A Possible Survival Strategy
DISCLAIMER:
Information provided on this website is for general informational and educational purposes only and does not constitute financial, investment, tax, or legal advice. The investment strategies discussed may not be suitable for all investors. Past performance is not a reliable indicator of future results, and the value of investments can go down as well as up. You may lose all or a portion of your invested capital. All information is provided ‘as is’ without warranty of accuracy or completeness. I recommend consulting with an independent financial adviser before making any investment decisions.
Review
First, let’s review how the current Imperial Economy may come crashing down. It is likely that a gold-linked competitor, or gold itself, or perhaps Bitcoin, will eventually force a liquidation of U.S. debt. When the world stops accepting paper IOUs for real resources, the U.S. government will face a choice:
- Default: Admit it cannot pay back the debt in real value.
- Hyperinflation: Print so much money to pay the debt that the currency loses all meaning (the Crack-up Boom).
The very end will happen rather quickly. By that time, it will be too late for an investor to do anything but suffer along with most everyone else. Prior to that, however, you can “hedge” against this calamity and mitigate the damage, or maybe even prosper.
A “hedge” is not just a financial trade; it is an act of capital preservation through the ownership of assets that exist outside the government’s ledger.
When the Treasury market disrupts, meaning the yield on government debt can no longer compensate for the loss of the currency’s purchasing power, the prudent investor moves toward “Real Values.” These are assets that have “use-value” or historical “monetary-value” independent of any central bank’s decree. In short, you must own real things.
The Hierarchy of Survival Investing
The first thing is to think about exposure to sound money. The primary hedge for a survival investor is a return to commodity money. This is the ultimate defense against the “Crack-up Boom” because, unlike a Treasury bond, gold and silver cannot be printed and carry no counterparty risk. Physical gold is viewed as the “ultimate extinguisher of debt.” In a Treasury collapse, gold functions as a parallel currency. Silver is often called the “poor man’s gold,” it is valued for its dual role as a monetary metal and an essential industrial commodity (especially in solar and electronics). The “Gold-to-Silver Ratio” is a thing that some investors often watch. This ratio, if it becomes historically stretched (e.g., 90:1), they may favor silver as the “undervalued” real asset. Bitcoin is another possible source of value, but I will discuss more about this below. The point is to have some or perhaps a lot of your assets in these sounder monies.
The next thing to consider is holding productive land and soil. Survival investing prioritizes land because it is the “original factor of production.” However, we must distinguish between types of real estate. Farmland is highly valued because it produces “lower-order goods” (food) that people need regardless of the currency’s value. Energy-producing land is land with mineral rights (oil, gas, lithium) provides a hedge because the energy units produced will always be priced in the current currency, whatever that may be, and will always be in demand. We must be cautious to avoid “Malinvested” real estate. Survival investing generally avoids over-leveraged commercial office space or luxury condos, which they view as “bubbles” created by the very cheap credit that is now vanishing.
The third area to consider as a survival investor is “anti-fragile” businesses (capital goods). Instead of owning “paper” (stocks in companies with high debt), a survival investor looks for companies that own tangible capital goods and have “pricing power.” These have several characteristics. First, they tend to be vertically integrated. Businesses that own their own supply chains are safer because they aren’t at the mercy of collapsing global trade networks. Second, invest in businesses that produce high-margin essentials. Companies that produce goods with low price elasticity (things people can’t stop buying, like energy, basic chemicals, or medical supplies). Finally, avoid the “Zombies”. Survival investors stay away from “Zombie companies” that only survive because of low interest rates. As Treasury yields spike, these companies will go bankrupt.
The fourth topic is a little bit of a dive into Bitcoin. Many consider Bitcoin “digital hard money”, or “digital gold”. This view is not without controversy. The argument in favor is that it has a fixed supply (21 million) and is decentralized, fitting a survival investor’s requirement for money that the state cannot manipulate.
The argument against is rooted in the notion that it did not arise the way traditional money did. Some traditionalists argue it lacks the “Regression Theorem” history (it didn’t start as a useful commodity). There is a counterargument to this, but that takes us into the wonky weeds. Most current strategies include Bitcoin as a “technological hedge” against the legacy banking system’s technical failure. You definitely need to study Bitcoin before considering making that a part of your strategy.
The main strategy is as the investor Ray Dalio puts it, “sell the I.O.U. and buy the thing itself”. If the government’s, or any other entity’s ability to pay you back is in doubt, then the only safe haven is to own an asset that is nobody else’s liability.
Conclusions
I have offered a brief outline of what you should consider when the Imperial Economy crumbles. The key is to prepare yourself with knowledge. I am not suggesting that you make major changes right now, I don’t think it will all end within the month. Anyway, there will likely be signs of this crumbling, as I will point out as they occur. I am suggesting that you give serious consideration to thinking about beginning to insulate yourself financially from the worst effects of what is coming. I will detail more of this type of thing as we progress through what is ahead. For now, I would suggest some reading material that is informative, yet accessible.
A good overview of the big cycle that the U.S. is in in right now is the aforementioned Ray Dalio and his work How Countries Go Broke.
A good primer on Bitcoin is this book by journalist Natalie Brunnell. A more intense treatment of many of these topics is from the financial writer Lyn Alden.
An accessible and insightful overview of this investing perspective from a successful investor is Mark Spitznagel’s The Dao of Capital. Another such book is Applied Value Investing by Joseph Calandro Jr. A good overview of how the U.S. got into this situation is Martin Hutchinson’s The Alchemists of Loss. A good variety of work on various investing strategies is Meb Faber. I would suggest starting with his The Ivy Portfolio. Another good resource is the subscription newsletter of the insightful, if cranky David Stockman. He also has several books which are insightful to the overall economic environment.
That is enough for now. I will endeavor as best I can to update readers about these events as they unfold. In the meantime, learn, get prepared to protect you and your family’s finances, and always be of good cheer. No matter what happens God will bring His people home.
Praise Be to God
