By request from this thread.

In reference to cashing out 401(k)s in fear of nationalization of those accounts:


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How America amassed $20 trillion dollars of debt:

Instead of actually producing goods in factories, the US is simply printing a bunch of currency and trading it with the rest of the world.  How do they get away with this?

Currently, the US is taking advantage of the privilege of having a “reserve” currency.  Governments are always tempted to create more currency than a society should have, so there is always risk to investing in each currency, and thereby country.  Ideally the supply of a society’s money is controlled by a free market; not the government.

Long ago, the US backed its currency with gold.  It was literally redeemable in gold, or “as good as gold.”  The rest of the world’s nations correctly perceived US currency as sound and the most stable, and agreed to use it as a standard.  It was the gold-backing that gave the currency its value, nothing more.  Gold can’t be printed willy-nilly like paper currencies.

Fast forward to today and the US fell into the same trap as countless other empires in history and cut its tie to gold.  But it still has the privilege of a reserve currency, even though it shouldn’t.  The rest of the world is stuck with us until they figure out a way to find a better reserve currency or standard.  They are working towards that end.

The US produces very little in comparison to what it consumes; national debt, trade deficits, and currency printing bridge the gap.  In the short term, it’s advantageous because America doesn’t manufacture but gets to use everyone else’s goods.  

America simply prints more currency to trade for the goods; currency that is not backed by gold, but by a promise.  They are breaking the promise of keeping it valuable.

If the US continues to operate with its currency unbacked by gold, it will eventually render the currency worthless.  It would print more and more to exchange for the same amount of goods.  This is why things always change quickly at the end of a fiat (unbacked) currency’s life.  One day the goods are more valuable than the currency, and everyone dumps the latter for the former.

In the long-run, America’s trade-deficit partners will realize they are trading their hard-earned goods for our easily printed currency, and the process will stop.   It’s been going on a long time and the US now depends on a lot of foreign-made items and factories; where it used to be the world’s largest creditor and a large producer.

Is all central banking evil?

Central banks are not all created equal. Smaller central banks try to do what’s in their best interest compared to the US central bank; the “Federal” Reserve.  The Fed holds all the strings and is calling all the shots since they hold the key to the reserve currency. They operate outside and above the US Congress and answer to no one; they are privately operated and there is nothing Federal about them.

It is not so much the existence of a central bank as it is interest-bearing, debt-based currency.  In theory, a central bank could create a perfect form of money; one that is not interest-bearing or debt-based, and has a fixed ratio to the number of people in the population.  

In practice, the temptation to print currency out of thin air as a substitute for real production is too strong to resist. For this reason, the US Founders banned paper currency and central banking in the US. Central banking is by definition not a free market, since it is under government control.  In the US, it is not even operated by government and is completely totalitarian in nature.

If the reserve currency were still tied to gold, the US central bank wouldn’t be able to print into oblivion, and smaller central banks would not feel so much pressure on their economies.  Other countries that hold US dollars as a reserve suffer from deeper recessions and “absorb” the dollar’s problems. If the US has a cold, the rest of the world gets the flu.  It is not an exaggeration to say that most people on earth suffer under the US central banking construct.

Where America stands today:

Considering the above, there are two drastically different schools of thought.  One is that America, the EU, Japan, etc. can continue to run up huge deficits, living off other countries, forever; “debt doesn’t matter.” Under this view, America can simply run deficits and accumulate debt forever, without limit or consequence.

95% of the US investment world holds this view as their fundamental philosophy. They think America is the glue holding it together because it consumes everyone else’s goods.  Why can’t other countries consume their own goods? Or trade them for other real goods?

The other view is debt does matter, and eventually the world will return to a more basic and fundamental view of trade.  If a country wants to consume, it needs to produce. Currently, something like 70% of US GDP or “production” is actually consumption. Consuming today at the expense of tomorrow; whereas other countries save money to consume more later.

If debt does matter, and the US is printing more currency than should exist for the goods, countries will eventually decide to trade tangible goods for other tangible goods; or gold.  Investment philosophy would change, more on this later.

From a national debt view, if debt does matter, we would need to declare bankruptcy or try to print more currency to devalue the debt.  Americans own about two-thirds of America’s national debt. All that means is that either we all take a 50%+ haircut, or they keep printing currency until it blows up and the haircut is much higher; a fire sale on all US investments through a currency crisis.  

Retirement for all investing in US securities would suddenly disappear, or at least constantly be out of reach.  Either way, America would shift from a first world country to a third world country.

When the central bank started a second round of “Quantitative Easing (currency printing),” they implicitly admitted they will do the latter ad infinitum until we get wheelbarrows full of cash. They have done three rounds; if they do QE4 it is a good bet they will not stop until we run right off the cliff.

If these things are true, the situation is so dire that they have run out of ideas, and it is unlikely the system will continue for more than eight years. Why eight? Both Bush and 0bama doubled the national debt.  They lowered interest rates to afford more debt.  

It is not possible to double the debt again, from $20TN to $40TN, since interest rates are at a floor of zero. They can try negative rates, but it would need to be -10%+ for that much more debt, and that is negative enough that people would pull their cash out of the system. As an interest rate is lowered, more debt can be accumulated.  They have reached the point where no more debt can be accumulated without papering it over with currency printing.  We have reached “peak debt.”

Said another way, the government needs even more money for its budget, but can barely pay the interest on the debt. Everything is at its limit; interest rates at or near zero, plus the most amount of debt that can be racked up on the credit card. Doubling the national debt again, from $20TN to $40TN, and keeping the value of markets and currency, from decreasing, would be an impossibility.

How Investment Philosophy Would Re-align:

Who are the savers of the world?  Who will save and invest their money, becoming wealthier over time instead of spending and consuming?  Who is selling or trading goods with those people? What will those people consume as they become wealthier?

For example, if a “basic” society gets wealthier, they will consume more meat because it takes more food to grow a cow than it does to consume the food itself. We would take this concept and apply it to countries that actually produce, find other producers, and figure out which parts or “sectors” of each economy to put money.

What if someone had no choice but to invest in the US? They could take a “back to basics” approach.  Invest in railroads, food, water, security door and window manufacturers, bicycles, etc; don’t invest in luxuries unless it would be for the super-rich.

