Benzinga and Yahoo Finance LLC may earn commissions or revenues on certain items via the links below.
Charlie Munger passed away last year, but his broad outlook on life and decades of experience in the financial markets continue to guide millions of people around the world. There’s hardly an issue in the economic arena that Munger didn’t address. With inflation continuing to be a hot topic in America amid rising costs of living, we decided to dig deeper into Charlie Munger’s archives of shareholder letters and speech transcripts to see what he predicted about the phenomenon.
Popular now:
‘More inflation is inevitable’ in the next 100 years
During a Q&A session at a 2023 Daily Journal Corporation shareholder meeting, Charlie Munger was asked about the inflation crisis. Munger made some prescient comments in response:
“I think more inflation is inevitable over the next 100 years with – given the nature of democratic politics – politics in a democracy. So I think we’re going to have more inflation.”
Munger also said the Daily Journal owns securities instead of government bonds because of inflation.
According to Charlie Munger’s archives compiled by The Inoculated Investor, the billionaire was asked about inflation during a 2011 interview at the Pasadena Convention Center.
Munger responded that it was “quite likely” that we would have inflation in the next 50 to 100 years. However, he said that inflation did not stop the success of civilization. At another point, Munger reiterated this point:
“I remember buying ice cream and hamburgers for a dime. On the other hand, after the inflation, the country has done great. A lot of the people who were the Jeremiahs of that time were proven wrong; the country could have taken as much inflation as it got.”
‘Most people will suffer’ from inflation
In 2022, during a speech at the Singleton Foundation for Financial Literacy and Entrepreneurship, Munger predicted that life would become harder for ordinary people because of inflation.
“I don’t think most people are going to do very well with inflation. I think most people are going to be a lot better off, at least the people who have money are going to be a lot better off, if there was no inflation. And so it’s just a matter of how most of them are not going to make a profit on it. Most people are going to suffer.”
The relationship between democratic governments and inflation according to Charlie Munger
During his speech, Munger said he believed inflation would rise because “democratically elected politicians” would “eventually” print too much money.
Whitney Tilson, editor of Stansberry Investment Advisory and founder of Empire Financial Research, is a close follower of Charlie Munger’s life. He has compiled vast archives of transcripts of Charlie Munger’s speeches, dating back to the days when no recordings were allowed at Berkshire Hathaway’s meetings.
According to Tilson’s notes, Charlie Munger once said the following about inflation and its strange relationship to democratic governments:
“I think democracies are prone to inflation because politicians are by nature spenders [excessively] – they have the power to print money and will use the money to win votes.”
Munger said that while inflation continues to rise in the long run, it increases more under democracies. He said there was “no inflation” in the US from 1860 to 1914, which showed “strong growth.”
“I don’t think we’re going to have deflation. The bias is much more pro-inflation than it was between 1860 and 1914. But I don’t think other forms of government are necessarily going to do any better. Some of the worst excesses happen under tyrannies,” Munger said.
Read more:
-
With returns of up to 300%, it’s no wonder this is the investment choice of many billionaires. Discover the secret.
-
You don’t have to own a property to make money investing in fixing up and reselling your home. Start with just $10.
Munger believed that there is no ‘perfect correlation’ between inflation and interest rates
According to the records, Charlie Munger once said that he had never believed there was a “perfect correlation” between interest rates and inflation.
“I think there is a connection, but it is complex and not easily quantified.”
High Quality Companies During Inflation
Charlie Munger found that companies that make high-quality products for a specific niche of customers who can afford higher prices are better positioned to raise prices. He gave the example of ISCAR, the metalworking tools company that Warren Buffett’s Berkshire acquired in 2006.
“Iscar is so good at delivering good products that I find it hard to imagine that they would not sell more to customers who earn more money.”
How to Protect Yourself from Inflation According to Charlie Munger
At a WESCO annual meeting in 2009, Munger was asked by several people about the inflation problem and how to protect against it. Here’s what he said:
“I remember 2c stamps, 5c burgers and the minimum wage of 30c an hour. In the 80 years since those prices there has been a lot of inflation. Has it ruined investment opportunities? No. It is not easy, there are always big risks and of course there will be inflation.”
Munger also mentioned buying government bonds as a hedge against inflation.
“We bought utility bonds to get 9 or 10 percent returns. And inflation, you might ask? Well, government bonds yield 3 percent, so 9 percent is not bad. We don’t have a one size fits all.”
Lock in high interest rates now with a short-term commitment
Leaving your money where it is not earning you anything is like wasting money. There are ways you can take advantage of today’s high interest rates through private market real estate investments.
EquityMultiple’s Basecamp Alpine Notes are the perfect solution for beginning investors. It offers a target APY of 9% with a term of just three months, making it a powerful short-term cash management tool with incredible flexibility. EquityMultiple has issued 61 Alpine Notes Series and has met all payment and funding obligations with no missed or late interest payments. With a minimum investment of $5,000, Basecamp Alpine Notes makes it easier than ever to start building a high-yield portfolio.
Don’t miss this opportunity to profit from high yield investing while rates are high. Check out Benzinga’s favorite high yield offerings.
This article Charlie Munger Predicted Rise in Inflation Was ‘Inevitable’ for Democracies and Shares How to Protect Ourselves from It – ‘Most People Will Suffer’ originally appeared on Benzinga.com
