18 October 2009

Preparing for the Next Crash and Unexpected Consequences: Now Is the Time

A friend sent this along, and we thought it was worth publishing an extended excerpt. This is Part 1 of the essay, and we look forward to Part Two – Managing Your Own Money – Take Action Now.

That is really the challenge isn't it. Most people are financial non-specialists. Their lives are full enough as it is, with things that they understand and that are important to them.

Too often the call to 'take control of your own money' is a prelude to 'and buy into my advice, what I wish to sell to you.'

Financial advice is a difficult thing to provide in a blog. It would be like a doctor writing a prescription for the public at large, fitting for some, inappropriate for others, potentially deadly for a few. This is why I do not do it. Ever.

The prescription I use for my personal situation is the most that I will share, in addition to general opinions and analysis of the markets and the economy. I am 58 years old, and have amassed a fair amount of savings over the past twenty years. My general rules for the current period now are:

1. Get liquid. Have little or no debt. Be in cash and diversified. Reduce living expenses to essentials.
2. Get as far away as you can from Wall Street and riskier assets as is practical.
3. Put something you can spare from discretionary retirement savings into long term assets that are not directly contingent on anyone else whom you cannot trust:

a. Personal food production, preservation, and preparation
b. Precious metals as insurance against monetary inflation / breakdown
c. Essentials for daily living and personal health care
d. Investments in practical education
e. Personal infrastructure and efficiency
f. Have a contingency plan for a systemic shock.
4. Above all be flexible. If this stagflation we are in becomes a protracted deflationary spiral or an emerging hyperinflation, both possible outcomes, we will see it happening and may need to adjust. This is where being light on debt and long on liquidity is most helpful. There is no one right plan for the unexpected, ever.

If you have 401k plans you cannot cash in, you might consider some very long term 'leap' puts to hedge them. But Cash or short term Treasuries is preferable. I have all my discretionary cash scattered across several very highly rated banks within FDIC limits. I have some money available for investment in foreign currencies although I have cashed in my loon and aussie dollar positions now. I have sold some 'collectible assets' that might have done very well if we get a prolonged period of high inflation similar to the 1970's in order to raise cash levels. I may regret this, but so be it. The cash can be deployed as the situation develops. Cash can otherwise be kept your home currency which you use on a daily basis, as long as it is safe and liquid.

If you wish raise your voice or to peacefully demonstrate, be prepared with a simple set of coherent positions and specific demands, avoiding anger. The mainstream media likes nothing better than to portray demonstrators as cranks or fools. In general they are not sympathetic to the less powerful. They will not lead change, but they will eventually follow.

Try to avoid squabbling amongst yourselves. When the reformers fight over fine points and petty egotistical issues, the status quo rejoices, often formulating and encouraging the bickering. Debate television where no serious discussion occurs, but plenty of sound bites and ad hominem attacks get thrown, is the model for media distraction. But it 'works' for the short term opportunists, and generally adds to the bread and circuses atmosphere masking an historic wealth transfer and the decline of an empire, as it has done in the past.

And as always, the banks must be restrained, and the financial system reformed, and balance restored to the economy before there can be any sustained recovery.

Reality Arbiter
The Extinction of Ethics in Finance – The Fallout
by Greg Simmons
October 13, 2009

"...To revisit my original intention in writing this article, I cannot stress to you the importance of understanding exactly what is going on in the world. No one is to be trusted with your money. Not Wall Street, not the banks, not the government – nobody is to be trusted! Does the investing public not realize that Wall Street almost lost every penny of American wealth? Now we’re supposed to believe they’ve saved the day? I beg to differ. Those parasitic liars nearly took us to zero. Who knows, they still might.

The grossly deluded public has been at the mercy of brokers, financial advisors, Wall Street, the Fed, congress, and the US Treasury far too long. This moral hazard and subsequent uneven playing-field created by the current financial structure (the trifecta of the Fed, Treasury, and the “Banksters”) wherein the scales of balance tip only upward, hence siphoning this nation’s wealth into the coffers of those that create such hazards. Their current solutions to this crisis, a crisis of their own making, is nothing more than a replication of the same idiotic practices that got us here in the first place; corporate bailouts, homebuyer tax-rebates, foreclosure moratoriums, cash-for-clunkers, all designed to forego the inevitable sanctification of sins past and deliver them on to the US taxpayer.

The difference between the past and present is that now we have a government willing to set up shop and take over entire industries; mortgage lending, auto, banking, and who knows going into the future. Just wait, we’ll be in the airline business in no time. I feel like I’m in a perpetual state of Déjà vu - with a repeat of September 2008 barreling headlong around the next bend.

That we exist in a quasi public-private financial system wherein the government in collusion with the Fed and the “Banksters” take your money essentially by force (specifically through the leverage of ZIRP) or otherwise and shove it into new toxic instruments, bailouts, and ill-conceived stimulus programs that even these so-called best-and-brightest have no concept of the inherent risks, or hazard of unintended consequences, is proof that the entire game is rigged against you.

It is time to take control of your money.

Now, with regard to the subject of managing one’s own money, the rules of the game have officially changed. The EXTINCTION OF ETHICS in today’s financial markets IS the new rule. You must take total responsibility for the management of your own money and you must do it now! I don’t know how to make it any more clear. I could probably write an entire thesis about the utter abandonment of morality by today’s so-called investment community. I mean, does everybody have to cheat each other to make a dollar? The subject literally brings into question the human thread that binds our social fabric together.

Given the dire state of the global economy and the fact our collective economic situation has gotten significantly worse, not better, creates an opportune time to shift any misplaced philosophy of trust in a corrupt system and recognize that we’re in the middle of a COVER-UP, NOT A RECOVERY!

A comment I always appreciated and have tried to take credit for but know I plagiarized from somewhere is this; ANTICIPATING BAD LUCK IS GOOD LUCK; DEPENDING ON GOOD LUCK IS BAD LUCK. This so-called recovery is merely a papered-over facade made possible by trillions of newly created dollars. The time to prevent getting thrown back into the ditch is now. Remember, do not fall victim to the CNBC-induced epidemic of economic amnesia."

Read the entire essay here.