Hello,
In the case that there is a debt or currency crisis in the US - what would be some solid choices for selecting assets to profit off this kind of event?
Gold seems like an obvious one but is there more?
I’m interested in opinions on foreign currencies and EM stocks and how they would be impacted.
All opinions welcome
LOL.
was my question really stupid or something I'm sorry I'm no trading guru - I have 0 experience in S&T.
If the US experiences a currency crisis, asset allocation will be the least of your worries.
https://www.newyorker.com/magazine/2017/01/30/doomsday-prep-for-the-sup…
Bitcoin.
Depends on specifics of crisis.
If it’s a currency crisis stocks often do well especially stocks with a lot of debt. Consider how a heavily indebted Phillip Morris would perform (people would smoke more in a crisis right?). The debt would go to zero with instant delivering and you would own the business.
If the dollar collapses then maybe all currencies are shit. Gold and silver would replace. Bullets and guns would be nice too.
Problem with owning gold you have -2% a year storage costs approximately while equities currently at a 16 pe would give you a yield as a basket of 6% and likely grow around global ngdp. So you are talking a -12% a year relative performance until a crisis hits.
Best way to play if I believed in it would be 10% precious metals.70% real estate and other useful assets. 10% guns and bazookas to protect what I own.
Think you can significantly reduce your gold storage costs if your portfolio is well diversified across several firearm classes. #HedgeIt
GOOOOOOOOOOOOOLD.
I always wonder what kind of clowns read and comment on Zerohedge (OK, I guess you could count me as one of their readers, but I read it for fun).
But think about how much of a market run these idiots missed out on by believing that hyper-inflation would come (2009 - present).
Booze. People drink heavily in times of trouble. Might as well make money off it.
People saying Gold should have their degrees revoked. In times of financial crisis where the value of the dollar dips, you buy tinder premium, who knows when you're not going to be able to afford that service?
Think there are 100 lot option contracts so we can lever up?
Weapons and ammunition
Fully support this - way ahead of the curve.
Bottle Service
Not BTC or XRP apparently (gulps).
Real estate for a long-term play where the currency is continuously weakening at a rapid pace. RE is a great hedge against inflation, long-term. However, the forces of supply and demand are always working against every asset class, including RE in the short run. For example, a currency crisis would probably involve negative real GDP growth (recession), which might slow down household formations, slowing demand for residential real estate. Higher interest rates (relative to pre-crisis) to combat inflation might also reduce demand for real estate.
But if inflation was truly spinning out of control, I can't think of a better asset class than real property collateralizing mortgage debt. You get the double benefit of relative appreciation of the asset (real property) with the relative depreciation of your liability (mortgage).
A currency crisis in the US? If such a thing were to occur, you should buy long-dated food stuffs, guns, ammo, and a bunker. The world would go to shit in a matter of days. All credit would freeze. The US dollar is the world's reserve currency, so the world's reserves would immediately take a massive kick in the pants.
Unless everyone decided to just keep going about their business without getting paid or worrying about the value of what they were being paid, you wouldn't just have bread lines, you'd have no bread whatsoever. Money is a form of credit. It's one of the four primary functions of money (look up Theory of Money). Credit builds and destroys modern economies faster than anything else I can think of. If there is a US currency crisis, that is essentially a US sovereign credit crisis, which means US-denominated notes no longer are even remote proxies for risk-less securities.
All of finance is predicated on some concept of a risk-free rate existing. We recognize there is no such security, so we allow for proxies like the US long bond. But if that bond were all of a sudden a high yielding credit, all other fixed income and credit instruments would have to simultaneously revalue. Even if the market didn't immediately crash as a result of the enormous capital flows that would come as a result of the crisis (and I bet both my nuts it would), a great deal of financial theory would have to be thrown out.
We would never get there, though. It would be a matter of days (2-3) before all the food on the shelf at every grocer would be gone. Those grocers buy their produce on credit. That produce is delivered by trucks who purchase their gasoline on credit in trailers that were (you guessed it) leased on credit. And the produce itself was actually produced by farmers who probably bought the seeds on credit, bought their fertilizer on credit, bought their combines on credit and have liens against their assets.
