Investing for Collapse

[classical_Liberal]

Author of A Random Walk Down Wall Street, Burton Malkiel interviewed by market watch today. He echoed some of @shemps posted concerns. He still advocates passive investing, but thinks bonds are probably a bad idea at current yields and urges investors to be on the lookout for inflation. He thinks long term average equity returns will be about halved thanks to Fed intervention, but believes they did the right thing.

And is there a possibility with this massive amount of liquidity swishing around the world that our long period of benign inflation or even deflationary tendencies, like in Japan, whether that might be over.... I think it’s certainly possible that we will get some inflationary pressures, certainly not in 2020 or 2021 and probably not in 2022, but I am not one who would argue we never have to argue about inflation again, it’s dead forever.

We probably are in a liquidity trap.

Not that you don’t need some safe assets or some income-producing assets, but there may be a better way to get them than through bonds. Basically, safe bonds now do not provide income and in the long run may have some real risk, because if we do get some inflation in the future, yields will rise and their prices will go down.

Over the long haul, stocks have returned 10% and bonds produced 5% a year. Let’s say that’s the right risk premium. That will mean that if interest rates are zero, stock returns will be 5%. Future returns are going to be much lower.

[onewayfamily]

I agree with a lot of what has been said in previous comments and many of the directly investing-related ideas have already come up.

In addition, I think one of the best investments you can make to hedge against future volatility (of all kinds) is maintaining or acquiring citizenship (or at least residency) in countries that have a strong likelihood of medium-long term stability - acknowledging that this is very hard to predict.

Examples that come to mind are Canada, Australia, Switzerland, perhaps Germany, Austria, the Netherlands and the Scandinavian countries. Some commonalities are (relative) political stability, mineral wealth, small(ish) populations, strong social/welfare safety net including universal healthcare.

In my mind, having guaranteed access to one or more of these countries is the ultimate investment, the ultimate safety net.

[nomadscientist]

In addition, I think one of the best investments you can make to hedge against future volatility (of all kinds) is maintaining or acquiring citizenship (or at least residency) in countries that have a strong likelihood of medium-long term stability - acknowledging that this is very hard to predict.

Examples that come to mind are Canada, Australia, Switzerland, perhaps Germany, Austria, the Netherlands and the Scandinavian countries. Some commonalities are (relative) political stability, mineral wealth, small(ish) populations, strong social/welfare safety net including universal healthcare.

I agree with the concept, but I see all those countries (except perhaps Australia) as 1. strongly correlated and 2. dependants. Essentially they're all bets on the continuing American hegemony and specifically the American hegemony continuing to shield defenceless, wealthy small countries for free. I would prefer to see:

1. US citizenship (current hegemon)

2. neutral US-aligned citizenship (bet on continuing US hegemony but with the option to not personally fight for it, e.g. Iceland, Sweden, Switzerland)

3. East Asian country (most likely new hegemon/its satellites - maybe Australia counts)

4. wild card neutrals (Russia, Iran, Israel)

If you already have 1. or 2., getting the other is the lowest priority.

Of course engineering this is another question. If you are already Swedish it's probably easier to get Canadian passport than Japanese, and trivial to get Austrian.

[zbigi]

The old lady who provides meat rabbits and eggs to the reigning local militia/gang does not necessarily need her own weapons. Gold they will snatch, but meat rabbits they will need somebody to tend to.

"Provide" in this case means "is a target for periodic robbery". My grandma was in this situation during WWII - partisans of various denominations were coming to her house at night and taking her food. She always managed to convince them to at least leave some for her and her children. Ultimately she survived, but her situation was basically tragic. Preemptive emigration would be a much better solution.

[WFJ]

I was told this story when I was a very young man, but it stuck with me. "What does every single generation in human history have in common? A significant portion of the population believed they would be the last to survive". Same thing today and probably in the future.

When one is betting/investing on a collapse it is like placing your chips on green 000000000000000000000000000001 roulette wheel with all other outcomes being some measure of progress. You might be correct, but another saying I've heard is "If the system collapses, will you really care if you can dip your cockroaches into Grey Puopon or not?" If the system collapses, your investments in anything but access to clean water and your ability to protect access to clean water will be worthless.

If you are under 50 and don't know people from collapsed countries (Argentina, many in Eastern Europe, Cambodia, El Salvador today) you lack the experience to make this estimation and are destroying your life or creating excuses for not forging your own path in society.

[Sclass]

When one is betting/investing on a collapse it is like placing your chips on green 000000000000000000000000000001 roulette wheel with all other outcomes being some measure of progress.

Yes 100% agree. This is mindless. I’m working on making my present secure. I don’t waste my time looking out beyond three quarters. It’s kind of a fantasy just a negative one.

More likely, you’ll lose your source of income unexpectedly. What preparation do you have in place so you don’t get too stressed out?

