When Earnest Hemmingway traveled to Germany in the fall of 1922, he bought an apple from an old lady at a local market. A German gentleman asked Hemmingway how much he had paid for the apple and determined he couldn’t afford what Hemmingway had paid. Hemmingway had paid the equivalent of a third of a cent per apple, almost nothing even back then. Hemmingway got a great deal. The German gentleman was destitute.
When inflation rages, it pays to store your wealth in the right places; storing your wealth in strong assets that preserve value as a currency depreciates protects or even grows value for yourself. The same holds true with income. We should put our income, if we have any choice in the matter, in something strong that preserves its value.
The corollary to that general rule of putting your wealth and income into strong assets during inflationary times is to put liabilities and expenses into weak assets and weak currencies that depreciate.
The name of the game to maintain or build wealth during inflationary times is to have your assets, liabilities, income, and expenses in the right places. Wealth and income in strong assets and strong currencies. Liabilities and expenses in weak assets and weak currencies. Those moves only work if done before inflation rages. Once inflation becomes obvious, it is too late.
Hemmingway received his windfall because his wealth and his income were in strong assets and strong currencies while inflation raged in Germany in the 1920s. The poor German gentlemen, may God bless his soul, had his income and assets in the depreciating currency. He most likely invested all he had in German government debt. He got toasted.
Assets and income in strong places. Liabilities and expenses in weak places. That is the name of the game if we see an inflationary environment ahead.
