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How To Profit From Inflation?


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The question is ... how to profit from the inflationary madness about to be unleashed on us?

Normally inflation inflates everything - prices of goods, food and assets.

But, I still can't see asset prices inflating unless credit is eased. If banks won't lend to FTBs without a 15% deposit - what difference does it make if the FTB needs a 15k deposit on a 100k flat - or a 30k deposit on the same flat costing 200k?

This is something politicians used to understand - that while inflation inflates away existing debts - it does not affect the ability of people to take on new debt. And, endless new debt, is what is needed for economic growth in this country. It also screws up your ability to export - unless everyone inflates at the same time.

So, anything that people need to borrow to buy - property, land etc - I can't see inflating - at least not at the same rate as the money they pump in.

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The question is ... how to profit from the inflationary madness about to be unleashed on us?

Normally inflation inflates everything - prices of goods, food and assets.

But, I still can't see asset prices inflating unless credit is eased. If banks won't lend to FTBs without a 15% deposit - what difference does it make if the FTB needs a 15k deposit on a 100k flat - or a 30k deposit on the same flat costing 200k?

This is something politicians used to understand - that while inflation inflates away existing debts - it does not affect the ability of people to take on new debt. And, endless new debt, is what is needed for economic growth in this country. It also screws up your ability to export - unless everyone inflates at the same time.

So, anything that people need to borrow to buy - property, land etc - I can't see inflating - at least not at the same rate as the money they pump in.

Come on. Do you really need to ask that question on this forum? Here's a clue - its not houses, although if things get really bad they'd be a better bet than cash by a long shot.

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If you believe in inflation any Asset backed by debt.

I/O :

200k at 5% costs £833 a month

200k at 3% costs £500 a month

200k at 2% costs £333 a month

200k at 1% costs £166 a month

If debt becomes available at low prices, expect affordability to be a big word. To get an idea of the price of property in japan at the peak of there boom remember that japan saw 20 years of falling house prices, and at the end of the 20 years the cost of a flat in tokyo was a similar price to a flat in londo. If you believe in inflation, nothing beats the gearing you can achieve from property, if you believe in deflation stay in cash.

However debt isn't available at these prices, IRs are really low but the cost of a mortgages:

FTBer : 5% upwards

BTL : 5% upwards

Remortgage : 5% upwards

The spread between savers and loans is now 2-3 points, just like the good old days...

Edited by moosetea
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If you believe in inflation any Asset backed by debt.

I/O :

200k at 5% costs £833 a month

200k at 3% costs £500 a month

200k at 2% costs £333 a month

200k at 1% costs £166 a month

If debt becomes available at low prices, expect affordability to be a big word. To get an idea of the price of property in japan at the peak of there boom remember that japan saw 20 years of falling house prices, and at the end of the 20 years the cost of a flat in tokyo was a similar price to a flat in londo. If you believe in inflation, nothing beats the gearing you can achieve from property, if you believe in deflation stay in cash.

As the OP mentioned - if credit is hard to come by, then assets that rely on credit to be purchased (houses) don't do that well. And if inflation really takes hold, then at some point interest rates will rise to match - probably quicker than your salary does.

If you really believe there is going to be an inflation shock, buy gold. I do, and I have.

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As the OP mentioned - if credit is hard to come by, then assets that rely on credit to be purchased (houses) don't do that well. And if inflation really takes hold, then at some point interest rates will rise to match - probably quicker than your salary does.

If you really believe there is going to be an inflation shock, buy gold. I do, and I have.

but it costs $200 to dig gold out of the ground, probably less now due to falling oil prices! Why pay alot more for something which is relatively cheap to dig up? IMHO gold cant rise in price for a long period because if it does more will be dug up to feed the demand, most of the gold in the world is underground and readily available.

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The problem is we could well have commodity price inflation without wage inflation. Debt is eroded by wage inflation but not other sorts.

More likely is a sterling collapse in which case you'll want to have a massive sterling debt backing a physical asset like a house. ;)

However, at the moment we have deflation in all areas including houses. But we must be vigilant for the turn.

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but it costs $200 to dig gold out of the ground, probably less now due to falling oil prices! Why pay alot more for something which is relatively cheap to dig up? IMHO gold cant rise in price for a long period because if it does more will be dug up to feed the demand, most of the gold in the world is underground and readily available.

Really? where? So why hasn't the supply increased to match the > $200 price that has existed since 1979?

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Really? where? So why hasn't the supply increased to match the > $200 price that has existed since 1979?

lots of different mines, but the cost varies, average is about $200-300 an ounce according to google. Supply rose, BUT as with oil it was traded and it makes sence to limit supply to keep resale prices higher. Mining lots of gold serves no purpose, as the Spanish discovered when they invaded South America (The mined LOTs of gold, caused a gold crash and killed the spanish economy)

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lots of different mines, but the cost varies, average is about $200-300 an ounce according to google. Supply rose, BUT as with oil it was traded and it makes sence to limit supply to keep resale prices higher. Mining lots of gold serves no purpose, as the Spanish discovered when they invaded South America (The mined LOTs of gold, caused a gold crash and killed the spanish economy)

and the whole world is complicit in this scam?

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"(The mined LOTs of gold, caused a gold crash and killed the spanish economy)"

I hate to be pedantic (ok i lie, i love it) but it was the silver they found in S.america,not gold, the that caused the massive spanish inflation.

Edited by anon
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and the whole world is complicit in this scam?

Well you explain the difference between the low mining cost and high prices?!

1. There is alot of gold ramping and Fear causing people to trade gold and push it well above its extraction costs. (Bubble and Boom?)

2. It takes time to set up a gold mine, and you need to be sure that the extraction price will be higher than the resale price in future, you need capital/loan to discover and set-up which will be paid back in years to come.

3. A Gold price crash could close lots of mines so you need a large spread to lower the risk of gold prices falling, you want to make sure you get a return even if the price of gold halves or worse.

If you really believe in demand for gold buy gold mining/exploration stocks..

Finally : higher oil prices will have caused gold extraction costs to rise, with oil prices falling gold extraction costs will crash..

Edited by moosetea
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"(The mined LOTs of gold, caused a gold crash and killed the spanish economy)"

I hate to be pedantic (ok i lie, i love it) but it was the silver they found in S.america,not gold, the that caused the massive spanish inflation.

I understood it to be gold AND silver, but as this thread diverted onto gold I used gold as an example. But yeah they mined too much gold and silver and killed there economy.

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