How to Position Investments for the Coming Depression?

[Slarty]

This thread is to explore investment ideas for how to get through a Depression (Deflationary period) that could last a couple years, and then it is followed by no economic growth for years to come. The assumption is that we will go through a diffficult economic decade (somewhat like the 1930's) from 2010 to 2020 with the worst hitting in 2010 to 2015. Whether this is going to happen is not meant to be debated here since I'm sure it warrants its own thread. 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? I don't believe there would be anywhere to "hide" due to the globally connected economy, and gold is already sky high. I think we could actually see inflation before the deflation hits in a few years so the problem will be perceived as coming upon us suddenly. What to do?

 

[Notmuchlonger]

Well if you knew it was coming wouldn't you get long in a high interest rate vehicle? Thats the thing knowing when its coming usually you do not have the luxury.

 

[brewer12345]

First, stock upon some good quality tinfoil. I like Reynolds Heavy Duty myself.

Next, dig a hole in your backyard where you can stash the extra ammo, food, water, and copies of [-]RuPaul[/-] Ron Paul campaign documents.

Then tell all your frends and neghbors to get right with the Lord, as the coming times of tribulaton will require them to have made their peace with Our Savior.

Finally, put your underpants on your head and parade around the neighborhood.


Seriously, if you think that deflation is coming, you would want to own long dated fixed rate bonds from sovereign gummints you believe will not default. US treasuries, UK gilts, Swiss federal obligations, etc. You do NOT want to own gold or other commodities (aside from tinfoil). You also do not want to have any debt. Good luck with that.

 

[Jarhead*]

This thread is to explore investment ideas for how to get through a Depression (Deflationary period) that could last a couple years, and then it is followed by no economic growth for years to come. The assumption is that we will go through a diffficult economic decade (somewhat like the 1930's) from 2010 to 2020 with the worst hitting in 2010 to 2015. Whether this is going to happen is not meant to be debated here since I'm sure it warrants its own thread. 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? I don't believe there would be anywhere to "hide" due to the globally connected economy, and gold is already sky high. I think we could actually see inflation before the deflation hits in a few years so the problem will be perceived as coming upon us suddenly. What to do?

That's a pretty picture you painted

My dad was a young man before the start of the depression.

I raised a young family in the 66 to 82 period.

If you were lucky enough in either period to have a decent job, you survived o.k.

Jobs are good, and perhaps the only real protection you might have the way you structured your outlook.

Positioning your current assets, if you are already retired, and unable or unwilling to work any longer, praying may help if you're so inclined.

Realize, according to your post, you don't want a debate on this, I won't point out why your scenario probably won't happen.

But one thing for sure, if you're right, there will be less ittitating posts on this board from 25 year olds that are making very good money, that have a complaint that they're bored

 

[REWahoo]

First, stock upon some good quality tinfoil. I like Reynolds Heavy Duty myself.

 

[pedorrero]

I think OP has some valid fears. The government is none too competent to manage the economy -- just in trying to get itself re-elected. Otherwise, why is my "$5" half eagle (gold coin) worth about $250 now?

Nobody can predict the future. It's still good, though, to have some hedges against uncertainty, and bad times is an uncertainty. For a depression, traditionally that means long (30 year) bonds. I have often posted (past few days in fact) similar questions to OP's. Do you manage ALL your retirement funds? If so, your job is easier. If most of your funds you don't control (as is my case), your main choices are such things as the long bonds, gold (inflation hedge), and the usual advice to not be deeply in debt, etc.

 

[FIREd]

Isn't the world supposed to end in 2012 anyways?

Joking aside, I would go for long term treasuries, trying to lock in the highest interest rate possible. It's a pretty risky bet because if you are wrong and we end up seeing high inflation instead of deflation, your portfolio will be decimated. So you better be sure! It's probably best not to overdo it and instead keep a well diversified portfolio (unless your crystal ball is more accurate than mine).

 

[maddythebeagle]

why does it seem like these threads always get posted on the weekend

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

 

[Slarty]

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?

 

[Zathras]

Beer stocks tend to do well in hard economic times

 

[mb]

I agree with FIREdreamer.

As others mentioned long term, gov bonds should do well in a deflationary recession/depression.

But since we have are tin foil hats on let's assume that going forward there is a 50% change of a deflationary recession, like in the 30s, and a 50% chance of stagflation like in the 70s. If you flip the coin and it turns out to be the later and you are in long term bonds you're going to get hammered.

MB

 

[REWahoo]

Renting would certainly remove all debt for me, but is this a bit extreme?

Isn't there something inconsistent in starting a thread predicated upon "the Coming Depression" and questioning if renting isn't a bit extreme?

The theme I'm getting here is that flexibility and having multiple options would be a prudent way to handle the uncertainty of it.

Isn't that just another way of saying you should diversify?

