Posted on 10/09/2008 10:26:27 PM PDT by fightinJAG
Question: How do you *depression-proof* your assets. My husband says there's no way; that's what a depression means. My grandmother who survived the Depression said to just keep working and hang onto what ever real property you can; she never has believed in stocks, bonds, or anything "that I can't see". Nancy, Columbus, OH
Answer: I don't think we are going into another Great Depression. That said, it's a question I've been getting more and more. The bottom line is that if we were heading into another deflationary depression the best assets to own are default-free Treasury bills and Treasury bonds, with some other very high quality fixed income securities thrown into the mix.
In my book, "Deflation: What Happens When Prices Fall", I looked into what investments did well during the Great Depression. Here's what I found out:
(Excerpt) Read more at publicradio.org ...
during a depression, cash is king
during an inflation, gold is king
if all the banks go broke, what happens to all that cash?
The great depression didn’t have 100 million people who have no qualms about taking. (all breed by 60 years of socialist education) If we were to have another depression the best place to be is alone in the hills or in a militia armed community subdivision.
At the point where the currency no longer has value, we are all indeed screwed.
But I think you are having a critical misunderstanding of what I’m trying to say which is: If the bank is broke, closed down, ATMs shut down, FDIC “in suspension” (or whatever you’d like to call it)....in short...a “bank holiday”....then obviously you have a problem.
Ahh, but see, I am talking about GREEN cash. Not electronic cash. GREEN cash. In your hand. Inside the bank, your “cash” is blips. Outside the bank, in your hand, it has been de-blipped. Inside the bank, it isn’t really cash, it is only CREDIT with an assumed ease-of-conversion to cash. Should that assumed ease-of-conversion suddenly disappear, as you imply, it isn’t cash at all. “Cash in the bank” is under 99.99% of circumstances, readily convertible to cash, and we never even think about it. What about the other .01%?
ah under the mattress is what you meant.
Yup. Bank of Sealy.
If Obama is elected, these assets should appreciate, yes.
My husband’s grandfather did quite well during the depression. He had a depression proof business, a business that probably grew due to the depression. He sold candles to the Catholic church, he had the contract for the whole city of Philadelphia, and the church was his only contract. He never really worked a day in his life. Maybe you could look into that.
The idea is to move into cash before the depression, then spend it on discounted properties and stocks during the depression. You don’t hold the cash during the depression other than what you need to survive. I don’t know if I would be in PMs unless I had a little in physical form at home to use for collateral. Owning gold via ETFs are some other company with the gold stored in another state is useless. We have been in obviously inflationary times these past few years. People should of been selling off, taking profits, and hording their cash for the eventual downturn.
I wish I had been in position to do such a thing, but I screwed up early in life, debt wise. I was hoping that the downturn would hold off until March when my vehicle would be paid off. Oh well, hears to holding on to the job until then. :P
btt
Yes deflation is the plan .....of course there will be some things that inflate (food? guns? gold? ammo?) but the Fed’s game plan is deflation.
Serious inflation cannot be done these days because markets render instantaneous harsh judgment
DE-blipped cash—yup! With the low interest rates you get on deposits no harm in keeping $$$ in a safe place. Inflation kills cold hard cash but we will be getting a nasty deflation, not inflation
I agree. Personally I dumped everything I had in the middle of February and was in cash until 9.15 when I put some into treasuries and other govt backed obligations. Have made a bit of money there and increased my income a bit (I'm retired).
Lately I've been contemplating getting back in slowly, perhaps over a six month period. I personally prefer Mutual Funds and in particular balanced funds. I have no problem paying the management fee since the folks running the fund know a lot more then I do. My current favorite is Vanguards Wellington Fund (VWELX). Still I'm hesitant about sticking my toe back in although I realize nobody rings a bell to announce a market bottom. I had been fully invested in the market since 1980 and never sold anyhting even in 1987 when it all came apart (DOW down 21%). This time though I kept having this nagging nervous feeling that something bad was coming down the road. Mostly what mad me nervous was that no one seemed to have a clue what was actually going on and what if anyhting could be done. The worst thing for the markets always has been uncertainty and in this instance the levels of uncertainty reached highs never seen before. The Chinese have a saying, "May you live in interesting times". We are certainly doing that. Unfortunately interesting doesn't always mean good.
Much of the rush to gold preassumes the economy and the currency system will remain intact and viable and that the gold or gold backed investment itself will never have to be used to actually purchase or barter for something else, especially for smaller items and everyday goods.
Gold backed securities or stocks they are really still just paper certificates, perhaps still held in the broker’s home office. Like any stock certificate, their lack of liquidity means they will be relatively worthless in the short term in the event of a disasterous currency collapse or runaway inflation.
Gold coins, ingots, etc. are a fairly easy way to invest relatively large sums but there are some issues to consider.
The problem with gold coins is that most of them are too large in value to easily be used as a currency replacement in a real collapse. They are probably a good way to invest fairly large sums but, like ingots and boullion, don’t lend themselves well as replacements for everyday currency.
If you actually have gold coins like Kugerands or US “$50” coins that are valued somewhere around $1,000 each how do you use denominations that high to purchase or barter for a tank of gasoline or a package of toilet paper?
There are some smaller denominations available but the value of the individual coins is still fairly high.
As far as gold boullion or ingots, they are even less usable as currency replacements than coins, not only because of their larger size and gold content, but because their authenticity is not easily verified. Most people never actually take possession of gold in this form.
If you take actual possession of boullion or ingots you have to pay to have them re-assayed before you can resell them.
How many of us can tell the real gold content and value of an ingot?
In a TEOTWAWKI scenario a case of pork and beans, some garden seeds or a few bricks of .22 cartridges may be worth more than a gold ingot.
An alternative investment to gold is older, pre 1965 silver coins. The fluctuations in Silver value tracks the rise and fall of gold somewhat, but unlike gold coins, the denominatons of silver coins are small enough to be conveniently used as currency or for barter.
The coins themselves are easily recognized and the ultimate real value is in the silver content itself.
Gold is no doubt a better medium for large investments but rolls of silver coins are a good option for smaller investments with the advantage of being more easily bought, sold or bartered, especially in the event of a disasterous crash.
Here is a good link to see the relative value of silver coins:
http://www.coinflation.com/silver_coin_values.html
You can call me stupid for liquidating my stock holdings weeks ago, but there are millions of investors about now who wish they had done just what I did. It’s called preservation of capital during a meltdown.
I didn’t say I did not believe there would be a recovery. And in fact when there is one, I’m poised on the sidelines with dry powder to get in, if I choose to.
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