How do you prepare for the coming future?
Investor · Clearwater, FL · Member since 2009 · 181 posts · 14 votes
Ok. We are in deflation now, and we don't know how long it is going to last.
Because of our government, we know that eventually interest rates, taxes, and inflation are going to go up, up, up. The most important prices for the average American—food, utilities and energy prices—are going to soar. This inflation will really devalue the dollar, reducing its already low purchasing power even further. We could even have hyper-inflation.
This inflation (and the big price increases) could begin in 6 months, 1 year, 2 years... there is no way to tell.
What does one do? What are the rules to follow when heading for a high inflationary period (possibly an inflationary depression)? How do you prepare? What is the ideal situation to be in so that you can make it through these upcoming tough times? How do you maintain a decent standard of living? How do you maintain your existing wealth?
When inflation is high, like the late 70's early 80's, debt is good. You can pay back debt with cheaper future dollars.
There may be some lag, but at some point, wages start pushing up.
Owning real assets is good because historically housing has just tracked inflation. So, you have an asset, probably mortgaged, that is increasing in nominal value while the debt stays locked in at a lower level, and you pay it off with the cheaper future dollars.
Debt is a killer during deflation because dollars are getting dearer and dearer.
Myself, I'm trying to get my credit card and other non-fixed rate debt paid off ASAP. In both scenarios variable rate debt is bad. I'm also trying to buy more properties using fixed rate, long term loans.
I don't think we'll have Zimbabwe style hyper inflation, but its not out of the realm of possibilities. If that happens, you want ALL of you money in some sort of tangable assets. Others have suggested food, guns, and ammo. That would suffice. Certainly, you want to convert any cash you receive instantly into something else. As in, hit the grocery store the moment your paycheck hits your bank. Gold and silver would be good choices, too, I think.
A discussion of "junk silver" might be useful. I only know enough about that to know I don't understand it.
Wow...that is a loaded and complicated question! :D
In my case, we are simply cutting out all of the luxuries like: eating out, traveling, buying impulse items, and any other expense that are just not needed.
It has been tough on my wife and kids, but we have gone as far as making it a fun game to find ways to be frugal. We are back to the old fashion 7:00 dinner at home, and at the table! Instead of heading to a Bounce Zone, we are playing board games. I believe this down economy will actually bring me closer to my family, and that is priceless.
On the business side, I now plan my routes for the day, pay closer attention to my gas costs, pack a lunch when I can, and try to stick to a weekly plan and small operating budget.
When I take clients out to eat, there is no more impressing them with a fancy meal. It might be more of a cup of coffee, or lunch at a local mom and pop eatery.
In some ways, it is a positive thing, as it is creating an even more solid discipline of the business and life practices that should be adhered to anyway.
I believe that we should keep informed as to what is going on, but realize that there is a time to turn off the TV and relax. Negativity can consume the soul if we let it.
So while my advice might not be technical, it is practical.
Live your life like you are in survival mode, but have fun with it. Be frugal, save money, make sound investments, spend time with the family, and relax.
We will get through this, there is no question in my mind.
I will admit that I am scared, it would seem foolish not to be. However, I also look at the next couple of years as an incredible journey of opportunity.
The older I get, the more I realize I have made some very poor choices in my life that casued me to learn most of my lessons the hard way. Now I clearly understand the people that always told me: "Life is what you make it." and "Keep it simple stupid!"
So to answer your question in one basic statement: GET BACK TO THE BASICS!
I'm not sure about the rules on recommending a website, but this one has been great at predicting what to do in these times:
He recommended gold back in 2001 (when it was $250/oz), shorting the stock market in Nov 2007, and now buying real estate.
He charges $14.95/month for a subscription but he has saved/made me much more than that. I don't get any kind of commission for endorsing it - I just think it's a great site for how to deal with this economy.
Hal,
The penalty for violating the rules of recommending a website is that you have to give me your user name and password for North's site.
Thanks for the tip. Alfred
Plain and simple you have to be extremely resourceful and continue to stay ahead of the changes to come.