This kind of fantasy is also expensive. I have acquaintances who messed up their Swiss accounts over the last decade and now have big time headaches and no gains on money they stranded in foreign accounts. Their sneaky bankers have siphoned off any gains because at the end of the day you’re dealing with criminals who deal with criminals. The really unlucky ones have FATCA cases. The overhead was 0% gain since 2000 during the greatest run up in stocks. Idiots. And they slink around Europe trying to access small amounts of the money on the sly. Just effing stupid.

In the meantime I just kept my money in legit accounts domestically and watched the equities grow.

My plan? Skills as GTOO says. Ego style skills. Move to a friendlier place. Mine trash. Live ERE. Survive. I have so many friends who were from families of refugees - religious war, communists, civil war survivors. Focus on what successful refugees have done not so much on the disaster.

Generally speaking the ones who arrived with the biggest bank accounts ended up with less after a few decades. Seriously I know a descendant of an aristocrat living in poverty in San Francisco - her mother arrived there and bought an apartment and they nibble away at their nest egg for years. The nest egg was a curse. I’ll gotten gains from her despotic grandfather. The daughter still lives there. She dressed up in their silly costumes recently at Christmas and posed for a photo like they were some kind of baronesses. Compare this with my Persian friends who started small businesses in LA after showing up in the 80s penniless.

[chenda]

And they slink around Europe trying to access small amounts of the money on the sly. Just effing stupid.

What happened ?

[Sclass]

The money has become fugitive funds. Like a wanted criminal ones access to it is limited.

[chenda]

The money has become fugitive funds. Like a wanted criminal ones access to it is limited.

I see...I didn't think that sort of stuff happened anymore

[WFJ]

Another way to look at the absurdity of preparing for a collapse is using expected value. Assuming there are two states of nature, collapse and no collapse and the probabilities of each state and whether one prepares for collapse or prepares for status quo. Then estimate one's utility in each state of nature.

#1 Collapse and prepare = You survive in some kind of post-apocalyptic world where people are forced to eat bugs and fight to the death for access to clean water. Assuming you have developed the sharp-shooting skills to kill anyone who breaches access to your water supply, you will survive and live in an of grid hut with little to no interaction with other people. Utility = 1000.

#2 Collapse and don't prepare = You die. What little resources your have are useless in this world, you may survive a few weeks, but will die in some confrontation fighting over who gets to eat a cockroach or rat. Utility = 5

#3 No collapse and prepare = You spend your life colleting gas cans, MREs and flint sticks. You spend your time scouting out land that is remote, dangerous and uninhabitable to prepare for some far off collapse. You put all your assets in crypto cold wallets as the collapse of society will make "fiat" currencies useless but make some digital currency more valuable (really???) You live much like a Cro-Magnon in Western Europe 10,000 years ago, a short and brutal life. Your life pre and post collapse is similar and life utility is also the same. Utility = 1000

#3 no collapse and no prepare = You make some contribution to society through labor, use your income from labor to invest in some productive manner and participate in the world capitalist's miracle. Utility varies from 5000 to millions.

When adding probabilities to the above estimates, the no prepare for collapse is always larger in all cases for all individuals, until the probability of collapse is above 50%. If you believe that the probability of collapse is higher today than at any point in human history, you have information that nobody else is privy to and please share this knowledge.

[jacob]

Then play all four outcomes simultaneously. The real question at that level is whether your play is to maximize gains or minimize losses.

[WFJ]

Only one trial is this poorly designed experiment.

Relative vs absolute value is also a preference to investigate. Wil those who can dip their cockroaches in Grey Poupon feel superior to those lowly individuals who actually have to use mustard on their cockroaches like savages? What is the utility of screaming "I told you so" after firing your last bullet as a horde of unprepared savages descend on your home grown lentils, using your dead body as mulch?

[Ego]

Move to a friendlier place. Mine trash. Live ERE. Survive. I have so many friends who were from families of refugees - religious war, communists, civil war survivors. Focus on what successful refugees have done not so much on the disaster.

The Long Fall of Beirut
https://palladiummag.com/2021/12/09/the ... of-beirut/

This may be a playbook for succeeding (or not losing) during a collapse.

Primarily blaming Lebanon’s corrupt elite and their foreign masters is the most common explanation for the country’s failure. But ultimately, a corrupt state tends to inculcate its vices in the population itself. ....“The government has always been corrupt, but the people didn’t care because their pockets were being lined too. They pay no taxes. They only care now because their lifestyle is being affected…This is the fight for a nation, and what did everyone do at the first sign of trouble? They packed up and left.”

---

Those with means are fleeing Lebanon in massive numbers. Those still here, almost universally out of necessity, are just waiting it out: some wait for next spring’s elections, and others for the new government to secure an IMF bailout.

---

the ratio of partying to protests here is like 1000:1.” Nihilism has swept over Lebanon’s youth, who have lost all faith in a government that can’t perform the basic functions of civil society.

