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Defense - Duck and Cover
Old 05-25-2016, 03:46 PM   #1
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Defense - Duck and Cover

Since I am essentially financially illiterate, my question doesn't have to do with what to do about investing, but rather a more general question of how to handle a possible financial upheaval in the coming year or two.

I came across some interviews and articles by David Stockman, that made me think about the "what if's" in the economy. With most of my worth involved in home ownership, IBonds, fixed interest annuity dollars, small amounts of stock and cash, I would not try to begin to speculate now.

Hmm... so what's left? And that's what I'm asking. Whether deflation or inflation, a major long term change in the national economy will mean (for DW and me) going in to a defensive mode. And that's the question.

What to do to minimize the effect of whatever may happen. With no prospects of increasing our assets by working or of investing, what steps to minimize negative effects of a changing economy,

First thoughts go to the "prepper mentality"... To buy today, what we may not be able to afford, tomorrow. To stash food.. hoard expendables, put in stores of those items that may be too costly in the future, such as medications. That's probably a naive thought, but are there other defensive measures that might work?

Another thing that might come into play is our ownership of two relatively low value properties. There, the thought is that these properties could maintain or increase in value, to become low cost residences for middle class people who could no longer afford their long term mortgage obligations.

We have already relocated and downsized to a lower cost income area, so the nominal costs for goods and services are much less than more metropolitan areas.

As to the interim period. We have decided not to upgrade or improve our living quarters, first because the home is in relatively good condition with newer appliances etc. Secondly, unless absolutely necessary, we will not buy newer cars (down to about 6K travel miles/yr).

My current belief is that a recession, if and when... would more likely result in inflation, rather than deflation... and that the term would be between five and ten years, so the duck and cover part would likely be for the rest of our lives, so not a ten or twenty year horizon.

This probably sounds like doom and gloom, but simply a what if scenario. If you are in your 40's, 50's or 60's, your own plans will naturally be different. If your financial health is supported by investments, your own "duck and cover" would be different... the ability to recover along with an improving economy.. or at worst, to go back to work.

So, in lieu of your own plans, how about imagining that you would be advising your own aging parents. What would you suggest?

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Old 05-25-2016, 04:00 PM   #2
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Paid off place to live and ability to go camping.

I figure I can fish and eat wild plants (mulberries are ripening on the tree now, other plants come in season soon) for a number of months. I don't take any meds.

I routinely spend a week or two in the wilderness away from electricity and cell phones every year, so it would not be a hardship.

But I'm not expecting any upheaval until 2099 or so.

Probably the best line of defense is to stop reading the preposterous internet things you are reading. Get some Common Sense, please.

Our parents are dead, so they won't be taking our advice anyways.

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Old 05-25-2016, 07:09 PM   #3
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No words of great wisdom from me, just some not-very-useful generalities:
1) The things we'd do to protect against inflation (e.g. take out a big fixed mortgage and pay it off with money that is worth less and less over the years, etc) can put us in a bad situation in things go bad in a different way.
2) Trade/interdependency is the key to modern prosperity. Our individual/corporate specialization has allowed efficiencies and optimizations that are well out of reach to anyone trying to do things as an island (ref the short classic "I, Pencil'). While it may make sense to try to be autonomous for a brief period in a crisis (weather calamity, loss of electricity, brief breakdown in social order, etc), it's impractical for 99% of people to try to be entirely self-sufficient for an extended period.
3) I do think it is possible, given recent national events we are all participating in and which are now unfolding (and that don't bear discussing ere), that the US's economic course may be more erratic over the next 5 years or so than I previously would have estimated. Those who believe this way may want to diversify into the markets of countries that appear to have relative advantages over the US,--if any thar be.
4) Your idea of becoming a landlord appears to have some attractive points, but will you want to put in the time to do that as the years roll by? And if you pay someone else to manage the property, what will the expected return on investment be? Would it make sense to instead invest in companies that own large amounts of residential rentals, letting them do all the work? You'd be betting on an influx of new renters moving from the homes they own now--so betting that the government won't bail out homeowners again and betting that the new glut of foreclosed homes won't be bought at low prices and put into service as rentals, undercutting your hoped-for rents. That's not a bet I'd be willing to make, but I don't claim to be an expert.

New member "king smoothie" started a slightly different but related discussion here a couple of weeks ago, there may be something in that thread that you find interesting.
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Old 05-25-2016, 07:51 PM   #4
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Originally Posted by samclem View Post

New member "king smoothie" started a slightly different but related discussion here a couple of weeks ago, there may be something in that thread that you find interesting.
Thank you... I missed that completely. I guess it covered the same kind of ground, so best to let this one die. Ends up in too much negativity I suppose.

Besides... I think I have to get some common sense.
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Old 05-25-2016, 08:08 PM   #5
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I'm still practicing what Pops told me and I'm still stacking dough. Can't tell him anything he's been dead for 2 years.

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Old 05-25-2016, 09:51 PM   #6
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Old 05-25-2016, 09:56 PM   #7
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I don't foresee any calamities happening again for many decades. 2008 is too recent and fed/politicians will do whatever is necessary to prevent a depression.

My base case assumption is for the developed countries to follow a path similar to Japan but probably more benign at least in the US. I think rates will stay low for a very long time. I think we will have a stagnant economy but not a recession.

In terms of investing I think now is a good time to lever up. Good options include real estate, CEFs, and certain sectors like mortgage REITs. Also covered call funds should do well as stock market fluctuates slowly upwards or stays flat.
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Old 05-25-2016, 10:42 PM   #8
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If I were advising my parents, my guidance would be to take as little risk as they need to provide them with the lifestyle they are desire. Because they live a pretty basic life, they don't need a lot of income. Their government benefits, which are indexed to inflation, cover essentially all of their core expenses so their savings don't have to be in anything fancy. And my siblings and I are more than happy to gift them the odd cruise now and then.

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