How are you preparing for coming inflation?

Lakedweller said:

Are you buying gold as a hedge against monetary inflation?
Are you reducing debt at the expense of future investment?
Will global stimulus cause global inflation? If every country is experiencing inflation, will we notice?

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I wrote a couple of posts on this topic. Warren Buffet says there is "potential" for high inflation in the future. Past experience indicates that gold and commodities are a hit-or-miss in terms of an inflation hedge. Equities are an effective long-term hedge. Real estate & commodities might perform well. The only clear loser will be traditional government bonds that currently yield less than 4%. Real return bonds are the almost perfect hedge against inflation but the real yields are typically low.

Investing in a period of high inflation
Investing in an Inflationary World

Lakedweller said:

Are you buying gold as a hedge against monetary inflation?
Are you reducing debt at the expense of future investment?
Will global stimulus cause global inflation? If every country is experiencing inflation, will we notice?
This is an excellent forum to discuss how the average family is preparing for the post recession period.

I know I have doubled my mortgage payments and started diverting new investments into gold and gold stocks (while maintaining my existing balanced portfolio of stocks and bonds).
What else are you doing?

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I also have a post coming up next week about this topic, stay tuned!

I'm always waiting with baited breath! Thanks as always.
It has been hard to find good academic knowledge on hyperinflation. I'll pass this on for your late night reading...
http://www.shadowstats.com/article/hyperinflation.pdf
The preceeding is a American report written by a career economist who argues that we are part of a much larger cycle, one that began in 1933, when Roosevelt decoupled from the gold standard. He says that inflationary recession is in place, that the banking solvency crisis has opened the first phase of monetary inflation, and that hyperinflationary depression remains likely as early as 2010. Interestingly, this report was written almost one year ago, with many of his predictions beginning to unfold. I’ll be interested to hear what you guys think. Warning, this is a long, academic read, but well worth the effort.

From an investment perspective I haven't changed anything. When the increased inflation comes I plan to put as much money as I can into bonds when the rates are right.

My primary focus right now has been the same as yours Lakedweller. I want to pay down my mortgage as fast as possible. I've increase my biweekly payments and putting in lump sums. I'm also considering breaking my mortgage and locking in for 10 years. I know variable rates always perform better but I like knowing what my mortgage payment is every month.

Lakedweller said:

Are you buying gold as a hedge against monetary inflation?
Are you reducing debt at the expense of future investment?
Will global stimulus cause global inflation? If every country is experiencing inflation, will we notice?
This is an excellent forum to discuss how the average family is preparing for the post recession period.

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Yesterday the US government posted their latest unemployment numbers being at the level they were back in 1983, even though right now we have very low inflation and money for practically zero

In 1983 when I was in my 30's, interest rates were high, mortgage payment ridiculous, we had little money and even lesser investing opportunities like today, as well being from the old school, leveraging was something not often considered.

My advice is to take advantage of the low rates pay off all debt including motgages as fast possible, max on TFSA & RRSP's.

Funny, and I dont have the true meaning to this, but when you have no debt, it is really surprising how the nature and money gods work in your favour.

Less stress, more productivity, better family life along with improved personal health and outlook on life - all that from my own experiences

Although I think inflation will be a big problem in the future, I still think we have sometime to go to get there. Probably one of the best things you can do right now is pay down the mortgage like MFD and lakedeweller mention. With low interest rates most of your money will go towards principle payment and reduce your payments when we get back to high interest rates.

Free money finance had a good guest post on how to deal with inflationary periods.

I agree with the others advice above about paying off the mortgage, etc. I'm also looking into allocating part of the fixed income portion of the RSP to a real return bond etf (XRB)....but haven't looked into the details of how that performs yet.

With the low interest rates, it is tempting to leverage a bit in the short term though....

I wondered whether someone would bring up the concept of inflationary dollars paying off a locked in mortgage faster. I really don't understand the idea, but I'll try and explain it: Some people suggest that inflation makes the amount of dollars you are earning increase while the value of your mortgage is constant, leading you to be able to pay more of it off. This must be assuming the mortgage is locked at a fixed rate for the whole life of the mortgage.
I don't necessarily agree with the idea, because inflation also causes all of your other expenses to eat up your ability to pay your mortgage. But I'd like to hear from a Professional on this.


Which brings me to the next question of all of you. With mortgage rates the way they are, a 10 year mortgage (the life left in my mortgage) rate is under 5.5%. Would you lock in?

