Neo-Survivalist

Here are two must reads for today on why the economy will continue to collapse and what it might mean…

There is no double dip – it will be much worse

The worst case scenario

Economy, Financial Preparation

Gold was crushed today, and those of us focused on the long-term see it as a potential buying opportunity.  I’m a big believer in precious metals for financial security.  I’m not necessarily a big believer in the inflation story for a number of reasons, but the reality is that there are massive, massive deflationary forces in the economy right now.  Why would that be bullish for gold?  Because I’m also convinced that the government will do whatever it takes to fight deflation (since our entire system depends on continuous expansion and inflation).  It will be the loss of confidence that will drive gold to insane levels.

Now, you’ll hear people shout that the gold bull run is over if this correction materializes.  This is when its best to buy gold, when people are vocal about it in a bearish manner.  Be patient and wait for opportunities – for now, it might even go lower.  I will be watching gold with a close eye and loading up on gold stocks and potentially some physical silver.

Financial Preparation

America, Financial Preparation

Despite the misconceptions surrounding the term insurance these days, insurance is primarily a financial tool used to accomplish a few things which we will get into in a minute.  These days insurance, due to the recent health care debates, is used incorrectly.  Health insurance is more used to mean health coverage, where insurance means something much differently.

Insurance is a financial tool.  It is used to accomplish the following:

1. Mitigate Risk - By paying an insurer, you are offloading risk onto the insurer.  You essentially pay a little on a regular basis to mitigate the risk of a major expense down the road
2. Protect Your Assets - Your assets might mean possessions or your family.  Insurance protects your assets from future uncertainty.  This might include life insurance, homeowners insurance, liability insurance, etc.

Insurance is a very smart tool when used appropriately.  Most of us accept this and we all have various forms of insurance in our life.  I think prepping is very much a form of insurance, yet the participation rate in this “insurance plan” is much lower than the other forms.

Preparing for future uncertainty now while you have the ability and time to do so is a wise move.  Most people would admit to you that they are uncertain about a number of things in life and society as they look forward, yet you’d be hard pressed to find people doing anything about it.  Prepping is what we neo-survivalists are doing to mitigate future risk.

We are concerned about the well being of our assets.  By assets, I’m first and foremost speaking of my family, and my home and possessions thereafter.  The items I buy each month to prep are akin to premiums paid into an insurance plan.  The time spent learning skills now that might help me later is also akin to premiums paid.

Turning specifically to precious metals for a second, investing in gold and silver is definitely another form of insurance.  By owning physical precious metals (not a gold/silver ETF), you are buying insurance against inflation and against a currency crisis.  A very wise move considering the economic policies of this country (and the world).

Do you have insurance?

Financial Preparation, General Preparedness

The American economy continues to crumble, despite now over a year of supposed “green shoots” and hints of recovery.  For a good example of the continued weakness, consider that the latest GDP revision was just revised lower to growth of 3.0% (a very anemic number considering the unprecedented stimulus that was injected into the economy).

The problem here is that there is no solution to our problems, we passed the luxury of having a viable option long ago.  We essentially have two options – print money to inflate our way out or choose austerity and fiscal responsibility.  Let’s look at each option.

Re-Inflate

This has been the official course of action for some time.  Whenever a slowdown occurs, we lower rates and we enact policies to stimulate the economy.  We also have resorted to quantitative easing which is basically printing money to buy financial assets.  These measures are very inflationary.  The problem is that over time, each additional “dose” of stimulus is less and less effective.  The diminishing return on more and more debt and more and more stimulus must be very troubling for our central planners.

The central bankers are essentially trying to outrun the credit destruction and massive debt losses in the economy.  More and more printing of money will be needed to continue to do this.  Eventually, it will turn to a currency crisis which will result in a complete loss of confidence in the dollar.

To guard against this, you should have assets in precious metals and other inflation-hedged instruments.

American Austerity

There are signs of this trend moving forward as well (i.e. the victory of Rand Paul in the Kentucky primary a few weeks ago).  While this would normally be a great sign as Americans move toward deficit reduction and fiscal responsibility, as I said before, we passed up this opportunity long ago.  We can no longer choose this option without massive, massive consequences.  The consequences would be nothing short of devastating.

To enact strict fiscal restraint and essentially cut off all (or most) government stimulus and support of the economy would essentially result in an overnight crash.  Our economy is currently running on this government money.

As the crash would be very painful and even more visible than inflation (people on the streets versus higher priced products), I doubt this movement will gain widespread political adoption.  Politicians always choose the politically advantageous inflationary measures, so I think we will continue to print money in a futile attempt to save the economy.

You Have Time

The good news is that you have time while the government buys us time with their inflation while the deflation counter-acts the results.  You should spend this time wisely.  Make financial preparations.   Make other preperations.  Because eventually, the party will end.  You will want to be ready.