There is the 30,000 foot view.  Hopefully it makes sense.  How do we prepare for such a shift? How do we protect the value of what we own, but also continue to invest? If such a large shift could occur, can we make a big profit from it?

Money management:

There are three major money management concepts applicable to this topic: insuring, investing, and speculating.

Insuring is protecting against a loss; to make whole. Life insurance to protect against dying “too soon.”  Annuities to protect against “living too long” and running out of money.  Physical gold held at home or in a vault, with no expectation to sell- is insurance to protect against everything held in dollars losing value through too much printing.

Investing is ownership of an asset that pays; like a stock that pays dividends or an investment property that pays rental income. Or a bond that pays coupons.  Gold mining stock that pays a dividend is an investment.

Speculating is to risk money in hopes the asset rises in price, and then to sell.  It does not pay something, but instead is sold later and the difference is the profit or loss. A stock that does not pay a dividend, but is thought to rise in price is a speculative stock.  A property that only covers the mortgage and expenses (breakeven or 0% return on investment) is a speculative property. Gold mining stock that does not pay a dividend and is expected to rise in price is a speculative stock.  Speculation is more like gambling.  Buying physical precious metals with intent to sell later is also speculation.

The three concepts above, in addition to many others, are used to mold an investment strategy and craft an investment portfolio.  Investing in the short-term is not a good idea; there is too much risk.  There is too much short-term “noise” that can obscure the fundamentals; five or fewer years moves into speculative territory no matter the security.  

Personal investing is ideally done on the longest-term horizon possible, because long-term trends are much easier to identify than short-term.  Ideally families constantly invest to create multi-generational wealth.  Investing for a bankruptcy of the USA by default requires a long-term commitment. Who knows how long it takes for such a large country to fall?

As originally posted, the “big-picture” is simple.  Move investments to countries that don’t accumulate a bunch of debt, produce more than they consume, save money, and will emerge as the new America when it all comes to a head.  

Add in some physical gold and silver at home, plus shares in the stocks themselves, and it’s a plan that covers a lot of bases.  It is also worth noting that it takes money to make money. If someone only saves $10 a month, he will never retire, regardless of investment performance.  Ideally people save a quarter or more of their income.

What if this is all wrong and America is fine? The investments should still do well considering it isn’t a very fancy approach. The strategy is balanced, not too risky, and flexible.  Not 100% is in gold praying for the collapse to happen tomorrow.

Cat and mouse:

In short, the US has set itself up for a major disaster, the kind that can tear apart nations; and/or send them to war.  The government will be like a wounded animal backed into a corner. How far will they go? Well, when they have nothing to lose, what’s the limit? Is there a financial or monetary limit to what they will steal or tax?

Navigating a bankrupt country is not fun from any perspective, especially financially.  Ideally the entire situation is avoided, but that would require client relocation to a different country and revocation of citizenship for tax purposes.

From a purely financial standpoint, birth land allegiance aside, multi-millionaires would be wise to move to countries without debt-binging welfare states. The masses will extract the money from those who have it; either through tax or currency devaluation through printing. People with less money are less affected; less to lose. It is less about the individual and his lifespan and more about protecting the individual’s successors’ wealth from theft by government; protecting the fruits of one’s labor to pass on to others.

What follows is a partial and hypothetical list of potential government actions, in no particular order, when they need more money to keep the system afloat:

1. Huge tax increases to something like 90% for the non-politically connected rich.  They did this a few decades ago, so the precedent is set.
2. Forced partial-401k conversion into worthless government investments
3. Windfall profits tax if savvy investors profit from precious metals mining companies’ investments, and general investments outside the US and their sister economies.
4. Massive capital controls: no foreign holdings allowed; as above- greedy investors “making money on America’s downfall”
5. New currency issuance
6. Cashless society- simply devalue and nobody will notice until it’s completely worthless
7. Gold confiscation, even though few would comply. 22% compliance rate in the 30s, but still creates an issue because the gold holder might need to wait to use it.
8. Nationalization of industry possible but unlikely in the short term.  Wage and price controls on food and gasoline likely; creating shortages- creating black markets

That is a lot of “what-if,” is it not?  These things can happen very quickly, and in a random order.  From my personal view as a financial professional, the average DIY investor is not agile enough to react to these changes, even if he completely understands their implications. Draconian laws often come down the pipe very quickly due to their urgent nature of which the impetus is the sudden point of the limit of kicking the can down the road.

There is always the chance that it is so bad, America would Balkanize and/or people would be better off relocating to a different country.  It depends on what the Feds do, and it isn’t the era of small-.gov 1776 anymore. For this reason having physical gold and other standard investments outside the home country is prudent.

One word of warning:

The money invested abroad in other countries we think will pull ahead from the world could get worse before they get better.  Although they should provide return on investment either way in the long-run, they are the other side of the coin.  

As America and other countries continue to rely on currency printing for “prosperity,” it puts pressure on the actual producing economies.  Ironically, short-term damage to those economies paired with short-term benefit to the US, is indicative that long-term, the strategy is sound and would pay off.  

A second word of warning:

Assume investing in this way returns a massive profit when the rest of America’s investors are losing -50%+ of their portfolios; either through stock market price decreases or extreme loss of purchasing power.

Government is highly likely to put up capital control walls.  Investments abroad might need to be brought home to show “solidarity,” among a host of other hostile actions against wealth holders.  To be clear- wealth holder at that point could be a 401(k) owner with only $100k of highly lucrative foreign securities.  

Sometimes there is only so much an investor and his advisor can do.  This is one of the stronger arguments to signing up for a savvy financial advisor; he can usually stay a step or two ahead of the government whereas the DIY investor may not see it coming, or know how to respond to a first-of-its-kind regulation or restriction.

That is the philosophy and a little bit of strategy, how about we open the floor to scenario analysis and see if we can weigh the pros and cons of different approaches?

Why shouldn’t I just buy a bunch of gold if it’s such a sure thing within the next eight years?

Please read the following article. Please ignore the last three paragraphs: Link.

It is often said that “we cannot eat gold.”  This is the layman’s way of saying that gold is simply money; a store of value.  Its purpose is to either be traded for actual goods to be consumed, or saved and invested with risk into a company that produces a return.

