–What are the best recession/depression investments?

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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It looks like Congress and the President, with the approval of the media, old-line economists and the voting public, are determined to reduce the deficit. Historically, deficit reduction has resulted in recessions and depressions. Federal deficits are the government’s method for adding money to the economy, and economic growth requires money growth.

So, we will cause ourselves a recession or a depression. I’m resigned to the fact that the vast majority doesn’t believe this, so I suppose I should enjoy the pleasant irony of seeing all the fact doubters lose their money, their jobs and their homes in the years to come.

But I don’t, partly because my own children and grandchildren will be hurt by the mess Congress is creating. I’ll be hurt, too – unless I can think of some recession-proof investments. While it seems nothing can prevent the out-of-control freight train known as “Congress” from destroying America, I’d like to protect my own family as best I can.

Many of you are investors. Some may know far more about stocks, bonds etc than I do. So I ask you this:

Given that we will have deficit reduction, which absolutely, positively will cause a recession or a depression (depending on how big the deficit reduction will be), what are the best investments to make today? Cash may be safest, but there’s no income. Treasuries are safe too, but again, there is scant income. Its a dilemma. What do you suggest?

Thank you for your help.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

MONETARY SOVEREIGNTY

23 thoughts on “–What are the best recession/depression investments?

      1. Gold is a good bet but not for the reason the bugs think (hyperinflation). Central banks of emerging countries are buying gold because cb’s “traditionally” (Bernanke’s word) hold gold. The US gold backing is about 76% of reserves and we hold twice as much gold as the second largest holder. China’s ratio is only about 1.6, so they will be buying gold for a long time. Same with India. Plus Indian and Chinese people love gold and hoard it. Thus, the market for physical gold is increasing as the emerging world gets wealthier. Add to that the gold ETF’s that allow anyone to speculate in gold, and gold is hot. It is also the ultimate safe haven, along with the CHF, which is strongly backed by gold. Gold and the CHF are doing well since the crisis began for this reason. Uncertainty is high not only in the US but also in the EZ and UK, and some of that id showing up as increasing demand for gold. Precious metals should be part of a portfolio, along with currency, as hedges. The % will vary with changing conditions. Since the lead up to the crisis, the % has been historically high. I suggested to my friends that they increase it heavily after Bear went down, and I still stand by that. I think we are looking at the second leg down in the GFC. These are deflationary times.

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        1. If Tom is right, gold stocks may be an even better bet. If there is deflation, their mining costs will be moderating or even dropping and their profits should soar. GDX is the easiest way to play this scenario. Post Lehman these stocks got crushed. Knowing how perverse the markets are, I suspect this time we see the opposite result. FWIW, GDX has been very strong the past month.

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  1. It’s like an approaching storm or flood, but like all such events never hitting the way you expect or how quickly the damage occurs – but it is coming and we must prepare. I’m NOT an expert, but some standard cautions might apply:

    Get out of DEBT; have enough funds for _____ months/years

    DIVERSIFY – cash in safe currencies (not Euro); govt bonds in emerging countries that don’t buy the austerity BS (see closed end funds from Pimco, Templeton, Morgan Stanley, Alliance Bernstein, etc. – I don’t know that all their selections fill this bill); stocks (and or ETFs) of basic commodities (including precious metals), utilities, REITs (?), health care, basic consumer goods – all of these worldwide, including USA – life has to go on.

    These are the sandbags I’m filling.

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  2. Yeah, my initial response was to go back and look at all the times we had recessions and depressions and compare other markets, i.e. stocks, commodities, precious metals, bonds etc and then compare to when we went off the gold standard and see what pops out at you. I’d be very keen to see what does.
    Now having said that, if your only dimension when it comes to investing is income you do limit yourself. If you know that a bear market in stocks is coming because history tells you it will, why not learn about put options for example. Income is important yes, but a well timed put option can pay well and will more than compensate for it not paying income.
    But this is more risky, I admit.

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  3. Anything with a rentier income and preferably an addiction backing it. It’s pretty clear to me that we’re in a process of bleeding the plebs dry.

    So fags, booze, guns, pharma. Anything used to blot out a miserable existence that pays a fat income.

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  4. Except for high quality bonds, there are no good investments in a recession. As more and more people need to raise cash, everything is sold off, including gold. (Wasted words – gold bugs always think it’s a good time to buy.)