Alfred,
I would give you my username and password, but I get nasty email messages when I did that in the past and my friend and I logged on to the site at the same time. They would cancel my usage for 24 hours. Other than that the site is very user friendly. For $14.95 a month it's at least worth a try for a month or so?
The guy writes based on the theories of Austrian economics. If you want to read more of what is coming (and what to do about it-somewhat), there is a free site called http://www.mises.org.
They've been writing about the coming catastrophe since 2002.
There are many books out there on so-called strategies. I'm in the middle of Harry Dent's "The Great Depression Ahead". Some of what he says I find interesting. I'll be reading what other writers have to say in the future.
The problem is, as screenwriter Willliam Goldman once said: "Nobody knows anything." Remember how many very highly-educated economists and business-leaders and other so-called 'experts' got us into this mess.
I have heard that nation-wide police departments are quietly training for violent civil unrest. Thankfully I do not live in a megapolis.
Your question is something I have asked myself, but still find difficulty in answering.
My best answer is to 'diversify' in your preparations.
http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=/20090224/NEWS10/902240390
Iowa Guard ends urban war exercise amid outcry
The Iowa Army National Guard has dropped plans for urban warfare training in the western Iowa town of Arcadia after being deluged by nearly 100 e-mails and phone calls from gun-rights advocates nationwide.
The four-day event in April would have involved between 90 and 100 combat troops arriving in the Carroll County community in a convoy with a Blackhawk military helicopter flying overhead.
Troops would have gone door to door, asking the town's 443 residents about a suspected arms dealer and conducting searches of homes if property owners volunteered in advance to cooperate.
There was no opposition to the Guard's plans from city leaders. But gun-rights advocates were outraged, and news...
more at link
Ofgift
I would definitely stock up on food, water, ammo, a crank-type radio, and other emergency supplies.
Mike
Ya know, I'm a gun owner and a gun rights supporter but I'm not so extreme as to believe there's a conspiracy with big oil and others to create a 'world government', as the article stated.
I have to believe these nearly 100 emails and phone calls were from people who just don't get it. It's an EXERCISE, people! Kind of like when the fire department does a practice evo around a plane crash or earthquake or other mass casualty possibility.
And guess what? There are already hundreds of arms dealers in my own town -- they're called GANG MEMBERS and if the local cops wanted to go door to door I'd volunteer to drive 'em around!
Personally, I want my local Guard (as well as my first responders) to be as well-drilled as can be for the more extreme (yet still possible) situations.
NcMark,
I agree that there probably isn't a grand conspiracy, and certainly not involving the National Guard. However, I do think that the gun owners were warranted in being concerned. We only have to look back to Hurricane Katrina to see that moronic government officials make ridiculous and unconstitutional decisions during an emergency - such as the seizure of weapons from law abiding citizens following the hurricane.
Mike
Where do we keep the propane tanks to cook the food? In the garage, the yard, the basement, where is it safe to store it?
Ofgift
I think we age getting a little bit off the thread. My original question was...
"What does one do? What are the rules to follow when heading for a high inflationary period (possibly an inflationary depression)? How do you prepare? What is the ideal situation to be in so that you can make it through these upcoming tough times? How do you maintain a decent standard of living? How do you maintain your existing wealth?"
The survivalist aspect is fine (food & water storage, etc.). My question was more on a financial basis... how protect your existing wealth? what will you turn your cash into when inflation begins? what do with your existing assets? what assets to grab before inflation starts heavily? what would be a good business to start for recess/depress times? etc. etc.
Beyond gold, I don't think you can do any better than residential real estate. People need a place to live and after they've lost their house, they will move to rentals. So, unless the government screws thing up, landlords should be one of the last people standing.
Mike
BUY BUY BUY!!!!!! I'm in MS trying to do a project while go-zone is available. I can carry the loss forward 20 years. That will cover all the income from sales of real estate when the Jimmy Carter days of 20% inflation return. Making the money is only 1 thing. KEEPING it is the key. Steps in order, imo.