Taken to its logical extreme, assume all currencies and gold are worthless; we found an abundance of both overnight.  How do we measure wealth?  All the sudden we would trade tangible goods or services directly, without money or currency as a medium of exchange. Whoever owns the food company gets extra food with which he can trade for a phone from whoever owns the phone company. Anyone holding what used to be currency and money now has nothing. See how real wealth comes from owning productive, income-producing entities?

Let’s assume a different scenario. Assume someone holds a majority of their investable net worth in physical gold at home; hoping to profit off the dollar collapse.  Further assume the dollar collapse took two years and has now passed.  What does he do with the gold?  Now is the time to put the gold to work, buying investments at a discount.  Hopefully he can gobble up wonderful investments, but consider the possible unforeseen risks.

Will the gold then be invested in the US? Perhaps buying investment properties? Did the government also freeze rents? Did they ban gold ownership outright? Do they still allow investing outside the US? Will he have to pay huge “taxes” for transactions or asset purchases made in gold? Is it so bad the banker is supposed to call the policeman to report the gold owner?  Does the policeman call his criminal brother and does the brother rob the house of the gold owner?

When the government is broke, being a gold owner is dangerous business.  For this reason, all the eggs in the gold basket, or any basket, is a bad idea.  Even if the wealth preservation succeeds with a bunch on money in gold, the owner needs to jump in to investing if he wants wealth accumulation.

The investor can get the best of both worlds by owning both precious metals at home and investments outside the US that will increase in value as the debt-laden countries of the world fall by the wayside; causing capital to flow into the investments he chose prior to the shift to real, tangible trade.

Where should physical precious metals be stored?  

If someone owns precious metals as insurance with no intent to use them, their only use would be during a financial collapse.  Imagine what such a scenario would look like.

Most likely the government will outlaw, tax, and/or confiscate precious metals held in depository institutions during such a chaotic time.  

Ideally the precious metals owner splits his holdings between his house and a depository institution outside his home country.  If things are so bad that he needs to leave the country, taking his gold through the border would likely be illegal, and having some on the other side would be beneficial.

The Perth Mint program in Australia is insured by the government of Western Australia and reinsured through Lloyds of London.  This is one of the safest ways to own physical gold for US citizens and constitutes a suitable, English-speaking country to which to flee if necessary.

“I don’t believe this:”

Americans have a few opposing forces on their journey to accepting economic truth. They include but are not limited to: social and psychological conditioning, gaslighting on an incalculable scale, and being a victim of their own success for so long; a normalcy bias.

Conditioning and gaslighting are closely related: please see this article for an explanation.

Additionally, it has been so long since America has had a serious paper currency crisis.  We would have to go back to the Continental to understand the magnitude of our current problem.  Not one person in America is alive today who experienced the fall of the Continental.

The last 30 years have witnessed the fall of the Soviet Ruble, Argentine Peso, and Venezuelan Bolivar.  The US and EU are taking the same actions that led to the demise of those currencies.  It is hard to accept until it is on our doorstep; by then it is too late.

Moreover, as this is written, the US is inaugurating its 45th President. As a conservative estimate, this President has plans to spend another $1TN through government projects. This does not bring us more wealth or freedom. The US continues its slow march toward socialism and income from government. Since government has no resources of its own, this income must be taken from productive members of society, borrowed, or printed.

Oddly enough, the country is so broke it cannot afford $1TN more debt without central bank devaluation. The central bank has vocalized that it may not play nice with the President by printing and monetizing his plans for more debt. He will have to come up with a different plan.

Hopefully this does more good than harm.  On a first read, it could be extremely overwhelming to most people, and that’s ok.  We, as a country, and as a world, have never been here before.

placeholder for possible Q/A and info

1/27/17

401(k):  What is it?

A simple “tax-wrapper” around regular investments.  Years ago, when Congress sent taxes into the stratosphere, citizens demanded relief.  Instead of lowering taxes, Congress created pre-tax and post-tax advantageous wrappers, or “buckets” to help.  401(k)s, IRAs, deferred comp, and other retirement-oriented vehicles constitute this reaction.  IRAs, for example, can come in both pre- and post-tax flavors.

Congress made the deal that as long as someone locked up their money until retirement age, they could get a tax break and a little relief from excessive taxation.  If someone wants to remove their money from a pre-tax 401(k), they need to pay the taxes plus a 10% penalty.  This makes sense, as they made a deal with the government.  They could have instead chosen to invest in a post-tax IRA.

Investment choices in a 401(k):  Usually there are a few “target retirement” funds to choose from, and possibly a DIY option.  The DIY option could allow someone to open up a much more flexible brokerage account inside the 401(k), and operate it like they would a regular brokerage account outside of the 401(k) wrapper.  In other words, 401(k) is more about taxes and less about the kinds of investments they can hold.

Government salivation over 401(k)s:

Since the government gets to control the rules of the 401(k) game, it is tempting for them to change it up, by forcing the investments into government money, or nationalize them.  It is exponentially easier for them to do this with a 401(k) than a regular brokerage account.  

A financial professional can’t give much direct guidance to people about their 401(k), because we have no idea what they will do, if anything.  We can, however, help people think through the different possibilities and their options.

Worst case scenario:

Government nationalizes all or part of everyone’s 401(k) holdings.  Obviously, the best thing to do is not have a 401(k) wrapper at all.  If all the money was in a regular brokerage account, it wouldn’t be affected.  Regular brokerage accounts, however, don’t get the tax-advantage, so it all needs to be weighed against each other.  Remember, transferring all the money out of the 401(k) and into our pocket results in a tax bill and a 10% penalty.  Getting a sense for the personality of government yet?

Assuming we knew without a doubt, which we absolutely do not, that the government would mess with 401(k)s, the best thing to do would be to roll it over into another kind of retirement account that saves the person from the 10% penalty, since it is still locks in until retirement.

This may not even be allowed, each person would have to check with their financial and tax advisors.  Assuming it is, let’s use IRAs for example.  Now the investor needs to choose between pre- and post- tax IRAs.  Assume moving 401(k) funds into either IRA saves the 10% penalty.  Should it be a pre-tax or post-tax IRA?  If the government is hurting this much, they’re probably going to raise taxes.  Might as well bite the bullet and pay lower taxes now than higher taxes later with a post-tax IRA.

