Intellectual Gymnastics Question:

[FloridaPoke]

If you believed the financial apocalypse was coming, where would you park your value?

A. Treasury Bonds (full faith of US Gov't, but with the $ falling might not return inflation).

B. Treasury Bonds Indexed for Inflation (great idea, but too many already oversold and current yields can go negative)

C. Cash....if so which currency, and in what form?

D. Gold (hedge against both inflation and a breakdown in the system....but subject to speculative excess...any asset that takes 28 years to reclaim its peak should scare you).

E. Other Commodities? (volatility at an all time high right now due to excesses by hedge funds and long only index funds...what goes up most assuredly will come down).

F. A farm or ranch somewhere off the beaten path


:)

[BigBadBen]

Ammunition

[wickerbill]

I've heard the Zimbabwe dollar is doing quite well.

Other options are to invest in risky loans and then wait for the government to come bail you out when they go bad.

[osupsycho]

Well if you believe it to be a total meltdown (as I would define a financial apocalypse) then I would say that we would go back to being a barter society for at least awhile. Any paper money will have not value (think Confederate money), and other investment vehicles will become worthless. Gold isn't a bad idea but if things get bad enough you can't eat it or use it to keep you alive in anyway. So if it gets bad enough the key is to get what people will need to survive and protect themselves. Have enough for yourself and then more to trade with. This would include water, food, shelter, medicine, protection, transport, communication. So the answer would be to get F. A farm or ranch somewhere off the beaten path, and stock up on water, non perishable food, livestock, fuel, guns and ammo, medicine and things of that nature (think Oklahoma 120 years ago).

FYI -I have thought about this as well but don't think it will get that bad...

[WyomingOSUAlum]

I'm going with F.

[FloridaPoke]

Well if you believe it to be a total meltdown (as I would define a financial apocalypse) then I would say that we would go back to being a barter society for at least awhile. Any paper money will have not value (think Confederate money), and other investment vehicles will become worthless. Gold isn't a bad idea but if things get bad enough you can't eat it or use it to keep you alive in anyway. So if it gets bad enough the key is to get what people will need to survive and protect themselves. Have enough for yourself and then more to trade with. This would include water, food, shelter, medicine, protection, transport, communication. So the answer would be to get F. A farm or ranch somewhere off the beaten path, and stock up on water, non perishable food, livestock, fuel, guns and ammo, medicine and things of that nature (think Oklahoma 120 years ago).

FYI -I have thought about this as well but don't think it will get that bad...

Correct answer

I don't think it will get that bad either.......but if you study the absolute levels of leverage that exists today on almost no net equity in our financial system, it is not impossible

[FloridaPoke]

I'm going with F.

Here is the real irony.

The best hedge against a collapse of the post-industrial economy turns out to be a return to the agrarian past.

Again, not saying it will happen....but if it did.....I believe this is a very true statement.

[Pokit N]

I was watching Top Ten on the military channel the other day:

http://military.discovery.com/convergence/topten/topten.html

There was a episode about the Top 10 Assault Rifles.

#1 was the AK-47, or the more modern version AK-74 (I think that's what its called). Anywhoo, one of the weapons experts when describing the AK said "When the world ends, and its kill or be killed the only weapon I want is an AK-47".

So Long story short maybe we should all go buy some Kalishnikov's!

:violent-smiley-017::violent-smiley-017::violent-smiley-017::violent-smiley-017::violent-smiley-017::violent-smiley-017::violent-smiley-017::violent-smiley-017::violent-smiley-017::violent-smiley-017::violent-smiley-017:

[osupsycho]

A return to an agrarian past and a return to an outlaw past as those that would not have the agrarian capabilities will look to take from those that do via force. If this happens there is no way possible that our current protective agencies could handle the situation.

Now more likely than that might be something akin to the great depression. Not everyone was done and out but a large number were...

[osupsycho]

BTW it scares me more than anything else I have seen that you Florida are asking this question. Should I be heading to the army surplus store on the way home....:eek:

[okstatepike]

BTW it scares me more than anything else I have seen that you Florida are asking this question. Should I be heading to the army surplus store on the way home....:eek:

No kidding.

[frankeaton]

DRUGS always a demand

[FloridaPoke]

BTW it scares me more than anything else I have seen that you Florida are asking this question. Should I be heading to the army surplus store on the way home....:eek:

In my entire career, I have never been an alarmist.....but now I find myself thinking in those terms at least as a small possibility (not a probability). Why?

I believe Wall Street, which should be nothing more or less than a group of firms that buy, sell, trade and swap other industry's assets based on discounted future cash flows, has alarmingly become 40% of corporate profits (used to be less than 10%) and 20% of the total stock market (used to be less than 5%). Yet, laissez-faire regulatory philosophies have allowed them to run like Wile E. Coyote over the edge of a cliff, spurred by compensation schemes that reward short term gains without deference to what future disasters might strike....and all of this "innovation" and growth has occured in a period (post 2001 dot com bubble burst) when our GDP growth, growth in consumer spending, total investment and exports have been weaker than any cycle since the 1950's.