 

[HFWR]

why does it seem like these threads always get posted on the weekend

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

Spammo?

 

[Notmuchlonger]

Spammo. It rolls off the tongue.

 

[Midpack]

My Dad (no not OP) lived through the Depression (though his Dad was a dentist who did just fine) and he tells me about people jumping out of windows every time the market and/or economy even thinks about going down. He's never owned a stock in his life AFAIK and never taught me anything about investing (fortunately) growing up. He has full pension with COLA and full healthcare (so he's never been confronted with today's world). I've profited immensely by ignoring his unsoliticed 'advice' every time, and will this time too...

However my sister has asked my Dad for investing advice all her life. And sadly, well into her 50's, by her own admission she will have to work until she is 70 and live modestly for all her years. Now she asks both of us but it's too late. I try to 'teach her to fish' (simple like Couch Potato or Coffeehouse) and my Dad still gives her advice, and I suspect she's still going with the latter. She's probably 100% cash about now...

 

[Nanita8140]

I'm not only going to buy tin foil for a hat if such calamity is on the way...I would go all out and make myself some dresses out of tin foil too. Oh, and Brewer forget the Reynolds foil(you have to think of saving every penny)....so head out to your neighborhood dollar store and stock up on the cheap brand instead.

 

[clifp]

I'd buy a gun store and stock it with ammo and survival gear. Somebody has to sell you all this stuff. A quick google shows you can pick up a store up for 500K or so.

 

[A854321]

I'm heading off to Costco to stock up on Heavy Duty Tin Foil.

What sort of thread do you recommend to sew it into Tin Foil Trousers?

 

[brewer12345]

I'm heading off to Costco to stock up on Heavy Duty Tin Foil.

What sort of thread do you recommend to sew it into Tin Foil Trousers?

Just use a soldering gun, or maybe some duct tape.

 

[Tadpole]

How to Position Investments for the Coming Depression?

That's easy. Get a government job in social services delivery.

 

[FinallyRetired]

My Dad (no not OP) lived through the Depression (though his Dad was a dentist who did just fine) and he tells me about people jumping out of windows every time the market and/or economy even thinks about going down. He's never owned a stock in his life AFAIK and never taught me anything about investing (fortunately) growing up. He has full pension with COLA and full healthcare (so he's never been confronted with today's world). I've profited immensely by ignoring his unsoliticed 'advice' every time, and will this time too...

However my sister has asked my Dad for investing advice all her life. And sadly, well into her 50's, by her own admission she will have to work until she is 70 and live modestly for all her years. Now she asks both of us but it's too late. I try to 'teach her to fish' (simple like Couch Potato or Coffeehouse) and my Dad still gives her advice, and I suspect she's still going with the latter. She's probably 100% cash about now...

I'm caring for depression-era parents and in-laws, and they definitely have a different mindset. A penny saved is a penny earned type of thing, not a bad idea. No debt, no frills, keep it simple. Sort of a FIRE mentality learned by hard knocks.

I don't think we will have a repeat in my lifetime but, if we do, I worry about the inability of modern society to live off the land. Back then, as my parents told me, they always had the small farm, or just the backyard plot, and could exchange food with neighbors to eat. As long as they had that and a roof over their heads, they could ride out some pretty bad years. But what if we had a repeat today? What would the condo society do? Eat stock certificates or commercial paper, I guess.

 

[Slarty]

SoonToRetire and Midpack, thanks for those stories. I think we can learn a lot from people who have lived through it. My grandparents lived through the 1930's and none of them ever owned any stock. They had a small plot of land and I was always amazed at how they could feed the whole extended family from it. They heard stories of people jumping out of windows, but they said it wasn't as bad as the fear that people have looking back on it. They said there was always enough to eat and people still had plenty of good times and most of that was built around social events with friends and family so it didn't cost much. They were amazingly frugal people, but it wasn't like they were of the apocalyptic mentality that pops up everytime a depression scenario like this is explored. I think the biggest pain would be just a readjustment of expectations. I guess the best thing I learned from them is to not over react to such scenarios, but to consider all possibilities in the planning processes with provocative questions like the one I opened this thread with. It's only a catastrophe if you choose to react that way to it. I saw the comment about beer stocks doing well. It would be interested to see a plot of beer and alcohol stock through the 1930's.

 

[danm]

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 ...

 

[Notmuchlonger]

Booze probably did pretty good 1933 and on. Bootleggers probably did pretty well the 13 years before that

 

[ziggy29]

The "coming depression?" Good grief. Have some Kool-Aid.

Yes, it could happen, but it's happened once in the last 20 times it was forecast by foil-hat doom and gloomers, I'd guess. I don't like those odds. Still, you never know.

But to expand, diversify your investments, keep your skills sharp and employable if you still need to work, and don't go on a debt orgy.