November 16, 2010

How low can you go?

In light of the continuing collapse in risk assets (although I'm sure this very post will cause the collapse to stop), I think it's instructive to look back to see where the last rally started.  QE2 was proposed, and started getting priced into the markets, at the end of August.  Here are the levels of the assets I'm using for the fund battle as of August 31, and their increases as of the date of the QE2 announcement:

Asset Aug. 31 QE2 Change
Gold 1247.00 1348.59 8.15%
Silver 18.90 24.80 31.22%
DBC 22.20 25.69 15.72%
Dow 10014.72 11215.13 11.99%
Nasdaq 2114.03 2540.27 20.16%
S&P 500 1049.33 1197.96 14.16%
Wealth Fund $12,000 $14124 17.70%
Investment Fund $12,000 $13853 15.44%

If the entire recent rise in risk assets was speculative, these are the levels to which we should fall back.  Given that the Fed was still doing QE1.5 during this period, and is now on QE2, I would expect to stay above these levels, all other things being equal.

Of course, all other things are not equal, and we've seen continued economic deterioration since the end of August.  Also, Europe is having major issues, with their attempts to paper over the problems in Greece, Ireland, and elsewhere beginning to fail.  The inflation vs. deflation battle is still raging on, more strongly than ever.

Unless and until the Fed is forced to stop monetizing the debt, I'm going to stay in the inflation (wealth preservation) camp.  Note that under none of (what I believe to be) the possible scenarios would I be in the investment camp.  To me, the choices are between cash and wealth preservation.  At the moment, cash is winning out, as all risk assets are declining back towards the August launch point.  It remains to be seen how much of the rise since then was speculative, and how much (if any) was actual inflation.

Posted by: Hermit Dave at 10:06 AM | Comments (6) | Add Comment
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1 Knew I shoulda put some of my meager assets in silver...

Posted by: doubleplusundead at November 17, 2010 08:52 AM (2UKo+)

2 Actually, I'm thinking rice and ammunition might be better...

Posted by: doubleplusundead at November 17, 2010 08:54 AM (2UKo+)

3

dpud, I think there are 3 possible tiers to a personal strategy.  The first is self-protection, which I've gone into, although it's been a while.  This would be for those with few assets to protect, or should be the first step for those with greater assets.  'Rice and ammunition' is along the lines of tier one.  Essentially, one should try to become as self-sufficient as possible.  Make sure you have items and skills of value in the event of a partial societal collapse.  For example, hand tools, and the ability to use them well, are a fantastic tier one type possession.

This 'fund battle' thing I'm looking at would be tier 2 -- an attempt to protect modest assets against currency devaluation.  I haven't talked at all about tier 3.  That would be for someone who has fairly serious ($100,000+) liquid savings and investments.  For someone with the financial means, there are ways to increase flexibility and protect against a greater range of possible outcomes.  I might go into that at some point, but those strategies wouldn't be practical for most people, so I've not yet bothered.

Anyway, if one has fairly meager savings, putting them into things that hold value (and might increase dramatically in value should the worst happen) is a very good idea.  A high quality, medium volume water filter is probably one of the best things to spend money on.

Posted by: Hermit Dave at November 17, 2010 09:39 AM (sqGe2)

4 You know, I actually came away from this post a little less depressed than I have been of late.

I do have hand tools.

I'm the type of guy who might actually survive the apocalypse (zombie or otherwise) since I'm blessed enough to know a thing or two.  I'm still kinda young and haven't had time to build much in the way of an estate, but I work like a mule and have probably some good years of strength left.

And when all else fails I can whore out the wifey for table scraps!

Posted by: the botnet at November 17, 2010 09:42 PM (3JnuL)

5 Oh, and I picked up an ebook on distillation over the usenet a while back.  Remember when the former Soviet Union was paying their teachers in vodka?

Some metal tubs and copper tubing might be handy in Obama's redistributionist utopia.

Posted by: the botnet at November 17, 2010 09:49 PM (3JnuL)

6

That's exactly the way to think and the attitude to have, botnet.  People who are both practical and capable will always get by.  I'm not trying to be apocalyptic, but there are ways to protect oneself without going overboard.  High quality hand tools and distillation equipment always have value, so you don't sacrifice anything by having them around.  Then, if the worst does happen, you're more prepared than 95% of the people out there.

What I advocate is quite simple in concept.  Prepare yourself for the widest range of possible outcomes.  I tend to focus on negative outcomes because, in the event that the outcomes are positive, then everything will be just fine and dandy anyway, regardless of how I prepare (unless I do something really stupid like sell all my worldly possessions and start preaching about the end of the world on a street corner).

Posted by: Hermit Dave at November 17, 2010 10:33 PM (sqGe2)

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