The Inflationista Portfolio

I’ve been growing pretty tried lately of the never ending debt scaremongering. The story typically involves some catastrophic spike in inflation and interest rates which always seem to be right around the corner. My initial thought to this was if they are so prescient and informed on financial and economic matters (and they’ll have you believe they are) then they should be able to make some serious money considering only they know the Truth about how e-co-noom-iks works, right?

Well, lucky me that I happened to stumble on this little gem: The Aftershock Survival Summit (youtube link)

It’s kinda funny how I came across this. I was reading Krugman’s blog (surprise, surprise) and arrived at this post. I found the tweet and followed the link to a response article by Joe Scarborough who asserts that no serious economist thinks the debt is not a problem. Of course he’s wrong but when I got to the end of the rant there were several links from “Around the web.” One of them, Controversial Video Spreads Virally After Being Banned, I clicked out of morbid curiosity and woooooooooow. So this is what lies at the heart of the Inflationistas’ core. This is what keeps them up at night. It’s terrifying! Well, luckily Robert Wiedemer has given us some of his sage advise on how to “build a wall around” our precious, precious wealth to protect it from the coming monetary apocalypse!

Ok, obviously these guys are not playing varsity here, but what they’re saying really isn’t any different from what popular deficit hawks say on mainstream news shows every day. What if I had seen this video when this video was uploaded (July 11, 2011) and went all-in Inflationista? I mean put some real money on the table. How would I have done? I decided to find out.

I put together a portfolio of as many of the specific investments Mr. Wiedemer mentioned: gold, foreign currency, short dollar index, evenly split $100,000 among them, and recorded the buy price as the close price for July 11, 2011. I also made a completely average, market-based portfolio split evenly between the Dow Jones, S&P 500, and Nasdaq; this being what any dummy could get by simply putting money in the top three U.S. market indexes. Unfortunately I had to add the dividends manually from the Google Finance portfolio. I constructed a simple Google spreadsheet since there doesn’t seem to be a way to publicly share portfolios on Google Finance (if anyone knows of any other way, please let me know). It will automatically update to the latest day’s prices.

So how is the Inflationista’s Portfolio doing since the Prophecy Of Doom? Not too well. As of today this has clearly not been a winning strategy; you would be $8,719 (-5.8% CAGR) poorer. Compare this to the $19,721 (+12.4% CAGR) more money if you simply put your money in the market averages. Granted, we haven’t seen the sky-high inflation of the prediction yet, but isn’t that the whole point? They’ve been telling us this over and over and at some point you gotta put your money where your mouth is. Now I ask you, based on this investment portfolio, would you have taken the Inflationistas’ financial advice? Because if you wouldn’t, how can you actually believe the logic underling such advice? And if that doesn’t convince you, maybe you should talk to Bill Gross and John Paulson who actually lost their shirts with such a bet.

Update: I decided to substitute in SPDR Gold Trust ETF (GLD) for the Market Vectors Gold Miners ETF (GDX) since the former had done much better over this time period. Unfortunately the portfolio still loses $3,959 (-2.6% CAGR).