1. Develop GOZONE project
2. Buy all I can currently at lowball prices.
3. Fill with renters(no shortage in my area)
4. Hold on till the govt returns to senses and lets folks qualify for real estate.
5. Sell at a profit, TAX FREE!!
P.S. I'm good on the food, water, gold, silver and ammo. I guess I could use a couple guns.....
I think you are right Alfred, we could be heading into a period of stagflation. From a financial standpoint, I would agree with Jon's post about having your dollars in something that would hedge inflation, usually hard assets such as precious metals, real estate, and even collectibles like art, comic books etc (anyone see in the news about that Action Comics #1 currently bid up to about $230k).
As for starting a business, I would look at providing the necessities, particularly shelter, food etc. Look at Walmart, they have done well in this downturn. The way I look at it, real estate is the best curb of inflation as you can adjust/peg the rent you charge to inflation, and for those other reasons that Jon mentioned earlier (values keep pace and debt is paid back with less valuable dollars)
I like real estate for all the previously stated reasons, plus I have control over tenants, deferred maintenance, etc.
However, what bothers me is the GOVERNMENT.
As tax revenues fall from city to state to federal levels, those governments will be turning over every rock looking for new tax sources.
And here we are! Property owners!
Yes. GOVERNMENT (our nemesis) will be raising property taxes and will install rent controls. Landlords' profits will be cut in the future as the GOVERNMENT continues to get us in deeper and deeper financial trouble... that they caused... and we allowed.
I too believe we're in deflation but I respect that inflation could happen, although I believe inflation would be much further down the road than just a couple years. In deflation, the only asset to own is cash, everything else will lose value. You have to remember that, even if your cash is under your mattress and earning no interest, if prices are dropping, you're still gaining value. In inflation, you want to own 'stuff' as that will "increase" (in currency terms anyway). I did buy some gold and silver back in 2007 but it is a minimal amount and was more of a 'trade' than preparing for the worst. I have researched it and I do not think that gold and silver is the way to invest for the next few years. Gold and silver would work in something like Zimbabwe or the Wiemar Republic, but neither of those situations are going to happen here. Both of those had massive inflation for doing some of the same things we are doing right now but I don't think we will face that situation is those 2 were abnormalities in a 'normal' (for lack of a better word) world. What is going on right now is global. Will gold increase in currency terms if every currency in the world is printing like crazy? Will it matter then if it does? I don't think so. Will inflation hit if the currency that is being printed like crazy is basically torched as soon as it comes off the printing press? I don't think it will until the torches are put away, many years down the road. So no gold or silver for me.
Then what am I doing?
I have sold every stock except for a couple of trading opportunities here or there when they present themselves, haven't held anything longer than 2 weeks for a long time now. I don't expect to move retirement money back into stocks until at least another 20-30% down from here. My non retirement money will be staying in cash for quite awhile longer to keep as reserves. I believe we're in deflation and see no hurry to buy stocks as earnings and prices will keep dropping. Also, many people are starting to avoid risk so the P/E ratios will be contracting.
Outside of that, with the current real estate market at hand, I've decided rental real estate is the best way to go right now. I think if you buy rental real estate right, you will be covered no matter what happens-inflation or deflation. In deflation, values and rents will decrease. If you buy at low enough prices, decreasing values won't really affect you. If you buy low enough, you would be able to decrease your rents with the falling market and still come out with a profit. Also, as long as you're not at the top of the market for what you have and if your place is in nice condition, you could position yourself for people trading down-instead of a family renting for $1200/mo with more convenience or amenities, they may look to your $800/mo that's 2 miles away and think it's a worthwhile trade off so you don't have to lower rents as much. In inflation, the value of the property itself would be increasing and the rents would be increasing at each renewal. The only way I don't see rental real estate not being the best investment would be on the operations side. If you don't have reserves and can't borrow any money, or if you can't be flexible in your rents because you paid too much and deflation forces you to operate at a loss or they sit empty.
Through rental properties I am also increasing my income right now and diversifying my sources of income if my wife or I should lose our jobs and couldn't find comparable wages. That extra cash being created by the investment gains extra value during deflation.
Just remember, if you are looking for advice on what to do, this is a real estate investing website so most of the answers will be skewed towards real estate.
