The ultimate inflation play

In the ongoing inflation/deflation debate as to which will imminently befall us, it appears to me that the ultimate inflation play would be Warren Buffet’s Berkshire Hataway stock. So that if you were convinced that either inflation or, God forbid, hyperinflation will shortly follow, this is the stock you should have owned till now and should certainly own for the foreseeable future.

For my part, I have been a proponent of the theory that we’ve reached the limit of this inflationary cycle. Granted, till recently my conviction was more based on gut feeling than anything else. But as I become more apt at creating charts, I gradually uncovered evidence that leads me to believe my gut feeling was right.

What I and many of my interlocutors found hard to explain was why, if we are in deflation, is the purchasing power of currencies not appreciating. It is only a few years ago that I began to think that in a world of floating exchange rates, financial value has become un-anchored from intrinsic value. If this was the case, then how could we measure intrinsic value and, if I am right, would not this measure also evidence the onset of deflation?

That’s when I began to plot the purchasing power of all major currencies against the purchasing power of gold bullion (charts 430 to 450 from page 3):

In the above charts, you will notice that all major global sovereign currencies have been losing purchasing power when compared to gold. In other words, gold is once again taking-on the role of currency.

If that is the case, then it can be argued that an increase in the purchasing power of gold to the detriment of sovereign currencies, is evidence of deflation in the wider economy.

Below you can see how Warren Buffet’s Berkshire Hathaway stock has performed when compared to the value of gold bullion:

Of course, we cannot know if this trend will continue one month, one year or ten more years. Nonetheless what is clearly and empirically visible is that when measured in the value of gold, we have been in deflation since about 2000.
By extension, the fact that most people having noticed an increase in their cost of living are fretting about inflation is not because prices have risen, but rather because sovereign currencies have lost value due to aberrant monetary and economic policies.
You can see more household name corporations stock prices compared to the value of gold on page 5 and 6 of the above charts.

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