Currency Inflation That Most Never Noticed


 

QUESTION: Mr. Armstrong; I find your anecdotes fascinating and very enlightening how you always bought German cars and made money on them.  Is currency the primary reason people often think something is a good investment when in fact it is really just currency fluctuations?

PVB

ANSWER: You are hitting the nail right on the head. The decline in the dollar throughout the 1970s made German cars appear to appreciate and this was attributed to quality. This was the entire reason why the German car industry exploded. I have often stated at WEC conferences that I made the same play with a Ferarri in London. When the British pound dropped to $1.03 in 1985, I ran out and used the currency to make some deals. I bought a 328 Ferarri for about $30,000 when in the US it was a $50,000 car. Because the pound had dropped, Ferarri could not afford to sell them in Britain at that price so they raised it £45,000.

As you can see from the chart I provided, the pound bottomed in February 1985 at $1.0345. After Ferrari raised the price and then the pound went to nearly $2, suddenly a car that cost me $30,000 had a replacement cost of almost $100,o00. This is what led to many people buying several Ferraris and garaging them thinking that the car was the investment.

Currency Inflation is probably the most misunderstood economic force in the matrix. Probably 99% of economists and investors remain ignorant of such trends because they have never dealt in the international world of finance and focused only domestically. Those of us who have been hedge fund managers and worked internationally understand the fluctuations of currency and its impact. This is a lesson still not taught in school and politicians remain oblivious to the real implications.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.