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I have studied this off and on in some detail over the past few years and my
most educated conclusion is that intermediate to long term US treasuries
should provide the greatest safety and highest return. This was true in the
early '30s and it was true more recently in Japan - in both cases long term
rates were driven to near zero levels by lack of credit demand and
government efforts to stimulate the economy. Another avenue is carefully
selected non-US currencies (I would favor stable European currencies)
however one must not lose sight of the fact that a bursting of the US bubble
is going to have world-wide consequences because of a) loss of the world's
most voracious consumers and b) difficulty in actually repatriating the
debts accumulated by the huge US trade and balance of payments deficits. The
most likely government action would be to crank up the printing presses and
print loads of money thereby devaluing all US domestic and foreign debt and
the US$ - keep in mind that the greatest portion of US external debt is held
by Japan and China. Historically, precious metals have not proven to be a
strong hedge during depressions or even major recessions although price
spikes in gold and gold stocks often precede a major decline in equities so
they are a good leading indicator of trouble.
The use of treasuries for hedging the equity markets has been complicated by
the recent dramatic increases in interest rates resulting in loss of both
income and principal. Overall, the bursting of the bubble is not a pretty
sight to contemplate! As for making a living trading, I have to wonder -
stock and commodity exchange activity in the 30's all but dried up resulting
in little or no liquidity.
Earl
----- Original Message -----
From: Gary Fritz <fritz@xxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxx>
Sent: Tuesday, October 05, 1999 8:52 AM
Subject: How to protect assets
> Earl wrote:
> > When the bubble does burst, as it inevitably will, the retirement
> > savings and pension plans of at least two generations will be
> > placed in jeopardy. Not only are these generations at risk of
> > losing their financial independence, but government tax coffers
> > shorn of the stock market tax bonanza will be incapable of
> > providing a safety net. Further, US workers will wake up to find
> > that few are in a position to support the huge US service economy
> > and that there are few manufacturing jobs remaining. In short, what
> > happened in Japan in 1989 won't begin to compare to what will
> > happen in the US when the bubble bursts.
>
> A very sobering prospect, indeed.
>
> I have wondered about the best way to protect one's assets against
> this kind of scenario. I don't have any idea how soon or how badly
> it's going to blow, but I agree with Earl that some kind of disaster
> is inevitable.
>
> As traders, it's part of our job to make sure we protect our assets.
> It does us little good to make lots of dollars in the market if those
> dollars are worthless.
>
> I think this would be a good topic of discussion. It's probably of
> most interest to U.S. traders, since it's our currency and our
> economy that have been so mismanaged and are likely to fall. But
> other countries are likely to suffer from the collapse as well, so
> all of us may benefit from the ideas.
>
> So: how should a trader protect his assets and his financial future?
>
> I think we're fortunate in that we should be able to continue to earn
> a living. No one is going to lay us off, and our employers will not
> go bankrupt. (I hope, anyway, since our employers is us. :-) As
> long as we can adjust our trading style to the new financial
> conditions we *should* be able to continue to pay the bills. We
> should probably be careful not to have too much money tied up at any
> one brokerage, since I imagine some of them are going to crack up
> when the fertilizer hits the fan.
>
> But what about our savings, our retirement plans, etc? Do we buy a
> stash of Krugerrands and gold eagles and bury them in the garden? Do
> we have to move our funds into SF-denominated Swiss accounts to
> protect them from a dollar debacle? How do we protect their value?
>
> And what of non-traders? My parents are in their 70's and asked me
> just this weekend how they should protect their modest retirement
> funds. I wasn't quite sure what to tell them but said I would think
> about it. Any suggestions?
>
> Thanks,
> Gary
>
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