What to do with money now, assuming a huge crash is coming?

Chef Gordon Ramzi wrote:

The market was "supposed to crash" in 2008... And 2009... And 2010. It ain't happening. Right-wing chodes like Schiff are trying to sell their books and "survival kits" and whatnot. Don't buy into this nonsense.

The market did crash in 2008-09, losing over 50% of its value.

Hard to believe you don't know this. Or maybe you don't know what the word crash means

[quote]ryan foreman wrote:

Well, there is no agreed upon metric of what a crash is. So yeah, I can't really disagree with you.

Admit it. You got caught in some BS claiming there was no crash in the 1970s.

Here is what wikipedia says, for what it's worth

The 1973–1974 bear market was a bear market that lasted between January 1973 and December 1974. Affecting all the major stock markets in the world, particularly the United Kingdom,[1] it was one of the worst stock market downturns in modern history.[2] The crash came after the collapse of the Bretton Woods system over the previous two years, with the associated 'Nixon Shock' and United States dollar devaluation under the Smithsonian Agreement.

Note the use of the word crash

dR Trollingwood wrote:

October: $100

November: $1200

Now: $220 - $630

Point is if you're running from the instability of stocks, which are propped up by real businesses earning real money, a made up currency propped up by nothing is probably not the place to shift your wealth.

You're probably right, price volatility of an untried currency isn't going to reassure anybody if they are looking for a stable place to house their life savings. Maybe if it's still standing in a few more years... Nobody should invest more than they can afford to lose, and nobody can afford to lose everything.

K5 wrote:

[quote]ryan foreman wrote:

Well, there is no agreed upon metric of what a crash is. So yeah, I can't really disagree with you.

Admit it. You got caught in some BS claiming there was no crash in the 1970s.

Here is what wikipedia says, for what it's worth

The 1973–1974 bear market was a bear market that lasted between January 1973 and December 1974. Affecting all the major stock markets in the world, particularly the United Kingdom,[1] it was one of the worst stock market downturns in modern history.[2] The crash came after the collapse of the Bretton Woods system over the previous two years, with the associated 'Nixon Shock' and United States dollar devaluation under the Smithsonian Agreement.

Note the use of the word crash

Ah,yes, Wikipedia. There is an authoritative source.

Maserati wrote:

Essentials are becoming more centralized, and thus more prone to complete disruption, which would produce that sudden destruction of the "fundamental productive capacity" of the country.

Those are all very good points, Maserati.

ryan foreman wrote:

What are you envisioning in all this? That we are going to have some kind of "Pearl Harbor" event where somebody is going to attack our soil?

I just don't see that happening.

Giant corporations and the U.S. government are already destroying this country from within, and these events are very likely to keep happening on an increasing scale.

J.R. wrote:

ryan foreman wrote:

What are you envisioning in all this? That we are going to have some kind of "Pearl Harbor" event where somebody is going to attack our soil?

I just don't see that happening.

Giant corporations and the U.S. government are already destroying this country from within, and these events are very likely to keep happening on an increasing scale.

Do you have any idea how stupid you sound?

look, you're a smart guy, but the fact is that the end of hte world as we know it has been predicted every year since year zero.

I suspect you are around 55, right? You feel the next generations starting to push you out of the way...you don't really understand what is happening any more, so the logical conclusion is...the end of hte world as we know it.

In short, you are projecting your fears of your demise onto the country as a whole. And that is foolish.

Point is, the technology of this country is absoltely stunning and has proven to be amazingly resistant to shock.

Hingle McCringleberry wrote:

Do you have any idea how stupid you sound?

I will try to post more quietly.

J.R. wrote:

Hingle McCringleberry wrote:

Do you have any idea how stupid you sound?

I will try to post more quietly.

How about not posting at all?

Hingle you aren't exactly the authority on meaningful contribution, so give it a rest.

Well if you "assume the market goes down 50%" you just short everything and make a gazillion dollars. Of course if it doesn't go down you'll lose everything. And you don't really know what will happen or when.

Why not just assume you'll win powerball for 250 mil this week? That would seem simpler.

Hoppie wrote:

K5 wrote:

[quote]ryan foreman wrote:

Well, there is no agreed upon metric of what a crash is. So yeah, I can't really disagree with you.

Admit it. You got caught in some BS claiming there was no crash in the 1970s.

