Posted on 02/13/2008 4:27:16 PM PST by oblomov
I am not in the habit of posting vanities, but I consider this an important topic, and I have not seen any articles in the MSM or alternative media about it.
As an investor, I try to consider the probability of various outcomes happening, and plan accordingly. Rather than react when it is too late, I prefer to plan well ahead and consider contingencies.
I regard the potential change in power in DC in 2008 as a distinct threat to individual financial security, and perhaps even to individual liberty. First, although McCain, the presumptive GOP nominee, claims that he will uphold conservative economic principles, I simply don't trust him. Worse still, I think the Democratic Party will contrast the relative youthful vigor of their candidate with the rigid, stilted, angry persona of McCain. I believe that the odds are in favor of a Democratic victory.
If it is Hillary Clinton by dint of a McCain-like media-driven "comeback", then the result with regard to economic liberty may be tolerable. It will be easy for GOP leadership to paint her as strident and extreme. I think her attack on the investor class could be blunted although the Dems might in fact control both houses of Congress and the Presidency for a while.
It's a bit of a different story with Molock Obama. The warped religious aspects of his candidacy, and the slavish, cultish devotion of his followers, is chilling. It surpasses the cult of personality that surrounded Robert Kennedy. In fact, it has no precedent in American politics to my knowledge. Neither does his stew of coded identity politics and vague references to "change", "hope", and "unity". What response might the GOP mount against this brand of socialist millenarianism? Frankly, I fear that the GOP has forgotten why it ever even defended capitalism against the socialist menace. It has devolved into a flaccid, socialist lite party. And further, I believe that the GOP will hold its fire because of Obama's race, so as not to appear "mean spirited" or some other euphemism for "racist".
So, the worst case is that Obama comes to power with a margin of victory sufficient to claim a mandate for infinite socialist change, plenty of favors owed to Move On and Soros, and two houses of Congress with perhaps a filibuster-proof majority in the Senate.
My question is: What might come of this, and how might we position ourselves so that we retain enough economic resources to fight back eventually?
The economic backdrop of a recession and continued collapses in the financial sector will provide an excuse for radical, authoritarian actions such as capital and currency controls. Not to mention the fleecing of the middle class as the boomers retire and the Democratic solution to the problem is to raise payroll and income taxes to draconian levels. Also, I can forsee the attempted nationalization of entire industries such as health care and mortgage finance. I could even imagine the confiscation of gold or other hard assets if treasury bonds crash. It's happened before here.
In such an environment, what vestigial patriotism I had would be wiped out. I would want to put my family and its financial security first.
Here are some ideas I have:
1. Invest in companies that provide services to the government, particularly audit, consulting, and IT. Examples: EDS, BE, ACN.
2. Invest in the fascist (public-private partnership) economy, or the companies that service it. Examples: Freddie Mac (FRE), Fannie Mae (FNM), Aggie Mae (AGM), Sallie Mae (SLM), First Marblehead (FMD).
3. Invest in alt energy and infrastructure materials companies. Federal spending in these sectors would go way up. There would be far fewer privatizations of infrastructure, so companies like Macquarie Infrastructure (MIC) might not do so well. I'm thinking of companies that have already run up due to China, such as Chicago Bridge & Iron (CBI), and FMC.
4. Put cash in foreign currencies, particularly the Yen, Swiss Franc, and Aussie Dollar. These can be bought with low fees as ETFs (FXY, FXF and FXA, respectively). But, at some point currency profits may be taxed at exorbitant rates. So, a bank account overseas might be better for the long run. I think the USD is going to rally here for a while, so maybe currencies are a speculation to make sometime in mid-late 2009.
5. Short asset management stocks, particularly the companies that have expanded with the deregulation of the financial system over the past 27 years. Short companies like Goldman Sach or Lehman Brothers (GS, LEH).
6. Stay away from any investment that purports to be "insured" or "government backed". First, the monoline insurance market is drying up as the insurers head into bankruptcy. Second, securities such as muni bonds are backed by property taxes, which will go into arrears as the housing bust persists.
7. Buy precious metals (gold, silver, platinum, palladium). Be careful, though, since I do put a small but significant probability (maybe 30%) on the government "asking" citizens to turn in their holdings. This leads to my last idea:
8. Open an account at Bullion Vault or GoldMoney. These institutions allow one to hold gold in Zurich, London, or the Channel Islands.