I like this message from Bob Hines and can't disagree with much. Just add food, water and ammo as MikeO says, and git er done.I will continue to buy or develop Real estate for holding as fast as possible.
OK. I did a little tally here so we can see where we are at so far:
BASICS:
Have stored water, food, guns/ammo, a little of all currencies (cash, gold and silver coins), other survival stuff.
DEFLATION:
Cash is king.
Get out of stocks, bonds and most other assets.
Don't have ANY debt.
Be frugal and SAVE.
Be resourceful and figure out how to make lots of $$ (and save it) in preparation to buy assets.
Buying income properties now is moot... some say take advantage of deals right now, some say wait until closer to or at the bottom for much better deals and more bang for your buck.
Gold is also moot (may not play the role it has in past, and government can confiscate it like they did in Great Depression).
Have your INFLATION strategy set up now during DEFLATION and be prepared to launch it as soon as inflation starts to kick in on a significant basis.
INFLATION:
Get out of cash fast!
Go into hard assets fast! (rental properties, etc.)
Every time you get cash, convert it quickly to a hard asset.
Go into debt (will be able to pay off with cheap dollars).
Regarding going into debt... Buy your income properties at super low prices with super low interest 30 year fixed mortgages. If inflation goes really high, your tenants could pay the mortgages off for you in a matter of 10 years or less.
Own income properties (altho govmt intervention in the form of higher prop taxes, rent control, etc. is a threat).
Own your own business (deliver needed products and services).
Again... gold is moot (may not play the role it has in past, and a threat that government can confiscate it, like they did in Great Depression).
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The key issues on my mind are... how long we have in this current deflationary time period to get our ducks in a row... will I be able to recognize when real estate has hit bottom (or close to the bottom)... whether inflation will hit hard and fast, or will be a gradual increase? Short of having a crystal ball, the only thing I can think of is have the right indicators/statistics and keep an eye on them and be ready to move RAPIDLY when we hit bottom (RE acquisitions) and be ready to move RAPIDLY in transfering over to the inflationary strategy.
I love this thread. Aside from stopping in here daily I've been following precious metals. I like the different opinions on gold and silver in this thread.
I am ok on silver, can always use more. If gold moves back down to the 700s I may pick some up. I deciding between gold or another property. Precious metals are so much easier but do not cashflow!
I think gold will trend up for the next seven to ten years. From what I understand the gold bear market lasted twenty years and didn't start getting bullish until 2002. I am assuming the bull will last as long. That could be a mistake.
Also, historically during severe recessions and depressions the ratio of dow/gold oz. drops to around 2 before gold starts trending down long term. I think right now we're at around 7.
Some of the authors I've been reading claim that gold wins during both a deflationary and inflationary situation when it is severe. But those authors are also usually selling gold. Damn them! It's a rich dad guru world we live in :)
Either way, tangibles, canned food. Learning to shoot weapons. No .999 johnson matthey silver bullets, only lead! I do not trust the fiat dollar for long. I've been reading too much conspiracy theory stuff.
I've heard cigarettes as well.....Save cigarettes not to use but to trade. Smokers will do anything for a smoke... Anything that has value......Alcohol/Booze that's a item no one can ever do without.....
Matty,
Gold is an interesting subject. I don't think it wise to base future performance on past performance. It has seemed to disconnect from inflationary, deflationary and stock market activity over the last few decades... it hasn't been following the predictable rules that people expected it would.
The anti-gold viewpoint seems to be that: you can't eat it, you can't live in it, you can't wear it. It doesn't give you any yield (and cash flow is what it is all about). Holding it you can only double or maybe triple your money (if you sell it when it's up). Eg. If you bought at $700 and it went up to $2,100 you'd have tripled your money. This could take many years to happen. But a successful business that you own can return your original investment to you over and over, can give you 400-800% annual returns for example. A leveraged income property can give you a great return as well, plus tax shelter, and appreciation if you're lucky. Gold is a store of wealth not an investment. I think this is the attitude that most non-goldbugs have about gold. You can't get wealthy with it but it might come in handy if the existing currency disintegrates. But only until a new currency comes on line.