Which Equities Can Best Survive Hyperinflation?

Which Equities Can Best Survive Hyperinflation?
Which Equities Can Best Survive Hyperinflation?

Gold and silver are currently in the midst of their most powerful rally since the bull-run from 2009 – 2011.

At the same time, U.S. equities are only a few trading days off of their extreme bubble-highs. These equities bubbles have been built – 100% -- from the hyperinflationary increase in the supply of U.S. dollars by the Federal Reserve.

It is widely understood by anyone familiar with our monetary system that gold and silver will be the premier assets in any hyperinflation scenario.

But what about equities? Will they thrive or dive? Which stocks are most likely to outperform?

For several reasons, gold and silver mining stocks will likely be the best-performing class of equities in a hyperinflationary environment.

Bullion prices have pulled back recently. But there is no chance of this rally being extinguished. This is because the primary driver of higher gold and silver prices will continue into the foreseeable future.

Hyperinflationary money-printing is the ultimate driver of precious metals prices

Gold and silver are money, real money – unlike the paper currencies that we carry around in our wallets.

These metals have been money for human beings for 5,000 years. Billions of people (without access to banking services) continue to rely upon gold and silver as their principal money.

Even in the absence of an official gold standard, gold reserves are the premier monetary asset of the world’s central banks.

This is worth repeating. The creators of all the world’s paper currencies regard gold as being above their own paper currencies. Indeed, over the past decade central banks have been dumping their paper in favor of gold at an unprecedented rate.

If the manufacturers of Ford automobiles started selling their Fords to buy Toyotas, what would that tell you? That’s right, the central banks themselves are losing confidence in their own fiat currencies.

It’s all a matter of arithmetic.

Relative to fiat currencies, the supply of gold and silver is flat.

U.S. money-printing is out of control

Meanwhile, central bankers are conjuring their paper funny-money into existence at rates that have never been seen before. Just look at the supply of U.S. dollars.

After decades of relative stability, the Federal Reserve has increased the U.S. monetary base by a factor of six.

The supply of gold has remained the same. The supply of U.S. dollars has sextupled.

All other things being equal, the price of gold should increase by a factor of six versus the dollar.

Of course, all other things are not equal.

The U.S. economy is crumbling

Supplies of gold are historically tight and investment demand has soared. Gold is hot.

Meanwhile, at the same time that the U.S. dollar has been diluted by a factor of six, the U.S. economy has collapsed.
In short, the orgy of U.S. money-printing from Jerome Powell may have kept U.S. equities bubbles and bond bubbles and real estate bubbles inflated (for the moment). But it has done nothing to resuscitate the real economy.

The only reason why the Federal Reserve’s printing press has paused (momentarily) is because the squabbling children in Congress can’t decide how many more trillions to spray at the real economy – to delay complete implosion.

The U.S. dollar is being diluted at an unprecedented rate. At the same time, the imputed value of the dollar is collapsing as the U.S. economy crumbles.

This is the general scenario for most hyperinflation events. Extreme currency dilution simultaneous with an economic collapse.

U.S. hyperinflation is inevitable

In short, the hyperinflation of the U.S. dollar (and other fiat currencies) is not a question of “if”. It is only a question of “when”.

Where can investors find shelter?

Bonds (of fundamentally insolvent governments) pay no yield and are priced at ridiculous bubble-highs. Near-zero interest rates have also driven urban real estate prices to extreme bubbles.

There is no shelter in bonds or real estate.

What about equities?

Obviously, equities that are already (objectively) overvalued will not provide shelter for investors when the consequences of U.S. hyperinflation arrive.

Nominal prices for most equities will continue to rise. But in real dollars, the collapse in purchasing power that accompanies hyperinflation will make it mathematically impossible to maintain bubble-like multiples on U.S. (or any other) stocks.

This means that as hyperinflation arrives, the only real shelter to be found in equities will be in value stocks.

The stocks with the most modest (and rational) valuations today will provide superior shelter for investors versus stocks with richer multiples.

Gold and silver mining stocks will lead the way

Gold and silver will be the best-performing assets in a hyperinflation event. This makes gold and silver mining companies the strongest value propositions among equities for forward-looking investors.
Within the precious metals sector, silver (and silver stocks) will almost certainly outperform gold. We’ve explained this before in detail – back in March with silver trading below $15 per ounce.
The problem for investors in mining stocks is that there are hardly any primary silver mining companies. Decades of gross under-pricing of silver has nearly wiped out the silver mining industry.

This means that gold mining stocks will form the bulk of any investor’s precious metals mining portfolio.

Here it’s worth nothing that gold mining stocks began this year’s rally priced at historic lows versus the price of gold itself.

In other words, at a time when investors should never be more focused on seeking value, gold mining stocks have never offered more value to investors.

A no-brainer.

Gold and silver bullion will be the premier Save Haven assets for those with the wisdom to seek them out.

For investors looking for equities with real growth potential, or simply wanting to add a little diversification to their asset mix, gold and silver mining stocks are the clear choice.
Opinion, Original Content, Stocks