Here is what wikipedia says, for what it's worth

The 1973–1974 bear market was a bear market that lasted between January 1973 and December 1974. Affecting all the major stock markets in the world, particularly the United Kingdom,[1] it was one of the worst stock market downturns in modern history.[2] The crash came after the collapse of the Bretton Woods system over the previous two years, with the associated 'Nixon Shock' and United States dollar devaluation under the Smithsonian Agreement.

Note the use of the word crash

Ah,yes, Wikipedia. There is an authoritative source.

As opposed to no source whatsoever? I think it's pretty good. Along with a knowledge of basic English and a helping of common sense, I think we can conclude that the guy who said there was no crash is 1973-74 -- when it turns out the market lost nearly half its value -- is full of spit. As are you.

vox cursor wrote:

Well, if you can't handle price corrections then maybe invest your money elsewhere.

Why do you guys label losing 50% of your investments "handling price corrections"? Have the sharpies convinced you it takes a real man to lose his money to them?

I appreciate the attention this is getting.

I'm not talking about some attack on US and therefore world infrastructure by some malevolent agent, I'm talking about rot from within, Fukushima-style. It's going to happen.

Consider what happened in the US with financial institutions: "too big to fail", and QE.

We all know that when the s hits the f, the general solution by unskilled policy-makers and bureaucrats is to "throw money at the problem", and that's where it gets interesting: when money is the problem, "throwing money at the problem" may indeed be a viable solution, depending upon time frame.

But where money isn't the problem, throwing money at it will not necessarily lead to a solution, because what is required is expertise and experience. When these things dwindle, such as when organizational cultures decay and atrophy, a re-start is needed, and that is VERY expensive. If a country isn't in a financial position to fund that re-start, you have...collapse.

Look at Japan with Fukushima--the only real solution would be to pull a Chernobyl and encase the whole thing in concrete and seal off the entire area. What to do if the grid in the USA goes down? Remember the disruptions when the refinery in Texas or New Orleans went down? Of course you remember when the markets dropped due to the computer glitch and the system had to be shut down.

These are minor events, but are harbingers of things to come. All it will take is a disruption that is slightly too big to handle, then the government's existing solutions to "too big to fail" situations will be of no use, because it will take many years to set up new systems.

Fortunately we have already done this to some extent with the exchanges and the electrical grid--to some extent. But I still see it happening.

I'm not talking end-of-the-world stuff, and I'm not aging and watching the world pass me by, I'm being realistic. I'm talking about "short-term" severe pain (maybe 5-10 years), followed by a new equilibrium. You know that old saying, "hope for the best, but prepare for the worst".

Assuming that what I am projecting has any merit, what to do? How to ride it out? Is there a way to prepare without being a "prepper"? I plan to live maybe another 40-45 years, so I am concerned about the "long term".

well...every example you show...proves the opposite point. Look at the massive death tolls and market disruptions from Fukushima! Oh wait - there were none.

Look at the massive rioting and chaos after the meltdown of '08! Oh wait, that didn't happen either.

Look at the incredible urban disaster of Sandy! Lower manhattan inundated! The people will riot! Markets will crash! um, no, that didn't happen either.

Look at how QE2 will obviously stoke massive inflation and distrust of the markets! Um, no, that didn't happen wither. Actually inflation is very low (1.5%) and markets are solid.

Gold is the thing that has crashed, amusingly.

Really - until there is some example in the rich western world of a crack in society b/c of a problem...you have no ground to stand on - on the contrary, the amazing wealth and knowledge of the western world (japan incl) is doing a stunningly great job at solving every problem that is thrown at it.

Rot from within? No way. The opposite. Amazing strength. Not sure why you want to take the opposite view with no evidence.

Those events are smaller-scale events, and look at the disruption they produced.

The only big one we have yet had is Lehman, which led to a global financial crisis that we haven't gotten out of, and that we won't get out of. We have thrown money at the problem, but all that has done has been to devalue money--the underlying problem persists, worse now than in 2008 because everybody has had to debt-finance the "fix".

Everybody is much deeper in "debt" now, but there has not been any actual solution of "the problem". US federal government representatives are at this moment meeting with banks around the world to try to agree upon an actual solution, knowing full well that we are still right in the middle of "the problem".

This is the only problem that we haven't gotten out of--all the rest that you address were lesser problems, but they still haven't achieved any actual solution either--look at Fukushima. It wasn't large-scale, but within its area of impact, essentially nothing has been addressed.

Nations now use debt not to finance investment aimed at future return, but instead to compensate for inefficient cash flow management that is insufficient to compensate losses due to waste, fraud, abuse, and decay. I analogize it to a person who is living beyond their means using a credit card to fund essential purchases, versus a loan enabling capital improvements aimed at increasing productivity.