And it has been done with levels of leverage that should scare the hell out of anyone. Not only absolute levels of leverage, but a spider web of complexity in cross leverage among all of the culprits that became the "real reason" the feds had to bail out Bear Stearns (a failure by any one of these monsters would cause a catastrophic unwinding of 45 trillion dollars of credit default swaps that nobody...and I mean nobody...even understands). In 1980, financial-sector debt was only 10% the size of all other non-financial debt (our entire economy). Today it is greater than 50%. Goldman Sachs (by far the strongest balance sheet in the industry) indeed has $40 billion of equity, but that is on $1.1 trillion in assets (3.6% equity). My alma mater, Merrill Lynch, is $30 billion of equity on $1.0 trillion (3%). And that isn't even the real picture, as they all have "off balance sheet" special purpose vehicles and conduits off shore that they miraculously do not have to count as leverage even though they are obligated on them. That leverage has produced steller returns on equity in rising asset markets, but provides way too little cushion on the downside.

In the past, I believed our real economic engine (the rest of the world west of the Hudson River) would out-perform any silly follies East of the Hudson. Today, the greedy bastards have so intricately woven themselves into the economy, the commercial banking system and the rest of our lives, that may not be a true statement.

These guys all use short term debt to fund themselves in order to get around capital adequacy laws. What isn't funded on the overnight desks is funded with 364 day paper. And all of this isn't funded by depositors like you and me.....it is funded by the wholesale markets, meaning the large commercial banks....and let this sink in.....among themselves. Bear Stearns's "run on the bank" was a dizzying circle of credit calls in the overnight desk market within a few blocks of their office.

And all of that even before consideration of the derivatives markets they are all tangled in. When our fed gov't must do an "over the weekend" $30 billion bailout SOLELY because a failure would have taken weeks or months just to unwind the spider web of derivatives, credit default swaps, securitizations and the like...and in those weeks or months the rest of the house of cards was LIKELY to fall (mainly because nobody would ever be able to figure out who's counter-party risk was who's on credit default swaps of $45 trillion) , then we should all be a teeny bit concerned.

The very mechanisms that created abundent credit will also destroy it. Most things attract buyers when the price falls, but not necessarily securities. Because these intermediaries need to lower leverage in a falling market, they must sell assets. That lowers the price of their inventories (securities), which will put further strain on their balance sheets leading to further sales. And this process will go on until someone without leverage will buy.

With house prices still falling, credit deterioration spreading and derivative markets becoming more and more unsettled, along with a spider web of counter-party risk on swaps of each other's risk......I am not willing to bet that Bear Stearns is the last bailout/firesale.

So.....my search for land continues :)

[rodbakeriii]

"So.....my search for land continues"

---
You know, you're not the only "in the money" person I'm hearing some concerns from. A couple of my "bigger money clients" echo your sentiments. They agree that, yeah, it won't be a return to the stone age...But we are teetering on the edge of a financial collapse we haven't seen in our society.

I can tell you this. I've had to diversify my income the last six months because of the fallout in the real estate industry. It's been a tough climate. Fortunately, I have a couple of other skillsets that have gotten the bills paid.

But...real estate HAS become attractive so far this year. Yes, it's still declining in value. But, at least here in DFW, I'm getting asked more and more to look out for "the deals" so they can enter the market. It may not be fully until 2009, but I feel pretty strongly that we're going to get a decent rebound in the housing market. I've just got a few too many former Cali clients that EXPECT double and triple digit returns on their real estate investment within three years. What exhubertantly goes up MUST come crashing down.

What really stinks is that the initial source of all this, the subprime credit collapse, was SO freaking apparent as we went along. I KNEW that if one of my properties was being bought by someone using Countrywide, it was VERY apparent their credit wasn't great. I am quite convinced they knew all along they knew what they were doing. But it got my clients property under contract. Do we turn down a client who secured financing? Can't, it's illegal. But quite a few of us in the industry really questioned it and starting whispering the question, "how long can this last?"

So it's my hope that this situation has an underlying floor beneath it. Cali and the Northeast have seen a 25%+ drop in values in the real estate market. That STILL means that if you bought more than three years ago, you're likely still in the money. I think there's enough money coming from the bleachers to the sidelines waiting to see how much further it goes.

With interest rates at this ridiculously low price, AND the prices declining like they are, it WILL represent an amazing buying opportunity. I am working everything I know how to do to raise as much money as I can to attempt to buy a multi-family property or two in mid-2009. If we have a world ending depression collapse, it would happen before then. If it doesn't happen on that magnitude, then this thing will get dicey and ugly, but a recovery would come. I'm betting on that.

[FloridaPoke]

I have been asked about the counter-party risk on default swaps and why it makes us shaky.....a hopefully short explanation.

all banks (investment and commercial) have a multitude of offsetting positions with each other. When assessing their own market risk, they look at their "net positions", which I believe is bad accounting and a huge mistake as if one side of a net position defaults, the net position among banks becomes meaningless.