If the person also thought they would go for all retirement account buckets, he would also shut down his IRA, pay the taxes and penalties for doing so, and put it into a regular brokerage account, where he has most control and government has least.  At this point of desperation, the financial situation is likely showing itself in social and political chaos and riots.

Also, remember this scenario is almost guaranteed to have a lot of inflation.  We are working off the assumption that our hypothetical investment strategy is paying off, domestic investments are tanking, and our ex-US investments are doing well.  In other words, everyone else might be pulling money out of their 401(k) simply because it is hemorrhaging in real value.  The account could even be “crashing up” instead of “crashing down” where the nominal (face) value is increasing slightly, but bread costs $50 a loaf.

Is there any action we should take now?

“Should?”  It is not the place of a financial advisor to tell a client what he should or shouldn’t do with something that might not ever happen.  “Could” or “couldn’t” is more appropriate since we don’t know how bad it will be, and it’s the client’s money in the first place.  The client has to own these types of decisions so he doesn’t blame his advisor later.

The investor needs to think about his employer match if he has one, his different pre- and post-tax options, and how far he thinks the government will go on a scale of 1-10.  That will help him think through his options and feel comfortable with his decisions.  The biggest consideration is forced investments, not games with tax-wrappers.  Does the investor think the government would force people into government bonds and investments?  If yes, they'll go straight to tax-wrapper accounts first, so give consideration to the above.  If not, could leave well enough alone and probably be ok.

Housing and debt:  

Debt is an enormous topic.  The important distinction between debt is borrowing to consume vs. borrowing to invest.  If we borrow money to buy a TV, watch the TV for a few years, and throw it out, we borrowed to consume.  All we did was spend more money by borrowing and paying interest to get the TV and then trash it for nothing.  If we borrow money to buy a TV, add a bunch of parts and labor to it, make it into a movie projector, and sell it to the movie theater for a profit, we borrowed to invest and produce; and made a return or profit.

As with TVs, the same applies to houses.  Borrowing money to pay for a primary residence is adding to the cost of living.  Borrowing money to buy investment properties is simply cutting into the return on investment; but there is still return or why do it at all?  As long as there is still profit, it’s all gravy.  Borrowing money, or “leverage” for investing, is not good or bad in itself; the reason for borrowing is the issue.

The housing market is a disaster to try to navigate as a single homeowner.  Government gets involved, central banks get involved; its messy.  Prices shoot up for a decade and the bottom falls out in a month.  There is so much mal-investment in the entire economy, stock market, bond market, housing market, auto market, and so much else due to cheap money printed from thin air, it’s hard to make heads or tails of it even for professional finance people.

On one hand, having a paid off house feels nice.  On the other, money is cheap and we can split the difference by leveraging the house and investing in the market.  Even better with massive inflation and paying off with depreciated dollars.  For common homeowners, the less debt the better.  

What if a time comes when we have massive unexpected inflation and financial chaos?  Is it a good time to be a debtor with fixed rates of interest on loans?  Yes.  Do they get paid back with depreciating dollars?  Yes.  Is it worth it to game the system?  Professionally, maybe; common homeowners, not for the majority.  

If someone wants to be aggressive, they could buy their primary residence with the longest-term fixed rate loan possible and pay off with depreciating dollars.  They could take the rest of the dollars and invest in gold mining stocks and whatnot.  

We are assuming the investment returns outpace the additional cost of borrowing, vs. paying off the loan early.  There is a risk that they don’t, or it takes longer than expected to happen.  It’s all too much to navigate and try to time for most people; not worth it.  More on this in Turk and Rubino’s book “The Collapse of the Dollar and How to Profit From It.”

Simply put- a primary residence is a cost of living; not an investment.  We own it and we pay the bill.  If a person or family has decided that they are ready to buy, buy the cheapest house that makes everyone happy.  Keep the cost of living as low as possible whether using cash, loans, leverage, or aggressive strategies.  

This will help protect them from potential financial ruin by owning a bubbly asset; the difference between overpaying at the top of a market but still being able to make payments, and bankruptcy by over-extension, being underwater, and/or and losing the house.

Updated 05/01/2017:

As to not put the cart before the horse, below is how to think about saving enough money for a cushion before investing with risk:

How to think about the next Great Depression:

The way to get through a Great Depression in today’s world is with liquid savings and practicing the OODA loop.  With enough savings, the person has enough time to stay “inside,” rather than “outside” the OODA loop.

An economy can go from first-world to third-world smoothly if it’s done over a long enough timeline.  Each productive person can constantly re-adjust his bearing and stay employed if things change slowly; always being where the money is.  Less wealthy yet no less certain or stressful.

Having less material things does not feel good to a materially-obsessed society, but that isn’t real pain; life goes on. Real pain comes from loss of income.  Loss of income comes from having the wrong job; the one that disappears.  Real pain is suddenly living in an economy demanding only oil, food, and water, yet only having the skills to create another mobile phone app or “service industry” work.  

It does not appear that the US economy will provide us with the luxury of time.  The politicians choose the most politically expedient option at every turn.  Unfortunately, that means we will probably have to deal with an unprecedented shift in the economy with regards to speed of change.  

In other words, we’ll become third-world seemingly overnight rather than a long, drawn-out process to which we can easily adjust. Americans by and large are not prepared for swift change due to the historical strength of their institutions. Due to our unsound monetary system, those institutions have been eroded and will fall given enough time.

How to prepare:

Savings.  

Savings is the “buffer” that allows the person to figure out which jobs will stay, which ones will go, and which one will expand.  Without a buffer, the worker might choose to take a short-term and economically unstable position at the expense of long-term stability and income. Or become unemployed with no savings.

The standard financial planning answer to emergency fund size is: Six month’s worth expenses for a two-income household and one year for single income.

That’s not enough for the next Great Depression.  More is obviously better, but after someone hits three years of savings, they can probably start to invest. The people who have $100k in a 401(k), but nothing in the rainy day fund are doing it wrong.  At least one year liquid; ideally three.

