Prepare for the worst

[PurEnergy]

I'm not chicken little but I'm not walking around wearing rose colored Oakley's either.

It seems like we have gone from trying to revive the economy to trying to avoid a depression. In my opinion it's time for smart people to prepare for the worst case scenario. If the economy falls off the deep end I think it will happen very rapidly and there will be very little time for any preparation.

I would like to hear others thoughts about how you will financially or otherwise prepare for this scenario should the dominos continue to fall. It appears to me that we have about a 50/50 chance at this point and that's way too close for my level of comfort.

My thoughts at the moment are to drain all remaining credit sources and hold on to the cash before they cut off all lines. Separate "essential" bills from "non-essential" bills and hang on as long as possible.

I've gone from fastlane thinking to survival lane thinking. I don't care about the politics of the situation. If anyone thinks that this is not a possibility then please carry on and don't participate in this thread. If you think this is something to be concerned about, I would like to know what you think are some essential things that need to be taken care of now. I think all remaining lines of credit will be cut-off very soon if things don't change immediately.

 

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[Justin]

I am (poor) but also thinking opposite of you. I am trying to pay off all my credit so that I am free and clear if all goes under. Not having to owe money gives me peace of mind. What would your strategy be after you max out all the credit? How would you pay it back?

 

[lightning]

I am (poor) but also thinking opposite of you. I am trying to pay off all my credit so that I am free and clear if all goes under. Not having to owe money gives me peace of mind. What would your strategy be after you max out all the credit? How would you pay it back?

I would assume hes not talking about going out and maxing out his credit cards, but more along the lines of securing lines of credit NOW while they are available (home-equity loans, student or auto-loans if needed, etc.). This would ensure that he is as liquid as possible when/IF shiit hiits the fan.

As many of us are finding out right now, the credit industry has become VERY rough, and securing a loan even WITH a down-payment and near-perfect credit is not a gaurantee. If something dosent happen soon, things could get ALOT worse.

 

[Justin]

Oh, that makes much more sense. We are looking to get into a house soon, but I think we will have to wait for a good rebound in lending.

 

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[AroundTheWorld]

2 plans:

Plan for survival
Plan to profit / thrive

Survival:

• Grow own food... easier w/ land, but for those w/ out much, you can still garden and have backyard chickens.
• Build up stores of food - now
• Gold
• Lock any variable rates into a fixed rate
• Foreign Currency
• Join barter co-op such as Tradia ® Commerce Network

Thrive:

• Loan money out on a variable rate (secured to property I don't mind owning again.... ex: trailer houses
• Own properties that will be in demand / cashflow during difficult economic periods (trailer park, lower income housing)
• Don't commit to any long term contracts - need to be able to adjust rates if hyperinflation sets in.
• Produce goods / services that will be in demand during difficult economic times.

 

[PurEnergy]

Justin
I'm guessing I may have more good and bad debt than you. I'm only making that assumption based on our ages. I try to use a low level of debt to leverage myself with what little business and investments I do have. You may be used to making $4000 a month and paying $2500 a month in bills, hypothetically. Imagine moving 10, 20, or $50,000 a month or more through your system every month. I LIKE having credit available in case something (depression) happens that causes a heart attack in the system.

Honestly I've never put any thought into this precarious situation we are in. I like to think positive and love the game of business. Thankfully I've done my homework and can survive if need be. This whole post is based on the possibility of having a depression rather than a recession. I hope it doesn't happen but I wouldn't rule it out.

Lightning
Yes, I mean credit cards, equity lines, bank loans, whatever. I'm a veteran and have access to a "Patriot express loan." I'm just wondering if this is what other people smarter than me may be doing at the moment. These things for all I know may be drying up as we speak.

Aroundtheworld
I like your ideas. I like mobile homes right now too. My neighbors would have a cow over the chickens but hey, if times get bad enough you'll probably have to protect the chickens from the neighbors.

 

[Russ H]

Interesting thoughts.

Plan for the best and the worst would be our approach.

And the definitions of best and worst change-- constantly.

So, you adjust the PLAN.

One thing I would mention is that we had a HUGE amount (over $600K) in HELOCs, and used most of it for improving our RE holdings.

But the parts we DIDN'T use-- were erased--AFTER WE GOT THE HELOCS.

Example: Got a $150K HELOC. Put $250K into the prop after we got the HELOC, but didn't use any of the HELOC.

The Lender of the HELOC pulled back $90K, leaving us w/$60K.

We haven't checked lately, but that could be gone, too.

Moral of the story: Even if you are extended the credit, if times change, that can be taken back.

-Russ H.

 

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[AroundTheWorld]

I agree w/ two plans...

Next thing (in my thought process) is to start thinking about what services and products will be needed in the next decade (if things don't go well)

* Food. Sources of food. (animals, seeds)
* Shelter (Low Income Shelter)
* People will turn to bartering
* Low cost entertainment / escape items
* Repair Services
* Car Share Services

What skills or areas of knowledge do you have that could fit into one of these needs?

 

[Russ H]

ATW-

I'd add some things to what you've listed:

* Food. Sources of food (animals, seeds) and Distribution (farmers markets, pick your own, etc)
* Shelter (Low Income Shelter, shared housing, tent cities, RV culture)
* Bartering/networks/accounting and appraisal of value of these trades
* Low cost entertainment / escape items
* Repair Services for most anything (fix instead of replace)
* Transportation (how to get from A to B, best/cheapest/fastest/most efficient, etc)

-Russ H

 

[rcardin]

I have been wondering about this lately also.

the survival aspect I have no problems with. I can grow food and hunt if need be.

the financial side is a bit more interesting. I feel pretty comfortable that I have great job security as a teacher. Will I be able to survive on what I make? I don't know. Lately I have been buying physical gold and silver. Unfortunately I don't have enough disposable income to buy the amount I would like. If the dollar actually tanks I want some kind of tangible asset to barter with.