In all those other systems--telecom, electricity, fuel, delivery systems--there are physical realities that must be maintained, unlike the Lehman situation. We have seen relatively minor events, but even those haven't been rectified, and the affected areas and populations haven't recovered, be it Fukushima or New Orleans.

The fundamental soundness of investing in a publicly-held entity via securities traded on an exchange is dependent on so many things it makes your head spin. There are too many variables, and essentially no control, versus for instance the extreme example of farming a small plot of land and trading the produce, or setting up any other type of small private business that supplies an essential service to a local customer base.

When a major event comes, I think we will see fragmentation as a necessary response, which I think might be a good thing, leading to both regionalization and a certain degree of redundancy, but mostly to options that are somewhat insulated from each other.

Financially, things are going the other way, which is unfortunate. Just look at FATCA--the whole world is on board, some with reciprocal IGA's, some with non-reciprocal--but everybody is playing the same game. There is no more national independence, everybody who knows will tell you that everything has fundamentally changed and that the old way of doing business (independently) is now gone. Look at BRIC's attempt to find a viable alternative to the US dollar--totally fizzled.

Because these things are fake--the dollar and regulation--they can be changed by governmental fiat. However, that takes time, not only for the initial decision, but also to set up an alternative, and to get it working. That's that 5-10 year timeframe I'm talking about, likely closer to 10 IMHO.

I think the solution is to find a way to develop very regionalized productive or distributive capacity for something essential, close to a market that will be large enough to keep you afloat, and that has something that you will want or need, and potentially to invest in local/regional strategic partners, where you can take "security" that is actually "secure"--unlike the guarantees afforded by the markets and publicly-traded companies.

I'll read your post carefully and see if there is anything I can add, but my first reaction is that isn't this the old Jeffersonian regionalism vs Hamiltonian federalism, replayed yet again? You seem to believe smaller, more independent systems are more resilient than centralized structures (jefferson), and you see the concentration of power/know-how/money (hamilton) as a real problem.

There is some truth to that, sure -

but the global financial structure that has been created...maybe it will work. It certainly IS working.

Maybe the massive demand for debt around the world fostered by the global mass prosperity you cannot deny...will soak up all the debt the rich nations issue. That seems to be what is happening now - US debt, European debt is all getting bought up, no problems.

You seem to think that this equilibrium will end in a bad way. I suppose everything ends in a bad way eventually...but so far I see encouraging resilience.

Maserati wrote:

Assume a huge crash is coming--markets 50% down, dollar seriously devalued, inflation taking over.

I mean serious. Disruptions in supplies and delivery of energy, communications, water, food.

What are your opinions on how to prepare for this? Seriously. What would be a smart thing to do?

Why would you assume a 50% market drop is coming? Maybe it will...maybe it won't. The better assumption is that you don't know if or when this will happen and then if it does (and if you get that right), you don't know when it will end (and it WILL end...you just don't know when).

SO...

IF you are within 5 years of retirement, go a little more conservative with your money if you REALLY believe a big crash is coming. Even if you're wrong, you still need to be able to sleep at night. You could either have more bonds in your portfolio, OR leave all your stuff in stocks but stockpile some cash...2-3 YEARS of expenses to help you let the stock market recover.

BUT, for MOST people who aren't retired or close to it, the way you deal with worrying about a stock market crash is you do this:

1) Make sure to be debt free (except for the house). If you're REALLY worried about things, do all you can to pay the house off too. When you have MUCH less outgo, it makes saving 2-3 YEARS of expenses in cash easier to do.

2) Continue to fund your retirement accounts. So what if it drops a ton. In the last big drop, those who stayed in were back to where they were before the crash within 3 years (that's just 36 months). AND, those of us who stayed in and BOUGHT when the Dow was as low as 6400...well, all of those purchases have ballooned up now. Awesome.

That's really it. Your retirement accounts should be mostly stocks and be in diversified mutual funds...growth, growth and income, aggressive growth, and international.

IF you pay the house off and continue to have ZERO debt and continue to do 15% or more into retirement accounts made up of mutual funds, THEN you can play around with individual stocks if you want...never fewer than 5 at a time, and they should be equally spread out into different sectors of the market so that you don't have more than ~20% in any one sector.

Too many people get worried about what to do with their investment dollars when they still have debt. Getting rid of debt is a GREAT way to lessen concern about the market...lets you build up a hefty emergency fund if you wish or to invest even MORE in the market if you expect low returns rather than good ones.