How to Position Investments for the Coming Depression?

[brewer12345]

I have private paid research which investigates ...

How much do the Gnomes of Zurich charge to do a custom economic study? Did you have to pay in virgin's blood?

 

[al_bundy]

The OP has a valid point. I brought it up two years ago here, and was ridiculed as a tin hat foil wearer. And I'm not even predicting a depression, simply mild deflation. Now look where we are.

Housing is deflating to many trillions. Derivatives (CDO's and such) are too, Goldman estimates to 1T (the estimate progressively gets higher over time). Auto's are in depression, airlines have been so for a long time. The only thing inflating is energy and commodities, and that's probably due to speculation (since commodities are the new undiscovered asset class) Wall Mart et. al. have dropped prices hugely to retain market share.

Mild deflation? You bet, and notice what's happened to long term Treasuries? They've been doing very well. All it will take to cinch it is consumers continuing to retrench. Given the state of their retirement funds, and that they've been spending more than income by 1-2% each year for 25 years (fueled by credit growth, internet bubble, and housing in that order), I don't think it's unreasonable to expect this to continue.

I have private paid research which investigates what consumers have left to tap. The only significant funds are pensions, which are generally hard to get ahold of and sitting in conservative hands.

Keep an open mind folks ...

The Great Depression only turned into a depression once the bank runs started in 1931 and wiped out people's savings. Unless the FDIC goes broke i don't see this happening.

historically we've had worse depressions than the Great Depression. the mid 1830's and the aftermath of the panic of 1873 are two such events and things turned out OK. only reason they call it The Great Depression is the media coverage

 

[al_bundy]

OK, here is a summary of what I've heard so far:

- Make yourself as employable as possible (i.e. diverse experience and good networking).
- Get into some long federal bonds but don't get too unbalanced or you'll be forced to wear a tin foil hat.
- Remove all debt (Would you go so far as to sell all real estate and rent for a few years to see if the scenarios being bantered about play out?) Renting would certainly remove all debt for me, but is this a bit extreme?
- Rent a house with a little land where you can raise a garden, if you enjoy that, so you can be productive by reducing your food costs if you happen to end up being unemployed. You can also dig a hole to bury your tin foil there if need be.

But, I have a hard time believing there aren't some additional approaches to add to this list. I'm sure some people must have had successful growth in the 1930's as well as the 1970's in case a stagflation scenario were to play out. Maybe certain types of businesses do well in deflation and owning one is a good option? The theme I'm getting here is that flexibility and having multiple options would be a prudent way to handle the uncertainty of it. So, what other options might be less obvious?

who is going to give you a mortgage in a deflationary environment when the asset that secures the loan is predicted to drop in value?

 

[Delawaredave5]

I don't believe there would be anywhere to "hide" due to the globally connected economy

If the US went into "Great Depression II", I am not convinced global markets would be overly-connected.

You gotta stay in equities- and I think having your equities roughly proportional to global market capitalization (50% US, 50 global, etc) provides a lot of valuable diversification.

Yes the collapse of the "US consumption machine" would take a hit on foreign company earnings. But the dollar would also tank -- so when the reduced earnings come back to you in dollars -- you're going to have some stability of returns and downside buffers.

 

[danm]

It's a well known economist, and his advice earned me 75% last year. I would have had 600% if I had been more aggressive.

Edit:
Are there posting guidelines on this board? This thread, and some others I've seen, fall into abusive ridicule. It seems to come from a few individuals, on most other boards it wouldn't be tolerated.

How much do the Gnomes of Zurich charge to do a custom economic study? Did you have to pay in virgin's blood?

 

[danm]

Very true, it was really a psychological event. My mom tells the story of having to eat a squirrel. Everybody came out fine and did very well afterwards, but it was scarring.

Deflation comes in many flavors. Pre GD, mild deflationary periods were common. They were the mild deflation of excess supply, not the severe deflation of deficient demand (=great depression).

Interestingly the GDP continues to grow during mild deflations. They're not all bad, if you're even somewhat prepared.