    If you truly believe we are headed for a recession, or worst a depression, cash is king. Assets become cheap. The rich get richer.

    I once wrote as a response to one of your blog entries that opportunities always come available, if not today, then tomorrow, next month or even next year. Better to preserve principal than take a loss. Inflation and lost opportunity costs can more than be made up when better prospects arrive. I went to 100% cash in May, earning one half of one percent interest, anticipating the sheer stupidity and lunacy that was sure to be the debate over the debt ceiling.

    If you must hold some stocks, write covered calls to hedge the downside and generate additional income.

    REITs in apartment housing units might do well, as more people lose their homes and must rent. Again, everything sells off in a recession, so I doubt that this is the right time to buy.

    CDs are good. Ladder a portfolio with maturities that guarantee constant liquidity and the ability to roll them over, if interest rates rise.

    At your age, life income annuities might be attractive, even with current low interest rates. As for your children, who I assume are closing in on retirement, stash as much income into tax advantaged accounts, such as IRAs and ROTHs. Taxes are for the little people, as one very rich old bitch famously said.

    Your grand children should pay off or stay out of debt and simply save money. When young people ask me why I am economically secure my response is always the same. “It’s not a secret. Save money”.

    Having said this – Stop. All we currently know is talking points. Even if they are determined to cut the budget, the devil is in the details. How much are the cuts? When will they take effect? What specific sector of the economy will they affect?

    When we have the answer to these questions, it will a more prudent time to make an intelligent investment decision.

    My two cents.

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  5. Gold is unlikely to work given what you say implies deflation. Note that right after the Lehman collapse gold plummeted ~30% on deflation fears.

    I would recommend looking at short selling for your stated investment thesis.

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  6. I am not a Registered Investment Adviser so I don’t think I can make personal recommendations for you. However, what I am doing is investing in blue-chip companies that have raised their dividends year after year. Also, companies that dominate their industry. Examples are: McDonald’s, Coca-cola, Wal-Mart, Microsoft, Berkshire Hathaway, Intel, Cisco, Johnson and Johnson. These companies are the leaders in their respective industries and there are high barriers to competition. And right now most of these companies are selling for relatively low valuations.
    Let me also take this opportunity to thank you for the work you do. I came across Cullen Roche’s website a few months ago. That led me to Warren Mosler, John Harvey, you and others. For the first time since I got my Economics degree 40 years ago there is an economic theory that makes sense to me, that is, it fits reality. What scares me s***less is the ignorance and stupidity of the people who are making decisions about our economy. I fear that some are willing to violate the “full faith and credit” of the United States for their own short-sighted political purposes. What ever happened to “statesmen”?

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    1. Party politics has replaced individual statesmen. I don’t recall so many unanimous, party-line votes as we have had recently. When you see 100% of the Republicans voting one way, and 100% of the Democrats voting the other, you know that the welfare of America is not at the top of the agenda.

      It simply is not possible for an entire political party all to “think” in unison. By consistently hewing to the party line, the individual politicians have shown they are unnecessary. They just should stay home, get real jobs, and let the political leaders do all the voting.

      The emergence of the Tea Party, and its adoption by the Republicans, has ushered in a higher level of anger-filled, hate-filled, partisan politics, similar to what we saw in pre-war Germany. Very frightening.

      Rodger Malcolm Mitchell

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      1. Not sure where I saw it, but a suggestion was made that whenever unemployment rose above a certain cut-off (say 5%) all members of Congress (both houses) would become ineligible for re-election.

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  7. All great suggestions – to be adapted to individual circumstances, but timing is critical: R U trying to guess when? or pile up the sandbags and average the ups and downs?

    “A stopped clock is right twice a day.”

    If U have solid, unleveraged investments, the price swings are irrelevant.

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  8. I would invest in long-term treasuries like TLT. TLT went up 34% in 2008 but it is highly volitile and you have to get the timing right.

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  9. 25% Cash (1-3 year treasuries)
    25% Long Bonds (10-20 year treasuries or solid corporates)
    25% Gold
    25% Stocks (growth or secure dividend payers)

    Rebalance when one category gets +-10% out of whack.

    Backtest this… it cranks along at ~8%/year with <8%/year volatility through thick and thin. This was created by Harry Browne which he called the Permanent Portfolio (or a portfolio you don't want to mess with year to year)

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