be contaminated by US hyperinflation and must lie beyond the reach of US capital controls. I believe CurrencyShares ETFs held in US brokerage accounts can accomplish this goal but John prefers solid currencies held in banks. My readers know that I am long FXA, FXC, and FXF in my own US accounts (that's money from Australia, Canada, and Switzerland). Check out his writings on the subject; he explains his approach better than I can. I intend to have a Canadian bank account open just as soon as I determine which one has the strongest capital adequacy numbers under the Basel III accord.
Speaking of currencies, John expects the currency markets to be the harbinger of US hyperinflation if non-US investors decide to sell dollar holdings all at once. Foreign investors and central banks that get fed up with Fed QE will cause a run on the dollar that will shock Americans in no time flat. We can then watch the graphs at MIT's Billion Prices Project turn sharply vertical and stay that way.
John adapts his real estate knowledge into concepts that work as inflation/deflation hedges. He likes life estates, Home Equity Conversion Mortgages (HECMs), and a special concept he calls "reverse defeasance" that converts US dollar annuities into foreign currency lump sums. He also expects hyperinflation to destroy the value of long-term leases in commercial properties, so landlords should protect themselves by only making month-to-month lease agreements that they can can raise to keep up with inflation. John considers REITS in self-storage and timber harvesting to be acceptable inflation hedges in a liquid portfolio.
I only had one comment during John's talk. Buying preserved food is a good hedge against rising food prices but I mentioned that we need not worry about the expiration dates on canned goods. I've read about studies conducted by both the US Department of Agriculture and US Army that validated the nutritional content of ordinary canned food more than forty years after the canning date. Here's an NPR story from 2012 that validates the discovery that canned food retains much of its quality for decades, based on research that was done in the 1970s on canned food from the 1930s! The USDA even has a handy-dandy Complete Guide to Home Canning, in care of the University of Georgia's National Center for Home Food Preservation. I wonder whether Uncle Sam will be able to keep this excellent research funded during hyperinflation.
Hey John, here are two action items to consider for one of your future articles. They make sense to me as additional tools your readers can use as inflation/deflation hedges.
Item 1: Home food production with aquaponics. Backyard gardening is a diet supplement and affordable alternative to paying inflated prices in stores. Consider an aquaponics installation as a closed-system production method that produces food constantly regardless of weather or available space. Aquaponics systems can be maintained indoors, out of the view of potential food thieves in the neighborhood. The only downside is that buying the implements may attract the attention of law enforcement agencies who monitor gardening shops to see who's cultivating illicit stuff. Maybe it would be wise to invite the local chief of police over for a tour of one's aquaponics installation so the brass knows it's legal. Here's a YouTube video produced by Purdue University demonstrating aquaponics. I think this can be done in a garage, basement, commercial warehouse, or self-storage unit.
Item 2: Common stocks in hard asset sectors. Thanks for mentioning my currency ETF ideas in your Reed Theory Fund article. There are other things investors can select if they don't want to abandon their IRAs or other tax-advantaged US investment accounts. Common stocks in companies that generate revenue from hard assets - specifically mining, energy, and agribusiness - already have geologically confirmed hard asset inventories that they liquidate on world markets. Some of the world's largest basic materials companies are domiciled outside the US and earn revenue in currencies other than dollars. BHP Billiton (mining, energy) is in Australia and Potash Corp. (fertilizer for agribusiness) is in Canada, two of your choice countries. These types of stocks typically pay cash dividends and have option chains available for covered call writing. If desperate consumers in Europe, Japan, and the US crave food, fuel, and basic commodities, these types of producers stand to benefit.
Excuse me, but I need to get over to my bank and pick up a few rolls of pennies and nickels as soon as the MoneyShow is over. Those are John's equivalent of put options that retain their face value in deflation but have tremendous intrinsic value in hyperinflation if changes to legal tender laws allow investors to unlock the coins' melt value.
Full disclosure: John T. Reed did not compensate me in any way for this article. I do not receive any royalties from his books or other engagements. I'm sharing these insights because John does great work and investors need all the information they can handle.