The Great Depression only turned into a depression once the bank runs started in 1931 and wiped out people's savings. Unless the FDIC goes broke i don't see this happening.

historically we've had worse depressions than the Great Depression. the mid 1830's and the aftermath of the panic of 1873 are two such events and things turned out OK. only reason they call it The Great Depression is the media coverage

 

[packrat44]

Beer stocks tend to do well in hard economic times

I am using commodities for my hedge - 30 year supply of bourbon and rum.

 

[HFWR]

Stay diversified (ho hum) across asset classes, have a j*b or a fallback, go into cheap bastardhood...

I think a severe depression, however [-]un[/-]likely, would be different in that much of the US was still rural in the 30s. Most folks in urban/suburban settings would have a harder time going self-sufficient.

Plus, I don't think many people these days know how to live that way. Used to every light in the house being on, used to the water running while they brush their teeth, used to idling in the car (while parked smack in the middle of the walkway) while their SO runs in for a couple of items...

But I do have some generic foil, just in case...

 

[growing_older]

I've grown a big garden and kept my neighbors in vegetables all summer, lived rough on the land while camping and even done some "survival" stuff out on the woods for a week with nothing but a knife. But I have no where near the farming and subsistence living skills that used to be commonplace. I would venture that the vast majority of Americans have no better skills than I and many even less. In rural areas that may still be a valid option for folks if the monetary system tanks in some way, but for most of the urban population there's no way that's going to work. Likewise dispersal to rural areas (a former nuclear holocaust post-survival staple for planners) is unlikely to fare any better. I don't see any of these extreme scenarios coming to pass, but if they did, people's responses and survival strategies would likely be different from anything we've seen before. Most of the agrarian underpinnings are too far gone to be useful to most of the people anymore.

 

[Notmuchlonger]

I am using commodities for my hedge - 30 year supply of bourbon and rum.

No tequila that would be a no go for me...

 

[packrat44]

No tequila that would be a no go for me...

Have only a 3 year stock of tequila. Hoping any depression is short.

 

[Midpack]

Keep an open mind folks ...

Despite what you see, you might be underestimating the restraint in responses...

 

[danm]

I guess so. The bear baiting always surprises me though, especially the total unwillingness to even listen to contrary ideas. Maybe because folks are frightened of anything that threatens their early retiree livelihood (investment income).

I know a close friend of Bernstein. Retired at 43, did quite well riding the stock bubble, by listening to Bill before he was famous (Bernstein had some internet following back then). But he doesn't follow it like a religion. In 2000 he took everything out and put it into one asset class. I suppose he rediversified after the carnage was over.

He taught me that there's degrees of market timing, and catching the big turning points can be wise.

Despite what you see, you might be underestimating the restraint in responses...

 

[REWahoo]

I guess so. The bear baiting always surprises me though, especially the total unwillingness to even listen to contrary ideas. Maybe because folks are frightened of anything that threatens their early retiree livelihood (investment income).

Seems to me that fearing anything that threatens your livelihood is a perfectly normal and healthy reaction.

Perhaps folks react the way they do because they have seen and/or experienced the highly unsatisfactory results of listening to those who believe in their ability to successfully and consistently time the market. Call it "the total unwillingness to even listen to contrary ideas" if you like. I prefer to think of it more along the lines of sound judgment based on 60+ years of personal experience.

The bottom line is whatever investment strategy works for you is the best way to go. Just don't be surprised if everyone doesn't buy into your investment methodology - just as you don't buy into theirs.

 

[brewer12345]

I guess so. The bear baiting always surprises me though, especially the total unwillingness to even listen to contrary ideas. Maybe because folks are frightened of anything that threatens their early retiree livelihood (investment income).

I'm not retired, so I don't know what to tell you on that score.

My skepticism stems from the knowledge that accurate market timing over any length of time is prety much impossible. So the sensible choice or a retiree with a long time horizon is to remain diversified and ignore people screaming whatever it is they are screaming about the markets/economy. Most people are more likely to do a lot more damage to their portfolio by constant fiddling rather than making the right timing moves. Since there is a large industry that lives off people who react to the screaming, I pre-emptively dump on the screamers.

