In today’s issue:

  • Inflation comes in waves
  • Even hyperinflation is an investable trend, if you know how
  • When paper money crashes, commodities soar

You might think inflation is done and dusted. A problem resigned to the resume of last year’s central bankers. But you’d be wrong. Inflation, when it comes, comes in a series of waves. That’s because it is a deliberate policy to devalue government debt.

Whenever governments borrow so much that even austerity wouldn’t be enough to dodge the iceberg, they resort to devaluing money instead.

It’s a lot easier to repay two trillion pounds in debt if it’s worth 20% less after three years of inflation. Just as inflation devalued the millions we owed after the Napoleonic Wars, and the billions after the World Wars, inflation is devaluing our trillions in debt today.

But that process has barely begun. Inflation isn’t crushing our debt-to-GDP ratio like in Greece and Spain. We have several more waves of inflation to go before real progress is made. About ten years, by my maths.

Now that we’re in a new age of inflation, the real question investors should be asking themselves is who to emulate. Which investor was a master at profiting from inflations of the past?

That’s an easy one. Let me introduce you to Hugo Stinnes…

The Inflationskönig

Just as Bill Gross was known as the Bond King, Hugo Stinnes was known as the Inflationskönig – the inflation king. Time Magazine even called him “The New Emperor of Germany”.

Stinnes faced hyperinflation, an energy crisis, World War I, Germany’s impossible debt levels and of course the Spanish Flu pandemic. Basically everything we face today, just an order of magnitude worse for each one.

Stinnes was born in Mülheim, into a wealthy family which owned a coal mine and other businesses. My ancestors likely worked for him as coal miners and I was born in the neighbouring town (a lot later).

Understanding what was to come of the mad Weimar monetary policies, Stinnes borrowed heavily in Papiermark – literally the “paper money” of Germany at the time. And he used the proceeds to buy up mines and other capital-intensive real assets like shipping, forests and steelworks.

Notice these were largely tangible assets – real stuff – paid for in printable money that can have as many zeros as politicians fancy.

Stinnes’ business empire rapidly expanded under the load of debt. In fact, he even became a banker just to leverage up his own businesses even more.

He became Germany’s largest employer in the process – about 1% of the entire German population worked for him. And he was a key figure of the political scene too (in a really, really bad way). But it was all a big gamble on what would happen next.

Inflation devalues debt

As inflation exploded under Weimar monetary policies, Stinnes’ debts became easy to pay off. That’s because those debts were denominated in money, but money became worth less and eventually worthless.

The value and output of Stinnes’ very real and productive assets, meanwhile, soared in price during the inflation. This combination made it easy to repay the fixed debt with vast cashflow.

Stinnes’ lenders got back wheelbarrows full of worthless paper and left him owning a vast industrial empire. It made him the wealthiest man in Germany.

All this happened 100 years ago. But it’s beginning to happen again, if in a far less dramatic way.

When the value of money is less stable than the value of real things

Governments are overindebted. They rely on central banks to keep them funded. And inflation is a cat already out of the bag.

It’s the same setup Stinnes faced.

We are used to the price of commodities fluctuating. But now the value of money is on the move too.

Am I suggesting you borrow a few billion paper-pounds and wait for the value of money to crash as central banks print up the money needed for governments to pay off impossible debts?

No, although remortgaging onto a fixed rate at the start of 2021 would’ve paid off very handsomely.

Instead, consider what Stinnes invested in. His ploy wasn’t just about devaluing debt. He bought real assets – the dirtier the better. That’s because, in a world where money becomes an abstraction that can be controlled by increasingly desperate governments and central banks, it pays to avoid money itself. All assets that rely on the value of money become reliant on money retaining its value. And you can’t rely on that anymore.

Instead, focus on what has value independently from money. Things that you can use. That way, not matter what happens in the monetary arena, your wealth will remain intact.

The obvious example is, of course, gold. That’s because it retains its value over long periods of time. It is the go-to opt-out for the rich. But it’s hardly a productive asset.

So, what real assets should you buy?

Next week, we’ll reveal why you need to change your investment habits to fit the new inflationary era you live in. The sort of age when banks can go bust, the government’s finances are wobbling, money can lose 10% of its value in a year and pension funds almost fail.

It’s a brave new world. One you could profit from, nonetheless. So, keep an eye on your inbox.

Until next time,

Nick Hubble
Editor, Fortune & Freedom