There is always the chance that things are so bad, opportunity is only found internationally.  The savings vehicle transports that worker and his family to more economically fertile grounds.  It gives them the cushion to get up and running. History is chock-full of this phenomenon.

How to think about savings:

Grandma used to be able to stuff cash in her mattress and realize a gain in the value later.  Anyone alive the past 10 years understands those days are long gone.

Assuming America has a currency crisis, cash is the worst thing someone can hold.  Their savings can be wiped out overnight; no doubt paired with massive unemployment.  So, they should melt the cash into gold and keep it at home.  However, nobody uses gold or silver to conduct business (at least not as of today); so not all of the cash should be transformed into gold. Keep maybe six or 12 months in cash.  

There is a lot of resistance from people about this strategy because of a decades-long war against gold. Say the fee to buy gold is 4% paid to the gold broker; then another 4% to sell it.  If someone does that in a one year period, it needs to appreciate more than 8% to have made it worth it; probably not going to happen in any given year.

However, if someone pays 4% to buy it and holds it as an emergency fund for even five years, then sells it in an emergency, he wins considering a 2% inflation rate (and they lie about this number all the time). The longer he keeps it, the better.  He is also avoiding the risk of a currency crisis, which always seems to not be a problem until it is.

Thank you for all the effort you've put into this.   It's the most important issue of our time.

I have so many questions, but I guess the first one should be: What are the indications that the time is drawing near?  

Being a firm believer in the "History Rhymes" school of thought, I'm guessing that the Stock Market inflates and exhibits marked instability?    

Velocity of money increases.  

Pay going up, and the economy booming?

PM's initially get cheaper, as money flies into the Market?  

What are other indicators you haven't mentioned, and I haven't thought of?

Thank you!

Absolutely tagging

Tag

"When people are greedy, be fearful". "When people are fearful, be greedy".

Tag

Lots of time and thought put into this. Thanks!

your first section is false-what a joke

Care to elaborate?

Nice write up. Been having a similar discussion with another well grounded friend for the last few days.

The difficulty I see for anyone not only trying to protect their assets but also to grow them, is that the variables are so numerous and potential outcomes so vast, it's difficult to even know where to start.

I think we all agree the next 4 years will be the defining moment as to which path the country will irrevocably pass, but as you state, attempting to react as all the mice abandon ship is as or more risky than preemptive malinvestment in orderly fashion...

I'm simply paralyzed with the idea that government is truly capable of any and all things, in every direction, that they will always choose the least responsible action over one that is responsible as a means of extending the big lie.

The only thing I'm most sure of is that neither governments nor their people have the determination and moral fortitude to reverse the current debt cycle. The only thing that will finally put an end to it is mathematics.

dupe:

http://www.ar15.com/forums/t_1_5/1762727_Get-ready-for-Market-Collapse-2-0-on-Monday.html

Interesting write-up but some of your statements use faulty assumptions.

First, the US is the second largest manufacturer of goods in the world (or first if you believe that China's numbers are BS, which has already been admitted to by certain portions of the Chinese government). The problem is that not only have the number of manufacturing jobs in the US been declining over that last 30 years, but the percentage of American workers engaged in manufacturing is also significantly lower than back then. Part of this is our trend towards a "service" economy. In truth, the so-called "service" economy, much of which is middlemen and/or parasitic in nature, has caused our manufacturing prowess to be undermined by inefficiencies in the rest of the chain to consumers. Add to that many companies refusal to invest in productivity improvements because more money could be made in the stawk casino, er, market.

If one looks at the financial sector, we can see that the percentage of GDP that is consumed by an "overhead" function, ie banking, has grown dramatically, particularly since the turn of the century. The current major banks are so loaded with bad paper, that they are completely bankrupt and being allowed to continue to operate because they supposedly represent a "systemic risk" to the entire banking system. This, too, is bogus. What has happened is that in an effort to prevent their placement into receivership and dissolution, they created "derivatives", ie fake financial instruments and "traded" them amongst each other to the tune of $200 Trillion notional value. In short, they created a hole so large that even the .gov couldn't fill up with paper just to hold the rest of the country hostage. As it is, interest rates being low are destroying people's ability to save, creating massive mal-investment (because the cost of money isn't tied to risk), the banks commit rampant fraud and criminal acts with impunity, and is generally a 5lb. tick on a 10lb. dog.

It is not without reason that Trump wants to start eliminating the massive pile of regulations. The breadth, extent, and intrusiveness of this mountain of bureaucratic crap has caused so much disruption in the economy that during Odumbo's tenure, for the first time since the Great Depression, that the number of new businesses being created was being eclipsed by the huge number of businesses closing down. Without net increases in the number of new businesses, especially small ones that employ ~65% of working Americans, the economy will be hollowed out within a decade.

I'm cautiously optimistic that Trump will begin to reverse the accelerated decline Odumbo caused. However, unless SS, Medicare, and welfare as a whole are changed significantly, nothing he does will make any difference in the long run. The demographics and trajectory of the wildly mis-named "entitlement" programs are such that they must be changed or the .gov simply goes broke. When just the interest on the debt exceeds total federal revenue (which would happen quickly if interest rates went back to their historical norms), we become Zimbabwe. As it is, we're spending ~4 trillion a year and only paying for ~3 trillion of the largesse.

So, yes, the trajectory of the economy is headed for disaster. Recent events may give us time to at least stop the hemorrhaging. But, that's still a long way from setting course towards prosperity.

As for precious metals, as Celente says, "If you can't hold it, you don't own it." (Note that he was burned badly by the whole MF Global fustercluck. A number of other people have been burned by buying "allocated" gold, only to find they can't take delivery when they demand what they paid for.) That being said, one needs to determine for themselves how much of their current wealth they want to set aside in non-dollar denominated assets such as real estate, gold, and silver. Gold is a means to provide a compact storage of wealth. Silver is more a means to transact business, ie currency. One way of thinking about it is, "If my 401k is in dollars and dollars become worthless, how much of something else (PMs) will I need to get by until the new script comes out?"