America, Economy, Financial Preparation

Silver American Eagles are great investments for individuals looking to get into the precious metals game.  First, they are significantly less in price and value versus a gold american eagle (currently $20-ish vs. $1200-ish).  Many individuals simply don’t have enough cash on standby to purchase gold coins, so silver is a way to get into precious metals.

Silver American Eagles are a great way to own silver because they are one of the most commonly recognized coins so they will command a premium.  You will typically pay a few bucks premium versus the current spot price of an ounce of silver; right now, silver American Eagle coins are going for around $20 each.  The 1996 eagles will be higher due to scarcity.  Also, the current year (2010) coins tend to go for a higher premium as well.  All other years should be consistently in the spot + a few bucks range.

Overall, I wouldn’t worry too much about buying coins for a few bucks over spot since you’re not buying these coins to gain a few bucks.  It’s about insurance and it’s about silver going to astromical levels like $50, $100, $200 per ounce.  If it doesn’t happen, no worries.  If it does, you’re good to go.

I was recently told by a gold investor that he bought a ton of gold 10 years ago (at $300ish per ounce) and he said he bought it hoping that it wouldn’t go up in price.  Why?  Well, if gold went up in price that would mean the economy wouldn’t be great and he’d rather the economy go up.  But, clearly he saw enough reason to buy the gold.  It’s a hedge.  It’s insurance.

Precious metals should 100% definitely be a part of your overall financial survival game plan.  Government risk and uncertainty around the world will continue to push metals higher.

Financial Preparation

The global debt crisis is real and is not going away.  Currently, all eyes are on the European Union, but it’s important to remember that eventually the debt issues we’re seeing in Europe will spread elsewhere and make situations like Greece seem small.

For example, California’s fiscal situation is hopeless.  California has a massive budget deficit that really has no chance of being fixed.  At the same time, CALPERS (California Public Employee Retirement System) is requesting an additional $600 million in funds to keep the fund solvent.  If you’re wondering why the pension is so underfunded, check out the incredible projections by the CALPERS folks – hint: They projected the Dow to hit 26,000 in 2009 and 28,000,000 in 2099!!  The reality is that California is I believe the 8th largest economy in the world, much larger than Greece.  Once it becomes apparent that the only way out for California is a Federal bailout, which will become apparent and will likely be granted, you’ll see even more volatility in the markets.  A Federal bailout of California will also cause gold to spike and continue its multi-year bull market.

Be assured that this debt crisis has years to play out as it has been building for decades.  The situation is Europe isn’t over.  Greece will probably end up defaulting and the Euro will probably be done away with – replaced probably with a newer and better fiat currency!  Countries like the UK and Japan are also in terrible fiscal shape.  Demographics in countries like Japan will doom their economy.  Then, of course, the United States is heading down the same path.  With our debts, when factoring in entitlements, north of $50-70 trillion, we have zero chance of paying this back unless we execute a massive devaluation of the dollar.

With all of this said, I expect major changes to the global financial system over the coming years maybe even the entire next decade.  Financial systems come and go, so I do believe we could see a complete financial reset without the so-called “end of the world as we know it”.  Just make sure enough of your assets are outside the mainstream financial system so that you’re good-to-go should the system go under.

The typical political response to this will likely be printing dollars to backstop too much debt.  This will eventually be massively inflationary.  Be sure you’re hedged against inflation.  Use dips and pullbacks to buy precious metals – physical gold & silver is the way to go.

Then, just be patient and let this thing play out.  It has a ways to go.

Economy, Financial Preparation

I’m a fairly politically engaged individual here in America.  I’m familiar with the debate going on over issues like health care, immigration, etc.  More importantly, and more passionately, I’m an econ-junkie.  I read constantly on the markets, the economy and global events in relation to the global economy.  The more you read on the economy and the financial situations of the United States and many countries around the world, the more the other issues (like health care) become less significant.  The reality is that the economic and fiscal woes of America and most of the developed world are nothing short of horrific.  This consequences of these issues will be felt much more and much sooner than say health care rationing as a result of America moving towards social medicine.

The policy responses to the global recession over the last few years are completely unprecendented.  Never before have global economies performed such an economic experiment to this degree in the history of the world.  Simply put, the central banks and their printing of money in concert together around the globe has never been done to this extent.  We are definitely in uncharted waters.

It is imperative that individuals take necessary precautions to hedge against these massive risks that we are facing in the years to come.  Investing in real assets like precious metals is imperative.  Holding physical gold is not an investment, it is insurance.  Furthermore, invest in useful, necessary items like ammunition, food, water, clothing, health products, etc.  If the shelf life is long enough, you won’t lose on these items, and any gains you haev on them won’t be taxed.  It’s a win-win scenario.  For more on such a strategy, check out the Alpha Strategy.  A must read for economic preppers.