You will note that I generally suggest (when I make suggestions, which is increasingly rare) that people stay diversified and have a slug ofeverything, including commodities (which do well in inflationary environments) and high grade/sovereign bonds (which do well in deflationary times). To think you can accurate forecast and time what will happen is foolish, at best.

 

[Bikerdude]

I don't think people today would stand calmly in a soup line for a hand out like they did in the 1930's. The Fed would drop interest rates to below 0 and the Congress would approve all sorts of make work projects to get people employed.

If the above doesn't produce the desired result then guns and ammo would be a real prospect. Humvee's and tanks would be a common site in our major cities .

 

[Patrick]

So, if you were convinced that starting in 2010 we would go through such a hardship and we could see things like the DJIA back around 8,000 and then see it linger there for 10 years and home values could drop by 50%, how would you position your investments today to take advantage of this situation?

Sell everything and use the proceeds to buy shares of DXD (Ultrashort Dow 30 ETF). When the Dow hits 8,000, sell DXD and use the proceeds to buy real estate or REITs.

 

[Patrick]

I personally like a well stocked cupboard of spam and ammo...

But should I buy .223 to fit our M16s or 7.62X39 to fit the Chinese rifles?

 

[REWahoo]

Looks like this company has the right stuff. Three of the top survival "cures" all rolled into one: Gold, ammo, and location, location, location....

 

[packrat44]

But should I buy .223 to fit our M16s or 7.62X39 to fit the Chinese rifles?

Diversify - 50% in each.

 

[Jarhead*]

Seems to me that fearing anything that threatens your livelihood is a perfectly normal and healthy reaction.

Perhaps folks react the way they do because they have seen and/or experienced the highly unsatisfactory results of listening to those who believe in their ability to successfully and consistently time the market. Call it "the total unwillingness to even listen to contrary ideas" if you like. I prefer to think of it more along the lines of sound judgment based on 60+ years of personal experience.

Spoken like a man that has a fair amount of scar-tissue built up over the years, and should be very comfortable in the up-coming slide into "full
curmudgiadem". (I highly recommend it).

Jarhead, who believes that UCLA will be in the final 4, but based on their "cream-puff" schedule so far in the regionals, will get their head handed to them when they play the very good teams. (Final 4).
Not intended to be a solicitation for a wager of any kind.

 

[haha]

My mom tells the story of having to eat a squirrel. Everybody came out fine and did very well afterwards...

That is good to hear.

Ha

 

[prgsdw]

I don't think people today would stand calmly in a soup line for a hand out like they did in the 1930's. The Fed would drop interest rates to below 0 and the Congress would approve all sorts of make work projects to get people employed.

Sure they would (stand again in line for soup)!!! People will do what they have to do to survive - personally I have stood in line for cheese as a child on more than one occasion. I'm quite confident people will adapt and make do.

 

[Eagle43]

I suspect the coming depression ain't coming, but that's not the point of the thread. So, let's take a look at some people who made it.

Surviving the Depression -- Social Issues, New York City, Newsday -- Newsday.com

The American Experience | Surviving The Dust Bowl | People & Events | The Great Depression

Attitude seems to be the greatest indicator of what your fate will be. Can you imagine someone you know saying this?:

``He was a proud person. He said, `I'll make the money; I won't go on welfare.' He didn't ever apply for welfare, and he worked his bloody head off. To my father, it was kind of a disgrace to go on welfare, even if he had to work 12, 15 hours a day.''

``I do remember having my father buy us nice shoes for church. We'd wear them until they had holes in them. My mother would put cardboard in the bottoms. We didn't think anything about it.''

My parents survived it. Father actually worked in cotton fields after graduating 2nd in his high school class in 1929. If you were able, you worked, at any job he could get.He never took any government assistance (that I know about). It's amazing what the greatest generation did. Could we do it today? Probably.

 

[REWahoo]

Not intended to be a solicitation for a wager of any kind.

Jarhead*: "Ain't gonna be no rematch."
REW: "Don't want one."