Don't think for an instant that many of the world's big producers (mid-east) and users (China, Russia, and to a lesser extent Europe) aren't plotting to replace the dollar as the world's reserve currency. They would like nothing better. But, there's really no replacement available short of a basket of other currencies. Part of the reason for that isn't geo-political, it's practical. In essence, the US has been "exporting" its inflation by printing dollars with reckless abandon. This is particularly true in China where the .gov there has forced everybody to eat the inflation since the US is the largest consumer of what they produce. And, they have until recently been forced to pay for their energy consumption in dollars. So, they have to use up more dollars to pay for their energy usage. Hence the reason China has been a serial de-valuer of the Yuan. The bank of Japan has been printing money for almost 20 years with little to no improvement in their economy. Soon, the Japanese government will be the majority shareholder in a number of Japanese companies. All in an effort to make the appearance of economic stimulus while in reality serving only to keep their incompetent banks from being insolvent. (Sound familiar?)

Sorry for the wall 'o text.

Good thought here

These two things are important. If you convert your retirement savings into something and S doesn't HTF, you probably lose a great deal of potential profit -and- will face a stiff penalty from Uncle Thief for early withdrawl. Getting debt free has a certain value all its own because your minimum cost-of-living goes down dramatically once you paid off your mortgage, car, credit cards, etc. Buying a small amount of gold and silver at regular intervals seems to be a better plan than trying to take a huge pile of money and try to buy it at the last minute. That's almost certainly a recipe for overpaying. By a lot.

OTOH, I used to think that there would be signs sufficiently far in advance so as to not worry about cashing out my savings until I was sure I needed to. Still believe that for the most part. What has made me question that assumption was the financial crisis report that indicated the entire credit system was within hours of a full-stop. So many companies stopped sending money to other companies because they weren't sure they'd get paid back, the fed had to inject almost 400 billion in an afternoon to keep the credit-fueled economy running. Note that the vast majority of people in the country had no idea the economy almost came to a halt, including me, until well after the fact. Much like some of the people who used MF Global didn't know they were screwed until they went to get their money and it wasn't there.

P.S. Raising cattle is hard work and is not inexpensive. Been there, done that. Would do it again if I had to but wouldn't like it.

Is this a thread where OP answers questions, or is it just for general comments?

Thanks for the positive comments.  Both?  If there are specific questions directed at me, I'll put them in the top few posts.  If it is more general dialogue, we can just do the normal quote chain format.  

Some of these questions are extremely challenging to answer, and it takes a while to find the words.

How about starting at planemaker's statements in his post?

I have seen this in my lifetime as well. Sage advice

It's an open forum.  Everyone is welcome to share their opinion.  Dominating finance threads with little intricacies is distracting and doesn't help people so I avoid the back and forth about mechanics.   If people want to learn about economics, I'll point them in a good direction.

His first post is about the mechanics of finance.  Seeing are how he is coming to a similar conclusion, it doesn't make sense to hash out the particulars of how.  We're fucked.  They'll turn dollars into monopoly money.  As long as we can agree on that, we're good.  If dollars are bad, short them by investing outside the US and her sister economies.

There was some stuff about 401ks and housing in the other posts, so that has been added at the top of the page; third post.

Also, I want to hit on “How to think about financial advisors,” but I need to know why people are apprehensive about them and/or don’t trust them. Any input?

And where is Gyprat?  If he is out there, any input?

Just finished up Rickard's latest book. A bit self serving, but scary stuff.

I think the hard part for us young guys is balancing the need to save for retirement, but not yet putting everything into the market that is really nothing more to you than numbers on a screen. I guess one is doing well enough to have eliminated consumer debt, max my Roth every month, have 2 months emergency cash, and picking up a few 1/10 oz eagles every month.

Care to elaborate more on foreign private gold store storage and brokerage/bank accounts denominated in other currencies outside the U.S? Also, actually redeeming the securities you own to get the certificates? From what I have read, you don't really own what's in your brokerage account, it's simply "held in custodianship for you" or something like that.

Bump for more. I like the anecdote Rickards included in his latest book on the Italian woman's statement on how rich Italian families preserved their wealth since the turn of the century and way before..weathering WW1 WW2, etc. She said they simply owned land, gold, and art.

Fascinating stuff.  In for more.

ummmm, yeah it would.  

401k accounts don't consist of raw cash.  they consist primarily of equity and credit instruments: stocks and bonds.  so if -- under your worst case scenario -- the government "nationalizes all or part of everyone’s 401(k) holdings", they have effectively confiscated US$18T of stocks and bonds.  the only way for the government to realize cash from these confiscated instruments is to turn around and sell them.  the market price of these instruments is roughly at the median of the bid (what the buyer is willing to pay) and ask (what the seller will accept) prices.  the moment the government confiscates these instruments, there will be tons more sellers than buyers, and the instrument price will drop -- very rapidly.  after all, why would you hold an instrument that a) the government is confiscating, and b) they are bound to sell en masse?  moreover, foreign investors (individual and institutional), upon observing the US Govt confiscating US-issued securities, will sell everything they own and in fact short those very same securities because by definition the dollar will become weaker as well.  

so how you think all this selling doesn't affect the folks holding these very same instruments outside a tax-advantaged account, i really have no idea.  the apple stock held inside a tax-advantaged account such as a 401k or IRA is the very same apple stock one holds inside a taxable brokerage account.   the sale of large blocks of apple stock from "401k confiscations" affects ALL apple stock, and the price drops accordingly and precipitously.  finally, equity and credit markets are based around forward pricing confidence.  insert a wildcard ("401k confiscation") into the equation, and confidence erodes along with instrument prices.  

next, you are going to tell us that in order to prevent the crash in prices due to all this selling, the government will just "hold onto the stocks and bonds, instead of selling them", or "they will just sell them off very slowly."

ok.  

ar-jedi

Rickards did warn in his latest book, The Road to Ruin, that when the system gets locked down, everything gets locked down.  Cash for a while will be king.

And your rebuttal is.........................................?




If you disagree....no problem.  But if you can't explain what you see as the issues with the OP then your above statement is irrelevant and you shouldn't post such nonsense.

An email I recently received from Breitbart:



Dear Reader,

I don’t mean to alarm you — but please be prepared to take action.

If you have a dime in a savings or checking account…

If you have money in an IRA, 401(k) or brokerage accounts…

If you have a single penny in the financial system…

This could actually be your last chance to protect yourself.

