RBS issues global stock and credit crash alert

[FRED]

Re: RBS issues global stock and credit crash alert

I was listening to NPR's Diane Rehm broadcast, and the point was made during 911, that often in a catastrophe the brain doesn't panic, instead it simply shuts down. Maybe it's like a computer getting too many commands at once, or better yet- not recognizing the input that is available.
What I appreciate about this forum is that a number of financial crises are presented as being possible, and several Itulipers have mentioned some strategies available to deal with it.
Its kind of like counting the number of rows to the exit, in an unfamiliar theatre, or noticing the exits on an airplane. Don't assume you won't survive the next financial crisis, just have a plan. Remember 56% of all airplane crash victims survive.

In point of fact, we have served this function for years. iTulip readers were not surprised by the tech bust, the 2001 - 2002 bear market, the post tech bust recession in 2001, the housing bubble (noted in Aug. 2002), the process of the collapse of the housing bubble, the credit crunch, the current recession, the inflation and rising prices of commodities and gold, and the current bear market.

Readers will also not be surprised by the political outcome of an inflationary recession in an election year with huge disparities in net worth, savings, and debt as antecedents.

Where are we? Here's a measure.

Since 1960, in every recession, average duration of unemployment always peaks at around 40 weeks about six months after the recession is officially over and about a year after the peak in the rate of change in inflation. (Note we are measuring changes in inflation versus inflation itself to avoid the BLS vs Shadowstats trap.)

Here we are at zero for the average duration of unemployment. What does this imply for inflation?

We think it implies that the Fed has extended the "boom" via credit growth and dollar depreciation and that inflation has a long way to go before unemployment rises far enough to slow the rate of inflation.

[phirang]

Re: RBS issues global stock and credit crash alert

When the shiz hits the fan, couldn't a nice financials short save the day?

[metalman]

Re: RBS issues global stock and credit crash alert

In point of fact, we have served this function for years. iTulip readers were not surprised by the tech bust, the 2001 - 2002 bear market, the post tech bust recession in 2001, the housing bubble (noted in Aug. 2002), the process of the collapse of the housing bubble, the credit crunch, the current recession, the inflation and rising prices of commodities and gold, and the current bear market.

Readers will also not be surprised by the political outcome of an inflationary recession in an election year with huge disparities in net worth, savings, and debt as antecedents.

Where are we? Here's a measure.

Since 1960, in every recession, average duration of unemployment always peaks at around 40 weeks about six months after the recession is officially over and about a year after the peak in the rate of change in inflation. (Note we are measuring changes in inflation versus inflation itself to avoid the BLS vs Shadowstats trap.)

Here we are at zero for the average duration of unemployment. What does this imply for inflation?

We think it implies that the Fed has extended the "boom" via credit growth and dollar depreciation and that inflation has a long way to go before unemployment rises far enough to slow the rate of inflation.

that 40 wk ave. duration unemployment number is spooky. what is the itulip theory behind why it is so consistent?

[c1ue]

Re: RBS issues global stock and credit crash alert

When the shiz hits the fan, couldn't a nice financials short save the day?

You can (and will) make money on financials shorts.

But you need to be aware that bear market rallies could wipe you out also.

There is no strategy without risk.

[jtabeb]

Re: RBS issues global stock and credit crash alert

Thanks to you and Phirang. But let's say that my friend wants second opinions. So are any of you prepared to indicate (vaguely or precisely) their percentage portfolio allocations? I'm thinking especially of PMs/cash physical/electronic. (Tin foil hat on - boing!)

Try this, (It works well for me and I sleep well at night)

75% Physical PM's (in your possession)
5% Physical food and water
5% Physical firearms and ammo ( 1 year supply preferred)
5% physical cash
10% PM, energy, alt- E, and infrastructure stocks

chased with a (rental) investment property with as close to zero down as possible on a fixed rate term, that covers your costs. (Yes I have one so don't say they don't exist) I will say it matters where you buy!! The rental should rent at a level that 70% of people in the local area could afford it. (forgot to add that you must be able to afford holding the property if it is not rented out of pocket, and that you should not have to liquidate a single thing in-order to do so)

See this PDF on why you should add the chaser.

[Honzajs119]

Re: RBS issues global stock and credit crash alert

You can (and will) make money on financials shorts.

But you need to be aware that bear market rallies could wipe you out also.

There is no strategy without risk.

In this case I can recommend to buy SKF

[raja]

Re: RBS issues global stock and credit crash alert

I know! But the devil is in the details. So what would you say if your best friend had the following allocation: 15% physical PMs, 45% electronic PMs, 35% bank fiat, 5% physical fiat. More physical PM? More physical fiat? I was asked by this question today by a friend. It is hard to give good advice, even if it is a theoretical portfolio. Please assist!

My investment strategy is based on the chance that I think different scenarios are likely to happen . . . all the way from mild recession (5%), strong recession (25%), major recession/depression (65%) to global economic collapse (5%). Allocations are weighted not only according to likelihood, but also to the severity of the consequences to my life should the scenario occur.

In addition to some of the investment suggestions others have offered, I would like to add real estate . . . IF you can get a good deal. Although real estate prices are predicted to plummet, real estate is "real", while most other investments are not. People will always need shelter and land to grow food, but all paper investments (and a large portion of my portfolio consists of numbers on my computer screen) could evaporate. Gold is better than fiat, but under some scenarios its value could plummet.

My suggestion is to buy residential real estate in foreclosure . . . perhaps in about 6 months . . . and rent it out. As much as possible, make sure what you buy will be used in the future (i.e., don't buy a 3000 ft2 house 100 miles from the nearest Walmart in the middle of nowhere).

