What Value Inflation-Linked?

One of the many market-related websites I follow is a blog written by the fund managers of a major British Insurer with a large Asset Management component.

As such I tend to discount some of what they write given that I assume that in general they are "talking their book" which in this case means the portfolio(s) they manage.

Still, I find them interesting, especially when they get a little more esoteric so when they held a raffle the other day to win the book "When Money Dies" by Adam Fergusson I didn't detect anything untoward but rather thought it an interesting topic-the nightmare of the Weimar inflation.

I didn't win the book but purchased it anyway and found it to be an interesting read which did an excellent job not only discussing the causes and effects of inflation, but also adding the socio-political aspects within Germany in the aftermath of their defeat in World War I.

It was therefore somewhat surprising if not outright disturbing to find out a week later that the aforementioned asset management firm was launching two inflation-linked corporate bond funds, and the book raffle was actually part of their pre-launch marketing.

Obviously there is nothing wrong with marketing a fund, and one could even say that it was relatively educated to do so by suggesting a book as part of the marketing campaign.

My problem is in the immediate comparison they are trying to make between the horrors of hyper-inflation in Weimar Germany and the current environment. I understand the value of comparing the present with the past, but also feel it is necessary but not sufficient to just compare- one must also contrast the past with the present.

This marketing piece amounted to little more than scare mongering at a base level-I wonder how many readers of their blog actually read the book, or did they just want to plant the idea/fear of hyperinflation as a precursor to their new fund?

But what really concerns me, and I don't have an answer, but somehow I doubt that inflation-linked securities are actually a protection against hyperinflation. I have severe doubts that an interest rate pegged to inflation but connected to a worthless currency is a viable defense against hyperinflation. It becomes even more unlikely when the issuer's involved are non-sovereign and might very well not survive the hyperinflation.

In 1923 Hjalmar Schacht revalued the German Mark by wiping off 12 zeroes. With that action he essentially created a clean slate for the new currency, and defaulted on the national debt accumulated in the 7 years since the start of the first World War.

Anyone holding debt in the old currency, regardless of the issuer, was instantly wiped out.

If we are not on the cusp of hyperinflation why put that "pistol on the mantelpiece", and if we are, is investing in an inflation-linked corporate bond fund really the answer?