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Legendary Investors Are Bracing for High Inflation, and So Should You

Last Updated September 23, 2020 2:31 PM
Chinmay Pandya
Last Updated September 23, 2020 2:31 PM
  • Legendary investor Warren Buffett and Bridgewater Associates founder Ray Dalio are hedging against inflation.
  • More stimulus packages will add to the national debt; as the Federal Reserve steps in to monetize the debt by printing more money, inflation will rise rapidly.
  • The time is ripe for retail investors to follow Buffett and Dalio’s lead and brace themselves for rapidly rising prices.

Recently, Warren Buffett dumped U.S. banks and gained exposure to gold in the form of Barrick Gold. That was followed by overseas investments in Japanese companies with various businesses, including mining and energy. 

According to Jim Paulsen, the chief investment strategist at the Leuthold Group:

Prices of gold, inflation-linked bonds, and some commodities have surged since March on fears that global central banks’ more than $9 trillion of stimulus to combat the pandemic will spark higher inflation. The Federal Reserve indicated last week it will be slower to move to curtail inflation should it run above its 2% target. At the same time, lower valuations and a continued decline in the U.S. dollar, now near a two-year low, could make Japan and other international markets more attractive for U.S. investors.

It looks like the Oracle of Omaha is preparing for higher inflation as the dollar declines.

Ray Dalio Follows Buffett’s Lead

Ray Dalio, the founder of hedge fund giant Bridgewater Associates, echoes Buffett’s sentiments.

It was reported earlier this month that Bridgewater Associates no longer considers conventional bonds a hedge against inflation.

A chart showing slumping bold yields.
Bond yields have continued their long-term downtrend. | Source: MSN 

Bridgewater has tweaked its all-weather portfolio by dumping bonds and moving into gold.

Meanwhile, billionaire Stanley Druckenmiller has also come forward to voice his concerns about inflation:

Former Federal Reserve chairman Alan Greenspan also joined the chorus recently.

Own Hard Assets to Hedge Against Inflation

While these legendary investors brace themselves for an inflationary scenario, the general populace can as well. Gold and silver are the most famous hedges against inflation, but owning property can pay off in the long term.

Real estate is one of the best hedges against inflation. This video explains why:

If you consider recent events, rapidly rising prices aren’t very far away. For example, the U.S. government was forced to bail out the entire population as the pandemic-induced shutdown caused massive job losses and bankruptcies.

The Coronavirus Aid, Relief and Economic Security (CARES) Act alone adds $1.8 trillion to the deficit . In truth, this money was created out of thin air. The Federal Reserve funded this bill by buying government-issued bonds. Once again, the Fed had to resort to printing money, which it did recklessly.

Excerpt from the new
The Fed and the U.S. government are working together to create money out of thin air. | Source: New York Times 

It turned out that the CARES act wasn’t enough, and there could be more stimulus on the way. It looks like Nancy Pelosi will go to all lengths to ensure more fiscal stimulus. 

As the Federal Reserve keeps buying government debt with printed money, inflation will take off along with the national debt . As a result, asset prices will rise, and the dollar will lose value.

Besides holding gold or silver, owning land or property would be a great way to weather the storm because any idle cash will continue losing purchasing power.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.