5

A few people here may have lived in a geographical area (Zimbabwe, Argentina, etc) which experienced hyperinflation in the last century, so any stories will be valuable related to the stock exchange of the country.

Pro precious metal types ("buy gold") sometimes use a hyperinflationary scenario as an example where owning gold is better than owning other assets. I do recall some family members mentioning inflation during the 70s in the United States and what it was like to go to the store and shelves of some good were empty because consumers knew that their price could rise later, as well as a few of them mentioning that the price rose while they were in the checkout line (this wasn't even a hyperinflationary scenario) and when I look at the S&P 500 during the 70s, it performed rather poorly (see this).

But that wasn't hyperinflation. So what happens to stock markets (or stocks) during hyperinflation? For instance, if a person owns $10,000 of the S&P 500, yet the dollar is hyperinflating at 50% a month, unless the S&P 500 is off-setting that loss every month, that person is becoming poor fast. There is this case from ZeroHedge, but is that how these events typically occur?

  • 4
    What are you calling Hyperinflation as the US of the late '70s was known as "stagflation" as while the prices rose each year by x%, salaries also rose that offset the gains in a sense and is why one may want to look into more economic components here. – JB King Oct 30 '14 at 18:43
  • I noted that about the 70s, see (this wasn't even a hyperinflationary scenario). As far as hyperinflation, I believe the definition is inflation exceeding 50% a month (from an ECO class). – user541852587 Oct 30 '14 at 18:56
  • 5
    Common sense would dictate the stock prices to rise to reflect the rise of the NAV compared to the currency value. However, hyperinflation is a side effect of an economic crisis which means that common sense is not a common commodity. – littleadv Oct 30 '14 at 20:17
  • 1
    Area==Era? Company earnings, almost by definition, should track inflation. Gold would be more of a doomsday investment rather than an inflation hedge. TIPS would be more appropriate for hedging inflation... – Guy Sirton Nov 2 '14 at 3:26
  • @GuySirton Interesting about gold being for doomsday; as for TIPS, per the IRS, 401k contributions in 2005 were $14,000, next year, they'll be $18,000, which is a 21% cost of living increase in a decade (what I call inflation). Over that same time, based on my research, TIPS is only up 8% (unsure if this is including distributions, which would have an impact). – user541852587 Nov 2 '14 at 15:25
5

Stocks in the Weimar hyperinflation are discussed in When Money Dies. I don't own a copy of the book but here is a link to a blog post about it.

Speculation on the stock exchange has spread to all ranks of the population and shares rise like air balloons to limitless heights

Basically, the stock market did very well (i.e. the US dollar value of stocks increased quite a lot. Of course, the price of everything increased if measured in marks.) Quote from the article:

Bottom line: In marks, stocks had an amazing run. Even in USD they had a nice runup.

It makes sense that the stock market would skyrocket because (a) if money has no value, then people will want to replace money with tangible things like goods, and since a stock represents a share in the factories and things which a company owns, it makes sense that you would want them and (b) if money has no value anyway, why not gamble with it?

I would be interested to hear what happened in other hyperinflations.

  • I'll give you a +1 when I get more reputation because I think your provided example is good and I like the book recommendation. The only trouble I have is how many alternatives did the Germans have? For instance, if many of them couldn't have gotten access to gold, like we can today, maybe the stock market rose because that was the main alternative they all had access to. – user541852587 Oct 31 '14 at 9:57
  • 1
    Did stocks "do very well" in absolute terms, or just relative to the plummetting currency value? – DJClayworth Oct 31 '14 at 14:24
  • @DJClayworth that seems to be answered in the link I posted. – Flounderer Oct 31 '14 at 22:20
  • 1
    If you could make that clear in the answer, that would be excellent. – DJClayworth Nov 1 '14 at 14:39

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.