MarketWatch columnist Bill Farrell writes Warning, bear market 2010: 11 ‘sells.’ Only 6 ‘buys’, detailing the current buy and sell recommendations ofÂ well known economist and Forbes writer Gary Schilling. We’ve summarized Schilling’s 17 strategies below:
Warning: More bad news ahead. Welcome to a bleak second half 2010, worse for 2011.
First, Shilling’s 6 “buys,” then the 11 “sells,” 17 strategies for 2010. He admits some mixed results, but he’s “sticking with them for the second half” and on into the coming dark days of 2011.
1. Buy Treasury Bonds
2. Buy Income-Producing Securities
3. Buy Consumer Staples and Foods
4. Buy Small Luxuries
5. Buy The Dollar
6. Buy Eurodollar Futures
7. Sell U.S. Stocks in General
8. Sell Homebuilder & Selected Related Stocks
9. Sell Selected Big-Ticket Consumer
10. Sell Banks and Other Financial Institutions
11. Sell Consumer Lenders’ Stocks
12. Sell Low & Old Tech Capital Equipment Producers
13. If You Plan to Sell Your House, Second Home or Investment Houses Any Time Soon, Do So Yesterday
14. Sell Junk Bonds
15. Sell Commercial Real Estate
16. Sell Most Commodities
17. Sell Developing Country Stocks, Bonds
If you read SHTF Plan with any regularity, you probably went through this list and then wondered: what about the gold?
Mr. Schilling’s advice isn’t a surprise, as it is much like what your financial adviser may recommend you do with your portfolio (probably because he or she read Mr. Schilling’s recommendations).
Like your financial adviser, Mr. Schilling seems to be avoiding the question of how to manage and preserve wealth during times of domestic and global economic distress.
This isn’t your typical market, and limiting one’s investments to standard strategies and asset classes of the buy-and-hold generations may not do enough to prepare you and your family for serious economic, political, or social doom.
Though it’s not necessarily imminent, it is possible that we may see an event that actually collapses stock market prices, hyperinflates the US currency, bankrupts local governments and sends commodities through the roof. In this case, if you take the buy and sell advice above, you could potentially be wiped out (unless a majority of your portfolio is holding Euros, and only if the Euro survives such a global catastrophe). In some cases, depending on your portfolio allocation, even if you take the opposite of Mr. Schilling’s advice, you could stand to lose a significant portion of your portfolio if the right events materialize.
The point is, there are lots of monetary and financial games afoot, and looking at traditional methods for investing all of your wealth may leave you holding worthless paper at exactly the time you need to have something of worth, something physical, in your possession.
We’re not telling you not to follow Mr. Schilling’s advice, because some of his strategies, namely the “buys”, like offsetting your dollar holdings with Euros, might not be a bad idea.
What we’re suggesting is that there are other options, in addition to traditional stock, ETF and bond investments.
We live in a complex and unpredictable world and there are many of us out here that don’t look at the current state affairs in the world as a typical boom-bust cycle, say like the crash, recession and recovery of the early 2000’s.
There are some of us out here that think there’s a chance, albeit a small probability, that things could get a whole lot worse before we enter any sort of recovery phase. When it comes to our wealth and well being, we think in terms of worst-case scenarios, as opposed to hope for best case outcomes. We ask the what-ifs:
- What if the world’s economy completely collapses and the reserve currency wiped out along with it in a hyperinflationary meltdown?
- What if a conflict originating in the Middle East sends energy prices to the stratosphere? What if the conflict turns to global war?
- What if there is political and/or social unrest domestically that affects the normal flow of commerce?
- What if drought or other calamities affect our food supply? (i.e. the USDA overestimated our food reserves)
- What if my local and state government goes bankrupt and has to cut essential services like police officers?
- What if a mass casualty terrorist attack strikes my city and there are biological, chemical or radioactive agents in the air?
- What if I lose my job?
All of these are questions that should be asked when allocating personal investment portfolios. If you feel comfortable doing what your financial adviser recommends, then by all means invest accordingly. But be sure to ask yourself the what-ifs. And if you think that there is a possibility that one or some of them may come to pass, consider allocating some of your wealth to preparing for far from equilibrium events.
- If the world’s reserve currency (USD) were to collapse, do you have another currency with which you can transact? Do you have Euros, or Canadian dollars (in physical form)? Do you have silver or gold to make ends meet for several weeks or months in the event of a system shock like this? Ask yourself, what is money when the system collapses?
- Have you invested any money into personal security? Do you have a firearm for each adult member in your family? How about ammunition? Have you invested any of your wealth into professional training on how to use your firearm during high stress situations? Have you invested any money or time into learning a martial art to protect yourself and family if a firearm isn’t accessible during an emergency? Bad things can happen even in suburbia – imagine what will happen to the crime rate if your city has to eliminate law enforcement personnel. If You Havenâ€™t Acquired Self Defense Capabilities, the Time to Do So Was Yesterday
- If you lose your job, do you have a back up plan for generating income? Do you have reserve cash or precious metals to keep you on your feet for several months? Do you have dry goods in the pantry like rice, beans, and flour that you can dip into if you can’t afford to buy food at the grocery store? It sounds funny, but food banks across the country are reporting shortages due to fewer donations and more demand. If you lose your job and have no source of income, how will you eat? Think about income survival if the worst happens.
- Do you have any reserve foods? (We touched on this above in case you lose your job, but this is a different case) We realize that food reserves may sound crazy and that you may generally tow the government line and not believe anything could happen to our food supply. So, don’t take our word for it. Visit the FEMA Are You Ready Guide and you’ll see that like us, they recommend at least a 3 day food reserve. That’s the most basic preparedness. If you’re thinking realistically about potential disaster events, you’ll realize that two weeks is the bare minimum.
- In the event of an emergency in your city, do you have somewhere to go? And do you have supplies waiting for you there? Do you have any security measures in place? If you have to bug-out to a backup location, then it means something really bad has happened. Take some advice from Marc Faber and consider securing your property.
- Do you have a hedge against domestic or global uncertainty? Even if you don’t think food, a tent, or a firearm are worthy investments, you may want to consider the last hedge against government instability. Most of the strategies outlined by Mr. Schilling are based on his theory of deflation. The general inflation vs. deflation debate is a distraction. If we want to hedge against deflation or inflation we can buy stocks or bonds, or whatever other traditional asset class works in that particular environment. The one thing that mainstream financial advisers rarely hedge against is government instability and economic uncertainty – most don’t understand history and have the belief that far from equilibrium occurrences from the past cannot be repeated in our modern world. Thus, they really don’t know what to do if the Shit Hits the Fan. We’ve got an idea for you, though. There’s one asset class that has been used as a hedge against uncertainty for the last 5000 years – precious metals. Don’t put all your eggs in one basket, but definitely consider this as an option, especially if you have all of your wealth invested in either stocks or bonds (or both). Why not put 5% – 15% of your wealth into gold or silver – just in case? Not doing so in an environment like this, in our view, is shortsighted, to put it mildly.
In today’s day and age, these are all considerations that should be made. Being fully prepared for emergencies requires an investment, just like buying stocks, bonds or insurance. In this case the dividends will pay out when you absolutely need them the most.
So, if you’re trying to decide how to allocate your portfolio, think about what percentage you might want to dedicate to emergency planning.