The days ahead are scary.  For me, I have a growing family, and I look at my little children and wonder if we’re crazy to try and raise a family with the world moving into the direction that it is.  I take solace in the fact that God is sovereign and that my family will be fine without the luxuries that most Americans have become accustomed to.  Furthermore, I will take necessary steps to prepare and make our family more aware and more able to withstand potential risks down the road.

America, Financial Preparation

Last week, we had some fairly large disruptions to the financial systems of America and the global economy.  With the major events of Europe surrounding the debt crisis of Greece, the ramifications were felt around the world (welcome to the global integrated economy).  The result was on Thursday a major drop in the stock markets including a one-thousand point drop in a matter of minutes on the Dow.  While the markets recovered slightly, this is hardly a sign of stability.

The event is an important one even as the media and financial “experts” downplay its significance.  The reality is that the markets are a house of cards.  In fact, the entire global economy is a house of cards.  We have seen hard evidence of this in recent years with the financial crash in 2008 and events like a 1,000 point Dow move just last week.  While these events are papered over with freshly printed currency and government bailouts, the structural issues remain underneath the surface.

As such, I’m losing faith in the “systems” that we rely on.  Specifically, I’m losing faith in the financial systems and even the stock market.  Meanwhile, Goldman Sachs announces that they did not have a single day of trading losses in the last 63 days.  Yes, 63 out of 63 profitable trading days last quarter.  Can you say, “rigged’?

If and when the system comes crashing down as many of us predict, an entire generation of Americans will be crushed.  Over the last 30+ years, Americans have become way too connected to the financial markets.  Wall St. and their partners in Washington D.C. have convinced a generation of Americans that the only way to have any sort of retirement or financial security is to be invested fully at all times in the U.S. stock market.  While Americans see their savings and funds go up and down with volatility, there is always a consistent winner: Wall St and their constant fees that are generated regardless of performance.

The dependence on the stock market is one of many dependencies that have been cemented over the recent decades.  Dependence on government, welfare, corporate America, pensions, stocks, etc. have together replaced self-reliance and self directed financial security.

If the system collapses under its own weight, the result will be ugly.  Not only will people’s savings be wiped out, but they will demand answers or demand someone’s head.  I’d hate to be a wealthy Wall St. exec at this point in time.

It’s important to take action now.  Don’t be fully invested in the stock market.  Have some of your wealth in real assets: precious metals, consumer products, other things that have real value.  I’m not saying you should abandon all paper assets, but understand the volatility (just look at last Thursday’s Dow chart).

In the meantime, if you want to stay invested in stocks to some extent, I’d say you can afford to be patient before you buy more stocks.  Wait for the next crash.  Then, deploy your funds into well-run, well-established companies that pay a nice dividend.  Think stocks like Philip Morris Int’l (PM), Wal-Mart (WMT), McDonalds (MCD).  Then continue to collect dividends, pool your cash, and wait for the next crash.  Rinse.  Repeat.

Good luck and don’t trust the markets to act like pure markets.  They are manipulated and corrupt.  Be extremely careful with any trading or investing you do, and make sure you do your own research before acting upon anything mentioned here.

America, Financial Preparation

Many people agree that eventually, we will have serious inflation.  Possibly, hyperinflation.  I’m not ready to jump on board the hyperinflation train yet, because I think there is still a way to avoid it, but I’m struggling to find a way that we won’t have at least some level of inflation in the future.  The problem with jumping both feet into the hyperinflation camp is deciding what to do about it.

To see what I mean, consider the following questions:

1. Should you not hold any cash?
2. Should you stop paying off your mortgage?  After all, if we have hyperinflation, then your debts will be inflated away
3. If you’re certain of hyperinflation, shouldn’t you just run up your credit cards and buy a bunch of gold?

These are questions that depending on how you answer them might result in some pretty extreme action.  Additionally, if you were in the camp of going all out to protect yourself from inflation, what are you doing to hedge against the possibility of not having hyperinflation?

If you take all your cash and put it into gold, what if we get massive deflation and gold takes a hit (along with everything else)?

I believe in holding gold, but I also believe in not putting all your eggs in one basket.  Therefore, I think it’s smart to diversify across the following assets:

1. Gold & other precious metals
2. Cash – including actual cash held at your property
3. Defensive, dividend stocks that will be able to perform in an inflationary environment

Your allocation might be different than mine based on how much of a believer you are in inflation.  Personally, I think we still have some deflation ahead until we get big time inflation.  If gold & stocks take a hit, I will use that opportunity to unload more cash into those assets.  Until then, I’m still holding a pretty good amount of cash.

Financial Preparation