Investors may have taken one position with Bear Stearns as a counterparty, and then hedged its risk through another trade with (say) Golman Sachs. In the event of a Bear Stearns default, that hedge would break down....causing millions of similar hedges to break down. A credit default swap lets its purchaser separate the risk of default from a bond's other features, much like insurance. But, that instrument of insurance then becomes a tool for speculators. If Bear Stearns would have failed, banks would not have known where they were in the mess for weeks. The markets would have "frozen" and there would have been a cascading effect. We were THAT CLOSE.

Trickier questions of counter-party risk will arise in the coming months. Some financial engineers will decide to split banks into two, moving good assets to one and bad assets to the other, leaving the open question of which one is deemed to be the counter-party. Lawyers will get filthy rich on sorting this crap out.

I suppose the reason I feel this is problem isn't a probability for crisis is that the Fed will have no choice but to bail it all the way out. That leaves the only question as to what percent of GDP will be spent on the bailout....and how does that % compare to history both here in the US (the old savings and loan bailout) and abroad (Japan, Norway, Sweden, the UK, etc.). If the bailout stays below 10% of GDP, we can weather the storm quite nicely, if not watch out.

That will end our economics lesson for the day....I have to see if I can earn a living so I can buy my land :)

[wickerbill]

What pisses me off are all the management at these firms that took obscene risks and made millions off of this mess they created and now the average American is left picking up the pieces while they fly off to the Bahamas in their guilfstream. I'm not one that usually advocates government regulation, but there should be some stipulations attached with all of this bailout money since they have proven that they are far more concerned with short term gains that can help them maximize their bonuses than they are with the long term health of their company and the economy.

[FloridaPoke]

What pisses me off are all the management at these firms that took obscene risks and made millions off of this mess they created and now the average American is left picking up the pieces while they fly off to the Bahamas in their guilfstream. I'm not one that usually advocates government regulation, but there should be some stipulations attached with all of this bailout money since they have proven that they are far more concerned with short term gains that can help them maximize their bonuses than they are with the long term health of their company and the economy.


I agree.....and I believe there will be a fundamental change in comp going forward......but as to the guys who created the mess and made millions, that is history and they will get by with it. Pisses me off too.

In the case of Bear Stearns, virtually all of them took their comp in stock, so they were appropriately punished. Unfortunately, there were many peon employees (a la Enron) who are also punished.

[jakeman]

I'm just stocking up on ammo, and I'm gonna buy some saddles and horses again. I sold all that crap and bought a boat with a 42 gallon gas tank. I'm not unloading the boat just yet, but I am gonna get some saddles and a couple strong backs upon which to place them again.

I'm just sayin. :cowboy:

[osupsycho]

Unfortunately, my intellectual gymnastics did not end with this possible scenario. Other potential threats to current society would include:

major terrosist attack at utilities infrastructure (think Live Free, Die Hard)
extended trucker strike over high diesel prices
oil and gas prices rising even more drastically with no viable alternatives

And those are just off the top of my head for things in the very near future that could potentially slip us off the razors edge we are on....

[FloridaPoke]

Unfortunately, my intellectual gymnastics did not end with this possible scenario. Other potential threats to current society would include:

major terrosist attack at utilities infrastructure (think Live Free, Die Hard)
extended trucker strike over high diesel prices
oil and gas prices rising even more drastically with no viable alternatives

And those are just off the top of my head for things in the very near future that could potentially slip us off the razors edge we are on....

Well, if you are going to the terrorist route, then look to the food and water supply. Much easier to get to......much more catastrophic....

[FloridaPoke]

We're some cheery mofo's on this thread aren't we :)

[bleedorange]

We're some cheery mofo's on this thread aren't we :)

No chit. Now I don't know whether to go home and kiss my wife and kids OR kiss my ass goodbye. Thanks fellas.


On a cheerier note, I would like to nominate FloridaPoke for the "Most Versatile Poster" Award for eloquently and informatively describing the impending collapse of the world as we know it, while simultaneously contributing to a thread of dick jokes.

I raise my glass to you fine Cowboy! :food-smiley-004:

[FloridaPoke]

No chit. Now I don't know whether to go home and kiss my wife and kids OR kiss my ass goodbye. Thanks fellas.


On a cheerier note, I would like to nominate FloridaPoke for the "Most Versatile Poster" Award for eloquently and informatively describing the impending collapse of the world as we know it, while simultaneously contributing to a thread of dick jokes.

I raise my glass to you fine Cowboy! :food-smiley-004:

And don't forget the Dyson......which is so versatile it will suck you off the toilet seat after being stuck there for months on end....repair your sooner torn bag (even though it is bagless)....turn tough cowboys into metrosexuals.........there is no end to that sucka

[BigBadBen]

Well, if you are going to the terrorist route, then look to the food and water supply. Much easier to get to......much more catastrophic....


As long as they dont jack with my beer, were all good.