Warren Buffett's been reading a cult book on monetary disintegration from the seventies – and hopes the world's financial wizards can learn some timely lessons. Bengt Saelensminde explains.
It was written by a Brit, Adam Fergusson, and is about the economic crisis and money-printing in 1920s Germany.
During the seventies people feared money printing as a way of tackling the economic crisis, and were horribly fascinated by what had happened in Weimar Germany.
Today it's the same story and that's why the book's top of the pops again.
The Germans are swapping their cash for hard assets
In fact it's the Germans who are more concerned than anyone about our current financial circumstances. Of course it's natural that they would be, as it's part of their own recent history. In fact I've witnessed their nerves first-hand...
I've had an unprecedented number of Germans offering to give me their cash. That sounds better than it is. Let me explain.
In 'When Money Dies', Adam Fergusson describes how money printing ended up in inflationary disaster. Money became worthless and Germany ended up in a barter economy. That's when hard assets are the only thing worth holding - a sack of potatoes for a silver candlestick, that sort of thing.
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So what is it that the Germans want from me right now?
One of my hobbies is renovating old stone buildings in southern France. (And yes, it's the same thing there as here... Eastern Europeans do the hard graft while the missus flounces around with a colour chart). When they're done, I put the properties up for sale, or rental.
Up until recently, the main interest was from Brits, Irish and a smattering of Scandinavians.
But now the Germans are descending on Languedocian France. While some of them have been buying gold, others have been looking for bricks and mortar in the sun.
And this newfound interest from the Germans came just as the ECB announced money-printing ideas and the euro plunged. The Germans are not impressed. They know how this story could end, and they want their money in hard assets, not currency.
How will this affect us in the UK?
Despite our own Government's hard talk, if the rest of the world cranks up the printing presses again, so will we. I just can't imagine any other scenario.
By recommending Fergusson's book, Warren Buffett is hoping that the authorities will see what happens when you resort to printing money... and he hopes the financial wizards won't go crazy on magic QE.
But frankly nobody knows how this will pan out.
Print money to avoid depression and you risk inflationary disaster. Alternatively maintain your currency and hope society can cope with austerity.
This looks like a fifty/fifty call to me.
To keep your wealth, it may be a good idea to shift it around...
Regular readers will know that I'm not a great fan of property as a pure investment (not at today's prices anyway). I got involved because I happen to have the building and renovating bug.
I'm just saying that second homes are becoming a home for nervous money, and that you should also think about transferring cash into hard assets.
If you're not worried about runaway inflation, I'd say you should be. Read Fergussons' book, and see what you make of it.
Bear in mind though, I reckon we'll be heading for deflation before inflation. That gives us all more time to make our move.
This article was first published in the free investment emailTheRightSide
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Bengt graduated from Reading University in 1994 and followed up with a master's degree in business economics.
He started stock market investing at the age of 13, and this eventually led to a job in the City of London in 1995. He started on a bond desk at Cantor Fitzgerald and ended up running a desk at stockbroker's Cazenove.
Bengt left the City in 2000 to start up his own import and beauty products business which he still runs today.
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