[c1ue]

Re: RBS issues global stock and credit crash alert

Raja,

How is the rent/buy ratio in your area?

In San Francisco and even San Jose - rent vs. buy is still 1 to 3 in terms of out of pocket cost.

Lopping 1/3 off the 3 still makes renting twice as expensive as buying.

Can you survive losing money each month on mortgage while taking in nominal rent - along with the landlord collection/maintenance/tenant management hassle?

[raja]

Re: RBS issues global stock and credit crash alert

Raja,

How is the rent/buy ratio in your area?

In San Francisco and even San Jose - rent vs. buy is still 1 to 3 in terms of out of pocket cost.

Lopping 1/3 off the 3 still makes renting twice as expensive as buying.

Can you survive losing money each month on mortgage while taking in nominal rent - along with the landlord collection/maintenance/tenant management hassle?

I don't know the rent/buy ratio here.

Regards survivability, every property is different and it's necessary to do the math to calculate profitability. After trying to do this manually and finding it impossible, I wrote a very complex computer program that factors in the projected value of about 15 variables (mortgage payments, repair costs, inflation adjustment on rent, recaptured depreciation, property appreciation, tax on rental income, reinvestment of rental income, lost rent, insurance, etc.). This gives me a good idea of whether the property will make money . . . or not. The only thing it doesn't calculate is tenant insanity, which anyone who's been a landlord knows can only be calculated in aspirin :eek: :rolleyes:

[ccyork]

Re: RBS issues global stock and credit crash alert

You can (and will) make money on financials shorts.

But you need to be aware that bear market rallies could wipe you out also.

There is no strategy without risk.

buying long-dated puts (LEAPS) on financials seems like a way to reduce the risk of getting wiped out by rallies

-- ccyork

Now Under Construction: http://JimRogersProject.wordpress.com

[c1ue]

Re: RBS issues global stock and credit crash alert

Long dated LEAPS means you're betting on two things: volatility AND stock price.

Plus you're assuming your long dating is reasonably close to the event happening.

Thus you could be right, but mistime too short and get killed.

Or you can be right, but mistime too long and leave too much time value on the table.

Or you can be right, with right timing, but get sold out by a major bear rally which drops your options value 50% or more. Of course, you can speculate with a small part of your portfolio, but then you can't possibly make that much a dent in your overall performance.

There are many other permutations - consider them all carefully.

[santafe2]

Re: RBS issues global stock and credit crash alert

Uh... guys. No more silly Iran stuff from me. When is the time to withdraw actual paper cash from your friendly neighbourhood bank? I'm sort of waiting for EJ to put "CRASH - GO GET YOUR CASH" in 72-point letters on the ITulip front page. But seriously, I'm getting a little queasy right now.

If there are bank runs in the US, that big sucking whirldwind is not going to stop in the middle of the Atlantic. Banks are a con game, so when the game's up, it may be so globally. How much of your portfolio would you have in physical cash and other in-your-hand assets?

EJ: any helpful hints here? Sapiens, metalman, grapejelly, lukester? Am I just overdosing on doom and gloom?

A conservative strategy for the scenario you present would be to sell what you don't need and minimize or eliminate your revolving payments / subscriptions. Put away enough money to get you through one year at your current cost of living. Then pay off or pay down your large obligations. One would hope this is only your mortgage.

If you've done all that, then begin investing and several people on iTulip can, and have, offered direction. This advice is not bad even if everything turns out just fine.

[ccyork]

Re: RBS issues global stock and credit crash alert

Long dated LEAPS means you're betting on two things: volatility AND stock price.

Plus you're assuming your long dating is reasonably close to the event happening.

Thus you could be right, but mistime too short and get killed.

Or you can be right, but mistime too long and leave too much time value on the table.

Or you can be right, with right timing, but get sold out by a major bear rally which drops your options value 50% or more. Of course, you can speculate with a small part of your portfolio, but then you can't possibly make that much a dent in your overall performance.

There are many other permutations - consider them all carefully.

i think you're assuming to hold the LEAPS until expiration, which is not necessary

LEAPS allow you to control the downside and the time value works in your favor as a kind of "time arbitrage"

just make sure you sell at the bottom, so as not to leave any money on the table :cool:

no investment is riskless though


-- ccyork
Now Under Construction: http://JimRogersProject.wordpress.com/

[aa]

Re: RBS issues global stock and credit crash alert

Or perhaps life will just go on like it always has.....

... if petrol doubles again I'll drive less and catch the train more often... but life will go on
... if food doubles in price I'll have less to spend on other crap ... and life will go on
... if unemployment goes to 20%, chances are I'll be one of the 80% with a job... and life will go on
... if share prices and property prices crash - I'll be able to buy good investments at cheap prices... and life will go on

[c1ue]

Re: RBS issues global stock and credit crash alert

Or perhaps life will just go on like it always has.....

... if petrol doubles again I'll drive less and catch the train more often... but life will go on
... if food doubles in price I'll have less to spend on other crap ... and life will go on
... if unemployment goes to 20%, chances are I'll be one of the 80% with a job... and life will go on
... if share prices and property prices crash - I'll be able to buy good investments at cheap prices... and life will go on

True, unless you are:

1) Real estate agent/broker, appraiser, loan officer, construction worker
2) Financial worker in securitized debt, hedge fund employee in the non-Pareto portion
3) Bank employee
4) Restaurant worker in the non-Pareto sector
5) Other parts of the service sector serving 1) thru 3)
6) Work in GM, Ford, etc.

The list goes on.