--

Towards the end of 2018 and into 2019, signs were emerging that Lebanon was bound for economic disaster...... Those who needed access to relatively large amounts of dollars were the first to notice. In Garo’s case, it was friends in jewelry who alerted him that things were about to go south. When they tried to withdraw 50 to 100,000 U.S. dollars in cash, the banks only fulfilled half their request and gave the rest as a check. The lack of liquidity these jewelers experienced when attempting to withdraw relatively large sums of money would soon be felt by everyone who tried to withdraw from a Lebanese bank, no matter the sum.

By then it was too late to get out with any wealth.

[Qazwer]

Ego - fascinating and depressing read
Thank you for posting

[zbigi]

My plan? Skills as GTOO says. Ego style skills. Move to a friendlier place. Mine trash. Live ERE. Survive. I have so many friends who were from families of refugees - religious war, communists, civil war survivors. Focus on what successful refugees have done not so much on the disaster.

I don't think this analogy works. What the refugees have done is leave the distresses area, come to the rich & booming USA and just establish themselves there. Whereas, in times of collapse, every place will be turning to shit economically and there will be no place where hard and smart work will guarantee great returns (like it currently does in the US).

[chenda]

@ego interesting read. What's depressing about that is that Lebanon could so easily be fixed, or at least massively improved. Just takes a firm hand on the tiller and visionary leadership. Maybe countries are like people, they have to hit rock bottom before they realise they need to check in to rehab.

But there is option for someone, actually take control of the failed state or region you are in. Provide law and order, restore basic amenities, improve people's lives. But it takes a certain kind of person, and a willingness to break a few eggs along the way.

[white belt]

@ego interesting read. What's depressing about that is that Lebanon could so easily be fixed, or at least massively improved. Just takes a firm hand on the tiller and visionary leadership. Maybe countries are like people, they have to hit rock bottom before they realise they need to check in to rehab.

But there is option for someone, actually take control of the failed state or region you are in. Provide law and order, restore basic amenities, improve people's lives. But it takes a certain kind of person, and a willingness to break a few eggs along the way.

Taleb argues that a firm hand/top down approach is absolutely not the fix for Lebanon or a similarly failed region and is in fact likely a proximate cause in its downfall. Many modern conflicts in the Middle East can be traced back to heavy-handed top down approaches by the West to "civilize" the region.

[chenda]

@whitebelt - well outside meddling certainly hasn't helped, although fwiw much of Asia seems to have successfully recovered from colonialism using varying degrees of authoritarianism.

[Ego]

@chenda, I have to admit, I don't have the slightest idea what Lebanon needs to pull out of the downward spiral.

The thing I find interesting is the answer to the question of who does (relatively) well in such situations and who does not.

Which skills have they fostered?
What connections have they created?
How do they hold their assets?
Do they have liabilities?
What challenges did they overcome to avoid getting caught?
What is their outlook? (optimist, pragmatist, pessimist)
What is their mindset? (growth, fixed)
Did they plan for collapse, where they lucky or was their plan somehow universal?
Did they benefit from the connections or wealth of others?
Are they outgoing or shy? Do they initiate conversations?
How do they handle situations with lots of unknown variables?
Are they trying to be the center of attention or do they blend in, unnoticed?
Are they admired or disliked by others?
Are they the kind of person who would crawl through the mud if necessary?
Does their pride or sensitivity to shame help or harm them?
Where are they on the scale from Machiavelli to Buddha?
Where are they on the scale from xenophobia to xenophilia?
Where are they on the scale from loyal to disloyal?
Where are they on the scale from trustworthy to deceitful?
Where are they on the scale from incurious to inquisitive?
Is their family a help, a hinderance or both?
Are they experts at something and was that expertise beneficial?
Are they jacks-of-all-trades and did they benefit from a unusual confluence of skills?
Do they have any psychological conditions? Where those conditions harmful or helpful?
Do they have any physical conditions? Where those conditions harmful or helpful?
Do they project fragility, robustness or anti-fragility?
What/Who do they depend on?
What/Who depends on them?

[WFJ]

Few like to hear this, but luck is probably the overwhelming factor in explaining outcomes over time and within groups. If you have to choose between being skilled or being lucky, choose lucky.

Most people alive today were just born at the right time. Imagine being born the US in 1920, teens in a depression, 20's in WWII. If one makes it through these stages, they will have a good life. Versus someone born in 1970 that was a baby during the difficult inflationary times, but from 1990 to 2020, has, with a few short-term hiccups, enjoyed boom times. The former group required tremendous skills to just survive, while the latter group just has to not get sucked into some kind of addiction to thrive.

A theory that partially explains why some societies collapse and others do not is something like "Patriot's problem" where policies only work when key figures can execute the plans. Everyone knows and can copy all the New England Patriots plays, policies, procedures, everything but without a few key players, it's a disaster. Copying the Patriots and applying it to your local high school football team will be as successful as copying what has worked in the US and Western Europe and using the policies in _________ developing countries. If anyone knew who to resurrect some of these developing countries, it would have already happened.