Let us look at hyperinflation in Venezuela and Zimbabwe and see how each asset class perform in moderately inflated country such as Turkey.
Here, we will define what is hyperinflation first. Hyperinflation occurs when the local currency devalue against US dollar until it is basically useless and worthless. In Zimbabwe, 1 US dollar is worth 100 Trillion dollar and In Venezuela 1 US dollar worth 13 zeros on the Venezuela bolivar. Here, i might not be exact as the currency exchange rate differ with time and state of the economy. However, basically the currency is worthless. Take Zimbabwe for instance 100 Trillion dollars cannot buy you a chicken. This is extreme case in history of mankind with Hungarian Pengo also as a prime example.
As the more we delve into the past the more we can see the future.
Here, we will study Turkey as a prime example.
Turkey in 2018 have an exchange rate of 5 Turkey Lira to current rate of 25 Turkey Lira to the dollar or roughly we can say Turkey Lira devalue around 5x.
We will study the effect of Turkey Lira devaluation on buying power of imported goods, export goods, commodity, property, collectible, gold and crypto.
Effects on imported goods, will increase 5x making importer to increase price accordingly but the demand of the goods will decrease. Those who stock alot of non perishable imported goods during good times will profit extensively. Those who export will also benefit extensively as they get more money for their goods and their margin will be bigger most likely around 5x. This is also good for tourism of Turkey as more foreign tourist will have better exchange rate to cushion their purchase and expenses during their trip in Turkey. Tourism will enjoy a brisk business.
Next, we will talk about commodity. Commodity such as palm oil, rubber, dates, olive oil, rice, cocoa, coffeeand sugar will increase by 5x as well if it is traded in US dollar. However, the cost of production will also increase accordingly especially fertilizer, pesticide, transport and labour. So business, need to recalibrate their business so that they can increase their margin of profit accordingly.
Property price should also increase 5x accordingly in Turkey. However, property is a big ticket item. So, there will be price but no buyer. As local buyer is unable to get bank loan to purchase properties. Unless you sell your prime property to foreigners or you sell it at a firesales price to rich locals. If you decided to keep your property the price of maintenance, tax and repair will increase accordingly by 5x in Turkey. This can transform property rental from a good debts to bad debts as there will be more cashflow going out per month than coming in, unless you increase the rental price and risk losing your tenance. Those who cannot pay their monthly bank loan will be subjected to foreclosure.
Collectible such as rare antiques, wines, watches, papernotes, baseball cards, amulets, stamps and toys should also increase by 5 times. However, the increase is not proportionally 5x as there will be price but no buyer as the buying power of the masses will be reduced massively unless the masses are doing business that is at the right time and right place which is export or tourism industry in nature. Worse still, some of the collector might be in dire street of money due to cost of living such as food and house or emergency such as health issue, car repair or house repair making them to sell their collectibe at a firesales price or whatever price the buyer offer, making it a buyer market. Unless, you are able to sell to collector in neighbouring country or worldwide in the neighbouring country currency such as Euro denomination in Greece or worldwide in US dollar denomination. Basically, selling in neighbouring country or worldwide is export oriented in nature.
Gold and precious metal on the other hand will increase 5x accordingly in Turkey as it is a limited commodity and is traded worldwide in US dollar. However, the weakness of Gold and precious metal is hammer down by the spread that goldsmith or bank will charge you when you decided to sell which can be as high as 5 to 20 percent from the current international price making it profitable only if the price in Turkey have appreciate by 20 percent from your purchase prise in the minimum scenario.
Crypto on the other hand, is traded in USD denomination. So, it will increase 5x in Turkey. However, crypto is subjected to bank run and rug pull worldwide. Therefore, we need to be selective when chosing crypto and buy only those in limited supply, ideally below 1 billion in curculation and those which is not subjected to be replenish via mining or reward once the selling pool or admin max out their selling. As the saying goes in the short term buying is based on a voting machine or preference but in the long term it is based on weighing machine or quality. In everything, price is what you pay and value is what you get.
In hyperinflation, the biggest loser is currency hoarder as the currency devalue due to inflation and will be worthless toilet paper over time. Have you seen any currency survive to this day? Be it China, Greece or Federated notes in US. All i can say is a thing is worth how much a buyer willing to pay coined by Adam Smith and if supply outsmart demand during hyperinflation due to massive printing of currency, currency which is akin to storage of value for the citizen be it pensioner, saver, businessman, trader or employee will cease to function and be worth only on its tangible value which is the weight of the paper we call money.
The only respite is that borrower can repay with cheaper money.
Those who are not prepare and swim naked will be exposed.
Hopefully we are at the right side of the equation when the inevitable happen.
Survival of the fittest as in Darwin's Theory.
You cannot break good principle in life but break yourself going against good principle in life.
In God we trust and God bless us all.
Moral of the story: It is better to be 20 years early than 1 day late in the quest to be financially independent.
God's Mercy endures forever,
Dr. Lion.
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