Continental Capital Advisors, LLC October 29, 2010

The German Mark Had Significant Rallies On Its Way To Zero

Following World War I the German Mark lost all of its purchasing power. However, before its
ultimate demise, the Mark experienced several meaningful rallies despite the continuous increase in
its circulation. While one may think that economic or political news and rumors led to the Mark’s
rallies, it is more likely that they resulted from investors becoming overly pessimistic and too one-
sided in their positioning - as is the case today with the US Dollar. Investors have universally
embraced the belief that additional quantitative easing by the Federal Reserve will destroy the
Dollar’s purchasing power and thus boost all asset prices. Similar to the German Mark, it is possible
that the Dollar will experience meaningful rallies before becoming valueless.
Figure 1 demonstrates that the increase in the circulation of the Mark from October 1918 through
February 1920 coincided with a continual depreciation of the Mark’s value. However, the Mark then
rallied by 60% from February 1920 through June 1920 despite the continual increase in its
circulation (Figure 2).

Figure 1. German Mark Depreciation (October 1918 – February 1920)

Dollar Internal Prices of

Circulation Rate prices imported goods
October 1918 100 100 100 100
August 1919 153 285 177 201
September 1919 158 365 195 289
October 1919 163 407 211 384
November 1919 170 581 236 543
December 1919 188 710 265 705
January 1920 191 981 402 1,276
February 1920 204 1,503 506 1,899
Source: The Economics of Inflation by Constantino Bresciani – Turroni

Figure 2. German Mark Appreciation (February 1920 – May 1921)

Dollar Internal Prices of
Circulation Rate prices imported goods
February 1920 100 100 100 100
March 1920 110 85 103 99
April 1920 115 60 99 85
May 1920 118 47 107 64
June 1920 125 40 102 52
July 1920 128 40 104 47
August 1920 133 48 110 50
September 1920 139 59 112 55
October 1920 142 69 107 57
November 1920 142 78 111 58
December 1920 150 74 109 50
January 1921 145 66 113 45
February 1921 147 62 109 41
March 1921 148 63 106 40
April 1921 149 64 106 38
May 1921 150 63 105 38
Source: The Economics of Inflation by Constantino Bresciani – Turroni

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Continental Capital Advisors, LLC October 29, 2010

After June 1920, the Mark resumed its terminal decline as shown in Figure 3.

Figure 3. German Mark Collapse (July 1922 – June 1923)

Dollar Internal Prices of
Rate Circulation prices imported goods
July 1922 100 100 100 100
August 1922 230 124 177 234
September 1922 297 164 276 311
October 1922 645 238 533 652
November 1922 1,456 379 1,018 1,545
December 1922 1,539 637 1,371 1,756
January 1922 3,644 984 2,553 3,420
February 1922 5,661 1,741 5,280 6,349
March 1922 4,297 2,727 4,811 4,920
April 1922 4,959 3,250 5,087 5,389
May 1923 9,665 4,223 7,569 9,817
June 1923 22,301 8,557 18,194 22,496
Source: The Economics of Inflation by Constantino Bresciani – Turroni

The stock market is approaching its highs of the year because of the Dollar’s weakness. However, if
a currency as doomed as the German Mark could rally, then so can the Dollar. Given that it has
become a nearly universal view that the Dollar will continue to fall it is likely that it will soon rally
and thus force asset prices lower.

Daniel Aaronson – daaronson@continentalca.com

Lee Markowitz, CFA – lmarkowitz@continentalca.com
http://www.continentalca.com

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Comments within the text
should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their
broker and personal financial advisors before engaging in any trading activities. Certain statements included herein
may constitute "forward-looking statements" within the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the above mentioned companies, and / or industry results, to be
materially different from any future results, performance or achievements expressed or implied by such forward-looking
statements. Any action taken as a result of reading this is solely the responsibility of the reader.

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