Weimar’s "Inflation King": Who Was Hugo Stinnes?
During times of economic depression throughout history, certain individuals stand out as titans who navigated the treacherous waters of financial turmoil with remarkable finesse. Hugo Stinnes, often referred to as the "Inflation King," was one such figure. Born in 1870 in Germany, Stinnes left an indelible mark on the world of finance during the tumultuous years of hyperinflation in the Weimar Republic. This article explores the life and legacy of Hugo Stinnes, shedding light on how he became a key player in an era defined by economic upheaval and how we can learn from him and shape our portfolio in a time of elevated inflation.
The Weimar Republic, established after World War I, faced severe economic challenges, including reparations payments, high unemployment, and, most notably, hyperinflation. The German government's decision to print excessive amounts of money to finance its debts led to an unprecedented devaluation of the currency. Prices skyrocketed, and the mark became virtually worthless, leading to widespread financial ruin for many.
Amidst this economic turmoil, Hugo Stinnes emerged as a central figure in the business world. He astutely recognized that during hyperinflation, tangible assets like factories, mines, and real estate could become far more valuable than cash. Stinnes embarked on an aggressive buying spree, acquiring various companies and assets at a fraction of their pre-inflation values.
Stinnes' strategy was brilliant in its simplicity. He borrowed colossal sums of money, which, due to hyperinflation, were effectively eroded in value, and used these loans to buy up hard assets that retained or even increased in value. His acquisitions ranged from coal mines to newspapers, making him one of the most influential industrialists in Germany.
Owning debt during times of rapid inflation is a great investment strategy (assuming you’re using the debt to purchase appreciating assets). Say you take out a loan of $100,000 and in 5 years when the loan is due, the dollar has devalued significantly. That $100,000 loan is now really worth much less because the dollar has inflated. All the while, you have been using that money to purchase hard assets that have either kept pace with inflation or maybe even outperformed the rate of the inflation. That’s what Stinnes did. Germans were becoming poorer by the day because their currency was devaluing, but Stinnes was using that to his advantage by taking loans and using devalued money to pay back the debt.
He acquired interests in the steel industry and power, gas, and water utilities. By a process of acquiring and consolidating industries, he was able to control the complete industrial cycle, from raw materials to distribution. From cutting lumber to publishing newspapers, from mining coal and iron ore to shipping automobiles, tools, and machinery all over the world, Stinnes companies handled every phase.
Hugo Stinnes died prematurely in 1924, just as the hyperinflation crisis was beginning to subside. His death marked the end of an era, but his impact on the German economy and the business world endured. The Stinnes Trust unraveled in the following years, but Stinnes' legacy as an economic visionary and masterful strategist remained intact.
What Can We Learn
The lesson here is that hard assets have a place in our portfolio and can greatly diversify our assets. Many economists and market researchers are predicting that the inflation we are seeing today will be “sticky”, meaning that it will be around for a long time. The theory is that the landscape has completely changed due to that massive amounts of pandemic stimulus that was introduced into the system. This “new” money will have lasting effects on our economy.
How To Invest In a Period of Inflation
While most of us do not have the capital to purchase businesses within the steel or coal industry, we can still learn quite a bit from Stinnes and how he navigated a period a hyperinflation. Below I’m going to detail an easy way to invest in hard assets for my premium subscribers - make sure you check this one out!