Karl Reichmuth Recommends Real Assets as a Recipe against Inflation Threats
By Beat Gygi | Published in Weltwoche No. 33.21
Is inflation lurking around the corner? This is the question most investors, economists and politicians are currently asking. They are looking nervously at recent price increases in the U.S. and Germany, which where inflation data jumped above 2 percent, usually considered the threshold for price stability. The debate is also becoming more intense in everyday life, among craftsmen and industrial entrepreneurs, whose procurement prices have soared by ten or more percent this year, depending on the situation, and the extra costs have somehow had to be passed on to customers.
In Switzerland, however, no sharp increases in the consumer price index are yet noticeable, which is, after all, the common measure of inflation for normal consumer goods – even though it fails to factor in exuberant real estate and luxury goods prices. But the extremely loose policies of central banks, which continue to flood the markets with cheap money, are contributing to a darker outlook.
But how and where should one invest, when money itself is set to lose value? That’s when one’s gaze falls on the book: “New currencies in sight – private money against the central banks’ money bubble”, recently published by banker Karl Reichmuth of the namesake private bank. That sounds promising – but is it realistic that a private currency, created by private individuals, could ever stand against “official”, government money? Absolutely, as Reichmuth explains in an interview in the book. Anyone can create some kind of currency. You have to look at the real, not the nominal money, he says. What is real? He explains it memorably in the interview: “When my father, a master cheesemaker born in 1900, signed over his pig farm to my brother in 1963, the notary asked him what he wanted to ask as an old age provision for the lease, especially as there was no state pension at the time. His answer; each month, he wished to receive the equivalent of a fattened sow.” Reichmuth was, as he says, embarrassed at the time that his father did not want to agree on a rent amount, but he then explained to him how nominal assets not backed by anything of real value could be lost through creeping or galloping inflation or even currency devaluations.
What’s today equivalent of the fattened sow? Our modern equivalent must also be of real value, that represents something desirable, that satisfiies needs, or a kind of solid natural resource, more or less indestructible. The answer: in principle, these are good products from companies that are always in demand. But wait, you can’t buy and hoard these directly, that’s unthinkable – so you look at what comes closest.
These are shares of those companies that produce those good, desirable products, and their valuation on the stock market is closely related to the value that the company provides to customers. By buying Nestlé shares, for example, you figuratively exchange your money for food security, by buying Roche shares you exchange your money for healthcare, and by buying Disney shares you exchange your money for entertainment. In this way, one can include food security, healthcare and entertainment in their portfolio. These are meticulously developed quality products, which are valued by customers and thus enjoy strong, stable demand.
If the overall price level were to shoot upward at some point due to inflation, the prices of these shares should rise simultaneously, so their real value should be preserved, as in the case of the sows. Of course, nothing can be predicted with certainty, but one thing is clear: if you want to protect your money from losing value, you have to hold shares in well-managed companies whose business activities create value for their customers. And as mentioned before, anyone can access investments like this, which is a triumph of the market. About twenty years ago, Reichmuth already came up with the idea of investing your money in a suitable combination of quality shares, in a basket, a fund, which also contains cash, gold and other precious metals. If you then take this “basket” and divide it into small fractions, you’d get x morsels of the real economy and the property titles it includes.
These morsels, or fractions, or “RealUnits”, as Reichmuth christened them, could be used and traded like the franc or the dollar, but unlike their fiat peers, they’d be firmly linked to products and services from the real economy. The book also discusses other alternatives to state currencies, such as cryptocurrencies and their underlying blockchain technology, but the “RealUnit” as a store of value seems particularly close to reality because everyone is free to invest in this way on their own accord.
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