Here’s what I mean…

For the past 10 months, U.S. intelligence insider Jim Rickards has crisscrossed the planet — gathering details of a looming event.

His journey has taken him from Washington, D.C., to London, Latin America and Asia.

In an effort to cover EVERY base, Jim has met one on one with former Fed Chair Ben Bernanke…

Bank of China honcho Zhu Min… and even the head of the ultra-powerful Bilderberg Group.

In addition, he has consulted with top intelligence officials — inside and outside the CIA.

All of these meetings have led Jim to confirm this same shocking prediction.

We could soon witness the $326 trillion “freezing” of the world financial system.

It will be purposeful.

It will be destructive beyond belief.

And when it occurs, it could happen inside of 48 hours.
Not only would this event devastate millions of individual Americans.

This same event could end Trump’s presidency before it really even begins.

 The purpose of foreign private gold storage is to address the risk of the US government restricting people from taking their gold with them if they decide to leave the US temporarily or permanently.   Otherwise they’d keep all their gold in the US.  Each person could decide their comfort level.  

For most, storing six months or a year’s worth of expenses would probably be a nice insurance policy if they want to unass their country.  Using this policy means that it became so bad in the home country, it’s time to start over somewhere else, or let things settle down for a few months.

The chances that any one person would need to do this is low, but the chances that one person in a genetic line would use it increases exponentially the longer the timeline.  In other words, look backwards as Churchill put it.  

Most Americans probably wouldn’t go through the trouble; there’s been stability for generations making it a foreign concept.  Jews from the 1940s and people from the Soviet Union would be more receptive.  It’s probably one of those things every family should do, and keep doing for generations.  One day, their great-great-great grandchildren might have to use it.  

FAQs from trustworthy firms:  

Perth mint FAQ: https://www.perthmint.com/storage/help/faq-storage-options.html

Texas Precious Metals is a reputable company and someone there is very insightful about where everything is heading.  Partnership with SWP (below): https://www.texmetals.com/news/texas-precious-metals-partners-strategic-wealth-preservation-swp/

Strategic Wealth Preservation: http://swpcayman.com/faqs.php

Brokerage accounts:  It’s not about the accounts themselves, it’s about what they hold.  This is where a financial advisory firm comes in to work with the client on an investment strategy.  If the client thinks America’s debt does matter, and would cause Americans to become poorer, he would invest in companies that don’t sell things to Americans.

Custodianship and brokerage firm failure is something most people need not worry about.  For most investors, the client’s money is kept separate from the firm’s.  If the firm goes bankrupt, the client takes their account elsewhere.  

Most people should shoot to save a minimum of 25% and have 12 months worth of expenses on hand.  They could even split it with six months cash, the other six in silver and gold.  1/10 oz gold coins carry a higher premium than higher weight coins.

Wealthy families can afford to tie up a bunch of money in land, gold, and art; they can do it on top of the investments that increase wealth.

 The government has already done this with $4.5 Trillion worth of securities.  The Fed bought them, to keep the markets propped up, and are now stuck with them. Admitting they are worthless is not something they want to do.  They tell us it will "roll off" (selling very slowly).  Does not appear to be the case.

Just look at how many times government tries to nationalize.  '08 and '09 are already nationalization of losses.  The $4.5 Trillion the Fed holds will eventually be paid by taxpayers and holders of US currency.

They make this up as they go, and always come up with more clever ways to disguise it.

 Unsubscribe.

This guy is just trying to sell newsletters and gold investments. The economy isn't on track to collapse and in fact the Dow is on tack to hit 32000 in the next 4 years.

The sky will have to fall elsewhere.

Look into Weimar Germany and Zimbabwe. During their period of hyper-inflation, their respective stock markets also went up.  Lest we forget, the stock market is NOT an indication of economic health.

Word.

A lot of my stuff has been bought at auction for pennies on the dollar from guys who were ready to repel a Soviet invasion, but never thought about silly things like retirement accounts and adequate health insurance - like you would even need any of that.

Basic stuff like a fully funded 401K and good health insurance is the real foundation of preparedness.  Without it you are not ready for whatever the future holds.

I know a guy who, prior to the last presidential election, spent well over $10k on credit cards purchasing guns because he believed Hillary would win.  He had LOTS of guns already so why he felt the need to buy more....who knows.  He now has over $10k of guns that are now probably worth less than $6k.  Bad investment strategy and he now has cc bills to pay.  He's also only a few years from retirement.  But, he's making stupid decisions like this.

You know the same guy I know?

Wait, the guy I know did that for Obama, and is likely still paying that off.  But I guess that's the point.......

One possible option you forgot to mention about the 401k is the rollover IRA escape hatch (as I saw it called on the article I read). Contributions to Roth IRA's are subject to no-penalty withdrawals any time after they've been held for 5 years. You can roll a 401K into a Roth IRA by paying the income tax on the amount. After the 5 year waiting period you can then withdraw your contributions to the Roth IRA penalty-free.

IE, you can gain access to your 401k within 5 years, no penalties, just by paying the income tax on a rollover now.

most 401k plans do not allow an in-service rollover to an IRA.

so, step number 1 would be to retire, quit, or get fired.
only then you can start rollover proceedings.

you do have to find a new job though.  

ps
by the way, you can always make after-tax contributions into your 401k (perhaps on top of, or once you exceed, your pre-tax contributions).
among other things, this means those after-tax contributions can be directly rolled over into a Roth IRA, without the tax burden and without a waiting period.
this approach can markedly increase your flexibility and retirement assets.  

https://www.google.com/search?q=mega+backdoor+roth


ar-jedi

All very true, I was speaking more-so in terms of somebody that wants to gain access to money they have already put into their 401k.

There are MANY people that would be able to do this without retiring/quitting/etc. For example, in the industry I work there are lots of contractors that for all practical purposes stay in the same job many years, but every year or two their company loses the bid on the contract, a new company wins it, then promptly hires all of those same contractors to continue filling the same role at the same place. Their employer changes every year or 2 even though their job doesn't; this would allow them to continuously roll-over their 401k's if they wanted.

Some of the responses seem to be from a perspective that focuses almost too much on the tax-wrapper account part.  That's all fairly peripheral to the core issue of the investment strategy itself.  It's also hard for most laypeople to figure out and another bit of value delivered by financial planners.