Lakedweller said:

I wondered whether someone would bring up the concept of inflationary dollars paying off a locked in mortgage faster. I really don't understand the idea, but I'll try and explain it: Some people suggest that inflation makes the amount of dollars you are earning increase while the value of your mortgage is constant, leading you to be able to pay more of it off. This must be assuming the mortgage is locked at a fixed rate for the whole life of the mortgage.
I don't necessarily agree with the idea, because inflation also causes all of your other expenses to eat up your ability to pay your mortgage. But I'd like to hear from a Professional on this.


Which brings me to the next question of all of you. With mortgage rates the way they are, a 10 year mortgage (the life left in my mortgage) rate is under 5.5%. Would you lock in?

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I'm already considering it. I wouldn't do it at 5.5% but my mortgage broker seems to think that with competitive pressure the 10 year rate will get into the low 4's. At that rate I don't care what variable is I'll lock in for 10 years.

Lakedweller said:

Which brings me to the next question of all of you. With mortgage rates the way they are, a 10 year mortgage (the life left in my mortgage) rate is under 5.5%. Would you lock in?

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I have a guest post on this very topic on Monday. Ben, an astute reader, will point out in the post that this might be one of those rare occasions when it might be better to go fixed rather than variable because the spread between the two is very small at the moment and inflation has the potential to increase in the future.

A quick check at Invis shows that variable is 3.3% compared to 5-year fixed at 3.99%.

Although we've been having a nice bear market rally that has been given a bit of a boost with the seemingly positive G20 outcome, I still think big inflation is ahead.

I wrote a couple of posts about the prospect of hyperinflation - which, although much more extreme, is sort of the same way of thinking about the problem.

How To Protect Your Wealth From Hyperinflation
Will Hyperinflation Come to Canada?

I've been focusing on paying off debt. So tired of that millstone.

My mortgage is up for renewal next month and I'm going for a 5-year fixed rate for peace of mind.

Has anyone else paid any attention to the prognostications of analysts like Gerald Celente regarding the financial crisis? Celente's been right before on a number of trends - he's a market research and trends forecaster, not an economist, but from what I understand the Trends Research Institute has a hefty data analysis system, they can analyse more than 300 moving variables in all sectors - food, spending, economy, clothes, everything - globally. Anyways listening to more than one interview with Celente has kept me up at night a few times.

Peter Schiff is another great analyst with lots to say about coming inflation.

Financial Highway said:

Although I think inflation will be a big problem in the future...

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my question is when? should i be concerned about paying creditcard-like interest rates when my mortgage is up for renewal in 2012? i realize that forecasting stuff like this is like forecasting the weather...

refutor said:

my question is when? should i be concerned about paying creditcard-like interest rates when my mortgage is up for renewal in 2012? i realize that forecasting stuff like this is like forecasting the weather...

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Probably in 1 to 2 years and in 1 to 2 years the answer will be in 1 to 2 years.

When you go to renew in 2012 you definitely won't be getting 4% mortgage rate but then again I'm no economist....

Question: have the economists finally decided we are in a recession or are they still on the fence like they were for 2 years ?

refutor said:

my question is when? should i be concerned about paying creditcard-like interest rates when my mortgage is up for renewal in 2012? i realize that forecasting stuff like this is like forecasting the weather...

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When we got our first mortgage in 2003 (a fixed-rate at 5.3%), the conventional wisdom was that it would be the lowest mortgage rate we could get in our life. Well, it is much lower now So, who knows what will happen in the future?

CanadianCapitalist said:

I have a guest post on this very topic on Monday. Ben, an astute reader, will point out in the post that this might be one of those rare occasions when it might be better to go fixed rather than variable because the spread between the two is very small at the moment and inflation has the potential to increase in the future.

A quick check at Invis shows that variable is 3.3% compared to 5-year fixed at 3.99%.

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I would imagine that the discussion of variable vs fixed must depend on whether a mortgage holder has a "Prime minus" or "Prime plus" product. For those who have "Prime minus" products, one would be paying significantly more interest if we locked in today with a fixed product. However, if I was in the market today for a mortgage rate, my risk tolerance would convict me to find the lowest fixed rate possible.

Bank "Rate Reset" Pref Shares

I have no mortgage or debt, kids are gone and now looking for conservative income producing investments. I have been reading a lot about the current issues of "rate reset" bank pref shares. Two things I would like feedback on 1)are these as good as they look for current income, particularly after tax? 2)With the "spread" provisions for renewal are they somewhat hedged against inflation? tks

I just heard about this site and was interested in what others thought of the author's arguments. The author, Daniel Amerman, suggests that you should take on debt rather than pay it off in inflationary times. He says don't pay off your mortgage (!) and instead invest that money in commercial real estate or other real assets such as precious metals or commodities.

There's three free instalments available in the minicourse. Very interesting reading.

I can't post the link, so instead google "turning inflation into wealth", and click on the top link which refers to the minicourse.