by David Haggith, The Great Recession Blog:
How do you invest for recession or a time of financial collapse when it looks like anything and everything could come down? If you are investing for recession — such as to safeguard your retirement funds for truly tragic times — there is simply no way to know what major part of the current economy will fall first because it is fragile to the point of breaking in all of its parts … all over the world.
Two paths for recession or economic collapse and two plans for investing for recession or economic collapse
Take our present “recovery” scenario where either … 1) The Fed unwinds its balance sheet, and then they discover this creates liquidity problems in corners of the economy where they didn’t expect this to happen — or they discover liquidity problems in plain sight where their blind belief in their recovery caused them not to see it coming) — or 2) the Fed freezes its unwind and rate-increase plans or maybe even backtracks to more QE and to negative interest as soon as it see markets falling. The latter return path — if taken — only means the Fed pumps the markets up even higher for longer, which further stretches the damaging distortions they have already built into all markets, making the economy shakier and shakier the higher they go. It also proves their recovery was fraud and must now be kept alive on perpetual life support, but whether or not people will smarten up to finally realize that is another matter.
You cannot truthfully even call what we have “markets” anymore — where people, for example, buy stocks in order to purchase ownership in companies so as to share in their profits. They’re a completely rigged casino where everyone has been placing bets on the Fed’s recovery plan with the biggest players betting with the Fed’s new money and the rest just following the money for the ride up. Profits barely even matter any more. Earnings per share are an easily rigged number because corporations now routinely buy back huge purchases of shares in order to make the profit per each remaining share continue to rise.
If you believe, as I do, that this whole “recovery” is Fed fakery that has merely masked the flaws of the Great Recession, then it seems to me you have two smart approaches to the markets, given the two paths above that the Fed can take (the unwind path or don’t unwind path): 1) Keep betting in the casinos, knowing the Fed has it all rigged for you and ride it up as far as it will go (which many people are doing and making a lot of money), betting you have the smarts to know exactly when and how it all collapses in order to get out just before the first major slabs of this shaky economic foundation crash to the ground. If you do this, and succeed, you may wind up fifty rich … or just filthy; but just know that game is now ending. 2) Refuse to participate in something you know to be a completely shoddy affair — a false economy that will eventually collapse — and find ways to preserve what you have and enjoy your life with minimal risk but no chance of great gains.
The problem with the first plan is that there are already such obvious cracks in the real economy (stalling housing market and commercial real-estate marke in may areas, a retail apocalypse, a busted-down auto market, massively top-heavy debt everywhere, distorted stock market pricing, huge derivatives market that bury over junk, increasing bankruptcy rates again etc,). The obvious economic euphoria under which these twisting and distorting markets are functioning gives ample reason not to be surprised if all of it falls apart this year. So, how do you decide which new fault line is going to be the last one to open before the land starts to slide so you can jump ahead of the pack?
The problem with the latter approach is that you really have no idea what will be a safe haven because cash in banks may go down if money, itself, crashes or if your bank crashes. Bond funds look as risky as stocks (or worse), and your retirement fund has no means for you to to just buy and hold bonds directly until maturity. Bitcoin is a mystery because no one has ever seen what it will do in a crash, except by watching it now. Maybe it could be your savior, or maybe it is the most corrupt regime in town, prone to some unknown hacking ripoff that we haven’t seen yet. No one even knows who created this system and to what end.
Even the safe-haven standard — gold — is rigged by central banks which own enough of it to cast it off as mere ballast if their own money fails in order to crash gold’s price and kill the exit route from use of their own money so as to protect their own money from flight. (They have also been known to have their government courtiers nationalize all of it at a government-established price in a bad enough crisis.) Clearly they no longer own precious metals for the sake of directly backing their currency with the ability to give you gold in exchange for paper, but rather they have determined to hold enough in consort with their other CB friends to corner and control the market if they need to. I suspect based on evidence they regularly intervene in the gold market already. They know gold (and other precious metals) is (are) the most dangerous competitor to their own proprietary product (government-backed money), so they control gold, too.
The lifestyle path to investing for recession or economic collapse
Here is a little parable from my own life:
For myself (because it works with my own background and upbringing), I own farmable land because, even though its market price will also crash again, it has intrinsic value in times of crisis that no one can take from me ; and I enjoy it. So, if no crisis happens, it is going up in value rapidly in my area anyway (+5-8% annually since I bought it); so it makes a nice retirement fund, too. Thus, I’m not completely cut out of the modern fake economy if it does keep rising. (I’ve hedged my escapist bet by remaining in that economy in a form that retains “practical value” even if real estate crashes and everything else crashes.) I will, at least, be able to grow things to share with my friends and to use in trade; and, in the meantime, I love living in this scenic setting.
I am constantly finding ways for others to rent out small bits of my land and buildings for agricultural purposes, so they do all the farming, and I do the reaping. Other than maintaining the property, I pretty much have everyone else doing the farming and paying me for the privilege. One person rents space for horses, which they take care of entirely. Another person does all the haying and pays me with 40% of the bales, which they put up in the loft for me, and I then sell them to others who pay me to take them out of the loft themselves, such as to the people who keep horses here. Another person pays me for use of one of the barns as the center for his beekeeping and honey extracting business. I’ve had others consider paying me for space to put in a large garden for a gardening school and space for an artists workshop for teaching art and still others to use the place for wedding events.
Another has offered, if I give them pasture space, to do all the care of a steer and pay me with a side of beef. (I have to share in buying the initial calf.) I’m contemplating tilling half of the arable land and replanting it all in wildflowers for the beekeeper’s bees for a share in the honey profits from pure organic wildflower honey. There, too, the bees will do all the harvesting labor and someone else all the processing and marketing; and, because its all wildflowers left to grownon their own after planting, I may not even have to do any weeding or use any herbicides. The bees can sort through any weeds to find the flowers, which are pretty adept (being wild types) at competing with the other weeds. And it all makes the the place I live all the more beautiful.
So, the long-fallow farm I purchased is developing bit by bit. No big money, but moves toward self-sufficiency and community building, and it’s fun to see the land becoming productive again in various ways as I develop it into primarily passive agricultural income for me that are also turning out to be good opportunities for others.
Of course, I spend a lot of time and money restoring old buildings, putting in landscape, etc.; but I figure all of that adds to value down the road and, again, makes it a more beautiful place to live. We even had a small-time video producer stop by to ask if he could film a commercial here. And the fields of wildflowers for honey (if I do that) will only add to that value, too.
To me, it’s just wonderful to watch the forty eagles perched like a candelabra in the winter branches of the tree next door (from which they fish the river), listen to the owls at night, hear the piercing screech of hawks and nesting eagles in the spring, listen to the rooks in the woods, watch the ducks and geese and herons in the pond that forms all winter, know the salmon are spawning in the creek that forms one boundary of the farm, and see the historic farm slowly coming back to life … in a valley surrounded by 360-degree mountain views.