Tuesday, February 26, 2008

Inflation – the only solution…

Turning Inflation into Wealth

Chilling dissertation about the impossible pension and healthcare liabilities of Western Governments and how they will be solved with inflation. Thought provoking for anyone who has sold to rent and is wanting to look after their stash in the mean time...

Posted by cornishman @ 10:23 AM (1494 views)
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19 thoughts on “Inflation – the only solution…

  • Lots of us on this site are now feeling vindicated in selling to rent whilst we wait for the correction in house prices. However, there is an argument that we could well have cocked up. Greenbay may be right!

    Capital gains tax [be it at 40% now or 18% in a month or two] is a strong dis-incentive for any BTL to sell. If wage inflation takes off – and I think it must if ordinary people are to live – then house prices may well not fall much, as measured in pounds sterling. Then, given that we are taxed on savings interest, or on capital gains if we hold gold – we could well end up worse off than the ‘sheeple’ who just got on with life and believed that all would be well.

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  • Possibly this is a threat to STR’s , but that theory is dependant on wage inflation , but I find it hard to see this happening seeing as the labour pool is so much bigger now than it was before due to the inclusion of BRIC countries , therefore companies can still hire labour much cheaper elsewhere than in the West.

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  • I guess it depends on how seriously BoE takes inflation.

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  • cornishman,

    I understand your concern but I think the sheeple will lose out too. They will see actual falls in HP as well as falling real incomes.

    I just signed up with goldforecaster.com to find out how to avoid any exchange controls and of other impediments that are related to owning gold.
    Once they have given me a plan to restructure my investments I will post on this site.

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  • If wage inflation stays as subdued as it has in recent years, then a tightening up of credit must mean that house prices must drop to the level that can be afforded. But – wages could be increased to the level where present house prices become affordable, even at present ridiculous levels.

    Devaluing sterling by 15% per year with very low interest rates and allowing wage inflation of 15% a year would keep wages static in world terms. But it would erode UK savers’ wealth and make it easier for anyone in work to pay their mortgage. Given that such a lot of people work for the government now, it would be fairly easy for a change of tack on wage settlements if that was what was decided.

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  • One way of avoiding CGT on gold is to buy British Sovereigns, which are legal tender in the UK, and are thus exempt.

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  • @Harold,

    I’ve been doing the same, and I have been telling my clients too. 😉

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  • tyrellcorporation says:

    Have you done this Harold? Surely a loophole waiting for Darling’s fat fingers to plug it?!?

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  • harold, if I did that I’d probably be the mug who ended up buying the forgeries – gold plated lead coins!

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  • voiceofreason says:

    You can buy them from jewellers shops.
    But the commission is high, about %15.

    More importantly, what does the next bit of the article say ? What “Inflation Hedge” do they suggest ?

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  • Voiceofreason says:

    Looking at the BBC Business News front page is a case in point.
    Water up by 5.8% on average.
    Wheat up by 25% in one day.
    So inflation hedges are utility shares, and food primary producer shares… I guess?

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  • Im a believer in greenbay’s views, he did mention that governments will not allow prices to fall through various interventions be it moral or not… maybe we should not discount his views totally even if he is a greedy landlord, maybe its not morally right that he’s become wealthy through buy to let and off some of us renters, but i guess we have to decide do we want to be finacially free or do we want to be morally right? im begining to wondering if i should be waiting to buy for a correction that may never happen to due his comment of government intervention and in light of this article???

    Matthew

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  • For what my 2 pence is worth? I use gold index trackers by way of index LEAPs (option trading)..

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  • cornishman et al. You need to go to a reputable dealer who has been in the biz for a long time and who doesn’t charge rip-off commissions (i.e., nothing more than 5%):

    http://www.taxfreegold.co.uk/

    …for example.

    Don’t buy gold/silver through eBay.

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  • For what its worth i invest in commodities via options or more specifically Index LEAPS similar to covered calls, i guess this is another forum but its a good combination when used to diversify against my property portfolio.

    Greenbay

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  • Traditional inflation hedges are assets which have a relatively static supply such as precious metals, and your property. (yes you read right!)
    * The metals hold their value but pay no interest (or dividends) so are good for really really bad times, but not much else (of course one can still trade in and out just before the inflationary period, making real gains, but that’s something else. The same goes for necessary commodities – energy & food.).
    * If you own your house you are not subject to rental increases – this is a big inflation buster.
    * If you own other peoples houses and charge rent… even better – of course you would not want to be paying any variable rate mortgages during this time, you want to either own outright or have long-term fixed rate deals, leaving you able to ride through the bad times making real profits (ones that increase with inflation thank you very much) – one thing to note, however is the possibility that the tenant pool cannot afford such rents!

    The modern hedge is to use inflation-linked bonds. These have their par adjusted to real prices as measured by an index. To make the hedge these would need to be in a tax efficient wrapper. That may well be what the next article suggests, but I don’t know how to provide anything better than an ISA wrapper (only £7000), maybe someone with tax knowledge can respond. An example of such a bond would be
    * ISIN=XS0150845880:
    Bank Of Scotland plc’s index-linked floating rate note,
    maturity=2020-04-16,
    coupon=2.64%,
    par=£10,000,
    underlying reference index = UKRPI

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  • @harold,

    I bought my first gold sovereign through ebay, guess what! it weighed 8.2g’s, it has been with the royal mint for months. Go to a coin dealer or jeweller.. should pay around £110-£115 at the mo.. just slightly smaller than a 10p piece approx 7.98g.

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  • sold 2 rent 1 says:

    I bought 100 used Sovereigns before xmas from Chards (taxfreegold)
    If you really want to feel the power of pure gold get a 1 ounze gold Maple (I got mine from kitco)

    I also bought some silver coins too.
    It is almost imposible now to get silver Maples from the Canadian mint.
    They can’t keep up with demand.

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  • Labour are not competant enough to save this country. Simple as that.

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