Please note that I do not advocate breaking the law in any way. Overseas accounts held by US citizens are liable for income tax, just like domestic accounts. But I do think that it might be valuable to have an account overseas, if only because it allows one to be more mobile. I also think there may come a time when it is much less easy to move money out of the country.
I little about me: I have no agenda. I'm not an alarmist. I've done well with my investments. I owned tech in the late 90s, and sold near the top in early 2000. I bought value stocks like RJR and CLF in 2000. I bought commodity stocks like BG and CME in 2001 and 2002, and gold miner stocks like ASA in 1999-2000. I was early to the subprime blowup party. I shorted FRE very successfully in 2003, but stopped out & lost money trying to short MBIA and Ambac in 2005, only to watch them collapse spectacularly in 2007. I try to be ahead of the curve.
Sure, but that applies if you put the money in a tin can and bury it in the back yard. You can’t use it, but I guess you can wait it out for better times.
1. If either Obama or Hillary wins, be prepared for an increase in capital gains tax. Sell all your securities with gains before the RATs can raise the tax. Even if you just buy back the same securities, you are going to be pre-paying capital gains tax on your gains to date at the old, lower rate.
2. Sit back & relax. Historically stocks do better with RAT administrations, RAT Senate and RAT House.
My own theory on this is that the RAT party is really the party of the ultra rich. Their policies are designed to preserve & protect the value of current wealth, by discouraging and penalizing work and slapping down anyone who tries to build new wealth.
Keep yourself invested in an index fund (I like QQQQ) until the smoke clears...
Oh yes, BTW, real estate is going to make a comeback someday. Sooner if the RATs are elected, simply because inflation will be higher. Nothing like a few years of 10-12% inflation to hide the housing problem in rising prices. If you can manage them yourself, rental units are going to be nice.
Hmmm, I’ve done well with gold, both the physical and the miners.
With mining stock you get dividends and compound interest. With gold you get what you got.
Interesting ideas, but I think your analysis needs to look at the other side of the equation as well: minimizing expenditures. Keep in mind that every dollar you avoid spending is esentially a dollar earned tax free. Tax saving strategies will be particularly necessary in the next few years, but other ways to spend less are going to be important as well.
Examples: shopping at thrift stores and/or on Craigslist. Not purchasing a new car (used cars a bargain this year due to repos). Buying stuff at dollar stores, which are getting to be of better quality. Comparison shopping online. Giving and receiving hand me downs. Growing a garden. Banking at a credit union instead of a mega-bank.
Then there’s paying down debt. Keep in mind that every dollar you pay in non-mortgage interest is non deductible. And even the mortgage interest deduction isn’t all that great; all the deduction does is reduce your effective interest rate.
P.S. This is a good idea. We’ll all need ideas and strategies to prosper. If you start a pinglist, please let me know.
A caveat up front. I don't know much about finance-I have the requisite 401(k), life insurance, S&P Ira, savings bonds, paid off house, etc. But I do have a gotterdammerung portfolio also, namely, 10,000 rds. of .22 ammo, which will be the wampum of the post-apocalypse (as well as ample quantities of higher caliber stuff as personal stash). Tranches, shorts, CDO's-all well and good. But think about where you'll be when the starving hordes break out of the city. Just a redneck thought.
If everyone does that, we have a deep recession, for sure.
Thanks for this.
BTW - people who think their traditional IRAs, their Roth IRAs , their 401Ks and the like are safe from Congressional depredation had better think again...
I agree, this needs to be an ongoing discussion. We really could use a pinglist to deal with the challenge.
I agree. A traditional 401k is a bet that the tax rates will stay the same or go down. The Roth IRA/401k is a bet that the tax rates will go up.
“If everyone does that, we have a deep recession, for sure.”
Not to worry. It’s unlikely to happen. Deferred gratification or even living within one’s means is not a popular idea these days. I suspect some will be forced to start living within their means as easy credit dries up, but it won’t be because of any planning or desire to do so on their part.
I don’t see it as my responsibility to spend money for the sake of floating the larger economy.
“I agree, this needs to be an ongoing discussion. We really could use a pinglist to deal with the challenge.”
Surviving socialism and prospering (relatively speaking) really does need to be on the minds of conservatives.
I’m not on FR all the time, but I’d be willing to help with a “surviving socialism” pinglist. Might be appropriate for FR activism as well.
“surviving socialism” pinglist?
Add me.
The surviving socialism pinglist sounds great!!
Put me down.
You might want to put up an announcement post so we have a nice group of members.
Put everything in diversity-training companies.
Please add me to your list.
Thanks. =)
Done.
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