Let's hypothetically assume that $20 Trillion of debt does matter, and Americans will be poorer in the future.  If a company sells products exlusively to Americans, it's going to get smoked regardless of whether or not it's in a regular brokerage account or tax-advantaged account.  Likewise, if a company sells to people, cultures, and countries that will become more wealthy over time, they'll do well regardless of the tax-status of the accout.

For what it's worth, people like Ron Paul and Peter Schiff usually agree on major economic themes.  However, Paul thinks the .gov will go for 401(k)s; Schiff thinks the chances are, "very, very low."  I've never seen these two disagree on something that is so "big."  To me, that means nobody knows what will happen, and trying to play games with rollovers and whatnot isn't worth it.

Also, to the point a few have made, just because the financial system is broken does not mean people should quit the game and go on vacation for five years.  No matter what kind of financial system we have, the world still moves because of capital investment.  

Even the most hardcore survivalist nutjob who thinks we're going to hell in a handbasket doesn't get a free pass from investing.  In his case, he would invest locally.  He would see if his local farmers and others need loans to produce products that his community needs to consume.

Rino,

What's your opinion of Simon Black and his Sovereign Man stuff?

The worst part about OP is that it's too complex for the average person to realize which parts are BS.

You say 30% of a portfolio should be in precious metals mining stocks? This is terrible advice, just take a look at some of the large gold mining ETFs.
JDST -58% just this year
NUGT +16.75% YTD
DUST -34% YTD
SGDM +6% YTD
GDXX +13.75% YTD

If you aren't a razor-sharp stock researcher, you will lose A LOT of money investing in mining stocks. That entire sector has been falling since 2010. OP is straight up wrong on this one.

Owning gold? If you don't actually have it, have never seen it, and can't get it when you want, do you actually own it? Physical possession is king. Yes, the government might come for your gold, or someone might steal it, but that reason doesn't stop you guys from owning lots of guns, right?

Financial advisors are often charlatans. Be very, very skeptical of them. If they are really so good with money, how come their source of income is telling other people what to do with theirs? Shouldn't they be making millions in the market? It's because advisors get paid when the market is up AND down. Zero risk to their own wallets. Brilliant. I tend to discount advice from people without skin in the game, and I certainly won't pay for it.

For every new investing strategy you hear of, try back testing it. Back testing is asking "If I had done this 5/10 years ago, how much money would I have now?" Then compare that number to what the plain vanilla S&P 500 would have made you. It's usually not good.

Back testing it self is tricky business. You have to do the testing exactly right or you can't trust the results. Out of curiosity what software/databases/methodology do you use? I've been wanting to improve my back testing skills.

 His perception of the problems is realistic.  Not sure about his solutions.  One red flag is his perception of crypto-currency as safe.  

Bitcoin and other crypto-currencies can go to zero today if they feel like it.  Only confidence backs it.  Goldmoney is better than crypto; backed by gold.  Baskets of currencies backed by government is still better than crypto; the government can tax the shit out of the citizens.

 Rule #1 of economics:  If a five year old cannot understand it, it's bullshit.

The purpose of investing in precious metals mining companies is for the eventual paradigm shift.  This shift comes from governments' attempt to create prosperity by running currency printing presses in overdrive.  If we knew it would happen tomorrow, the allocation would be 100%, not 10-30%.  But we don't know.  It goes up and down, left and right, until then.

No, financial advisors should not be making millions in the market.  It takes money to make money.  A 10,000% return on one dollar is still only 10 grand.  Attempting to "hit it big" involves massive risk and is not necessary to attain financial security.  Financial advisors generally accumulate wealth the same way as their clients; slow, steady, and consistent saving and investing for the future without massive risk.

Try backtesting Enron.  That looked like a great company until we looked under the hood.  Same thing for all these countries running up their debt to levels they cannot repay without massive currency devaluation.

I think Ron Kirby was asked about crypto-currency and he is hesitant to endorse it because of the internet kill switch.

My investing strategy is not sophisticated. Keep it simple with index funds.
For playing with different asset allocations I use this, can't vouch for it's accurateness or methods.
Portfolio Visualizer

In the case of the Germany/Austria hyperinflation, stocks went up, and the investor class thought they were getting rich.    Initially, they were too myopic to see that their buying power was actually decreasing.       I see a lot of parallels with today.   People bragging about their investing acumen, "Just put it all in Index funds"  while people brag about buying $65,000 trucks.  

Looking at the price run up since 2001, in almost every category, I think we're already beginning to see this effect.  

Unfortunately, as greed turns to fear, and fear turns to panic, the Market becomes a very volatile place.    I'm not convinced that all US stocks are a bad bet, however.   For example, people are going to keep buying Pepsi.   Whether it's $1.00 per liter, or $5.

 Depends on how bad it is.  It's a tough call to say how poor Americans would be, and how long it would take to get there depending on government actions.  

If Pepsi can put its products on ships and earn more internationally than domestically, they'll do it.  How to think about what companies to invest in always ties back to purchasing power of the buyers.  

A rough outline of worst to best under our hypothetical situation:

An American company that sells exclusively to Americans.
An American company that sells both domestically and internationally.
An American company that sells internationally.
A foreign company that sells to Americans.
A foreign company that sells either domestically or internationally depending on who is becoming wealthier.

Then the luxury v. necessity issue.  If someone invests in an American company that sells luxury items to Americans only, they're screwed unless the buyers are the ultra-rich; overnight bankruptcy.  If an American company supplies necessities, maybe they'll be ok.  Or maybe foreigners will pay more.  But then maybe the .gov will step in to keep toothbrushes and TP from leaving our shores with export tariffs, unconstitutional as they may be.

Bump for more insight.

 Thinking about this more, how many people are really in a place to invest?  Investing comes after savings, and savings gets harder and harder over time.  Something like 75% of Americans live paycheck to paycheck, and about 50% can't write a check for more than $500.

Perhaps we can discuss the part before investing; being ready to weather a storm such as the Great Depression with savings.

I'll think through it and probably post something up top.  Any specific topics or questions, throw them out there.  It can be difficult to write without guidance from the audience.