The reason your question is dumb is because it's essentially asking, "What should I buy if the world financial system collapses?" And the answer is that you won't be able to buy anything because production of almost everything will stop very fucking quickly including the production and sale of energy. Those numb-nuts who think their crypto currencies would save them in such an event are morons. There would be no electricity. Good luck accessing your coin wallet and convincing some guy to trade you food for your worthless, intangible digital currency.
It's a dumb question because there is no trading strategy around a US currency crisis. Any other currency is a different question. I have written several long posts on the subject of the Argentine currency crisis on this site. Peripheral currencies like the Argentinian Peso have gone through crises in the past. The country is more or less in the middle of one now. It will be another year or two before Argentina really shits the bed and needs to restructure its debt again. I assume the next downturn in the US will probably coincide with that crisis.
But for the US dollar to come under attack to such a degree that it would be classified as a 'currency crisis' would require a sufficiently large percentage of the entire world's currency holders to simultaneously dumb their USD holdings. For such an event to occur, something truly catastrophic would have to happen. And if said catastrophe has occurred, your investment portfolio won't be worth shit anyway.
It's like worrying whether a woman will fuck you after getting your dick chopped off. You can't fuck anyway.
Gotcha.
I should have probably worded my question differently - Instead of “currency crisis” I should have wrote where the fed target rate rises really fast because of inflation up to like 10-15% like it did over 40 years ago (70s I think?)
Would this not be cause for a sell off and a market panic that could be as bad as the one we saw in 2008?
What would be investment strategy in that situation? Real estate? Bonds?
I did not mean in my original question “what do I buy when the entire world economy goes to shit and people stock up on food, water and ammunition?”
The US is unlikely to return to a high inflationary environment in your lifetime. It's possible, but the more likely scenario is that which we see in Japan (which has persisted since the 1989 Nikkei highs). A low inflation, moderate-to-low growth environment isn't impossible. A high growth society marked by technological innovations and a 4th industrial revolution isn't unlikely either. I'd say your scenario is quite unlikely, but what the fuck do I know.
In that situation, look to asset classes that performed well in the 70s. Reagan got elected mostly as a backlash to shitty growth and high inflation. At the time he was almost as much of a joke as Trump, and Reagan is some sort of modern day Messiah for the Republicans.
That said, I'm starting to suspect that you're writing some response to a homework assignment at a shitty state school. If that's the case, just walk through some of the arguments I've already given you, cite some dubious sources, and you'll be fine.
It's not like you're managing a meaningful asset allocation, right?
When you are talking a full tilt collapse then it is simple, guns (and by guns I mean semi automatic rifles), batteries, canned and long lasting food, seeds, shovels, lots of ammo in a variety of calibers, towels, detergent, iodine tablets, pots and pans, quality ruck sack, compass, military issue ecwcs sleep system, ponchos, tarps, survival blankets, old news paper, charcoal and charcoal chimney, ranger handbook, lighter and matches, solar powered watch, anarchists cookbook sandbags, know your neighbors names, bow & arrows, lots of cheap alcohol, knives maybe an ATV and of course fishing line. Also a copy of that making friends and influencing people book and ballistol..
The US has already had a decade long mini currency crisis in the 1970s to early 1980s. The Fed’s target rate at one point was around 20%. So I think the series of comments here about how that can’t really happen/if it does then panic is not entirely accurate.
To my point about real estate being an inflation hedge, the median home price rose 2.77 times over the course of the 1970s. There are definitely financial strategies to engage in during high inflation periods.
That wasn't a currency crisis. 15% annual inflation, though uncomfortable, is manageable.
You can call it whatever you want. I call a decade + of about double digit annual inflation at the very least a mini crisis. The idea of a President Reagan was almost as ridiculous at the time as the idea of President Trump in 2015. The economy was a mess. President Reagan wasn’t an accident—he was a response to economic crisis.
Rick and Morty sums up what a USD crisis would look like pretty nicely:
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