I would love to see bartering again over exchange of paper money. I used to barter a lot when I was in College.

Personal Finance: I consolidated all of my credit cards in December and cut them up. The lines of credit are still there but I haven't touched them since then. Might need to charge a tank of gas just to keep the lines open. Just bought a newer used vehicle. All 3 house are fixed loans with 1 paying off in 9 years. No 401k because of teacher retirement package, not sure how the state has that invested though. Roth IRA had less than 500 in it after Cisco stock tanked a few years ago.

Other than inflation killing my paycheck we aren't sitting too bad. Texas never had the run up in housing prices that many other states did. Our property values are pretty steady and have remained unchanged for the most part. The equity we have in our properties was not eaten up by a readjustment of values.

 

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[Andrew]

Bartering and hunting food? Are you guys serious?

In order for the dollar to collapse, it means other currencies are exploding. If you believe that will happen, all of your assets should be in commodities or overseas.

There are a lot of things that can or could happen. Hedge your bets and focus on what you know. If your ability to make money depends on leveraged and/or appreciating assets, it might be time to rethink things.

 

[rcardin]

I always look at worst case scenario as a part of life. If it never gets to the worst case then life is good!

 

[Kung Fu Steve]

Wow,

I better build a bomb shelter!

I will stock up cans of beans and twinkies... And I better start stuffing cash under my mattress!

 

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[Russ H]

Wow,

I better build a bomb shelter!

I will stock up cans of beans and twinkies... And I better start stuffing cash under my mattress!

Bartering and hunting food? Are you guys serious?

In order for the dollar to collapse, it means other currencies are exploding. If you believe that will happen, all of your assets should be in commodities or overseas.

It needs to be said:

We are not saying this is going to happen.

(I for one don't think it's going to happen)

But why not ask the question?

What we have here is an intellectual/investors/planning exercise.

To wit:

If there was a collapse of the world's financial markets,
what would you do ahead of time to be in a decent spot?

BTW, Andrew, the depression in the 1930s was worldwide. When the US stock markets crashed, they did not go up everywhere else.

-Russ H.

 

[Bilgefisher]

Ive always been interested in being self sufficient. Here are some ideas I want to do down the road.

-solar energy for my house. No grid dependence, but sell power back when I'm not using it. Battery for nights and bad weather.
-all electric appliances. This includes a ground source heat pump for AC and Heating. Electric tank less water heater.
-backup wood furnace
-Food provisions for 3+ months.

I have also looked into homemade biodiesel and a 5000 gallon water tank.

 

[hatterasguy]

Well my Grandfather grew up during the depression. You'll get by.

Just get rid of as much debt as possible, because the bank can't take what you don't owe on. IE your house. F*** the credit cards, and car loans, but you need a place to sleep. The people who are highly leveraged will suffer the most.

People will learn to be very frugal again. Fix stuff insted of buying new, saving, and growing there own vegtable gardens.

My Great Grandfather had some pretty good oil holdings, and was a judge so the depression didn't really affect him. In 1932 or 33 he bought a V16 Cadillac, and quite a large house over looking LIS. Even though they were pretty well off, everyone felt it. My grandfather was very frugal to the day he died. Still you can live well, my grandfather grew up sailing the very same boats at the same yacht club that I now sail it. The depression didn't stop them! F the markets they raced on Sunday!

 

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[memenode]

There are many people who say the depression IS coming and it's going to be even bigger than the last one. I wish they are wrong, but from what I know today about the way the markets work it doesn't seem to look so good.

When it comes to preparing for the depression, a saying I've recently heard of suggests to stockpile "food, bullets and gold". Food for basic survival since, I suppose, it wont be as conveniently available for sale as it is now. Bullets because of all the people who were caught unprepared resorting to robbery as they desperately try to get to food and other necessities. Gold (and precious metals in general, silver being probably most practical) as an alternative to the collapsing currencies.

That said, I've started buying some physical silver, but it's in quite low quantities since my surpluses aren't big. However, I'm still holding off on food and.. bullets (I don't like guns and I'm more likely to just buy stun guns or tasers instead of real stuff). I need to define what would be my "cue" to start doing that. With regards to that I have a question:

How do you think would the depression in US affect Europe? Perhaps euro would still hold on even if USD fails, keeping the overall european economies more stable, even if in deep recession reflected in higher prices of everything, but still not a total collapse?

Regarding food stockpiling, one thing to consider is that the more you have stockpiled the greater a target of robbery you potentially are, so it may be better to have some land to fall back on and just produce food when necessary than to stockpile too much.

Thoughts?

 

[hatterasguy]

Oh come on guns are fun, go buy an M14.

Take a page out of the Kennedy's play book, invest in booze.

 

[AroundTheWorld]

To wit:

If there was a collapse of the world's financial markets,
what would you do ahead of time to be in a decent spot?

And... If you do them, and the economy DOES NOT tank or we DON'T see a hyperinflation..

Then, what are you out?
What has it cost you?
Have you been set back in any way?

 

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[Andrew]

BTW, Andrew, the depression in the 1930s was worldwide. When the US stock markets crashed, they did not go up everywhere else.

Correct. But I was addressing the value of the dollar -- "If the dollar collapses" -- meaning the value of the dollar drops, that means the value of whatever the dollar is being valued against, euro, yen, yuan, has to go up.

I never said this would happen, nor do I believe it will happen.

Hypothetically, say I was in Germany in the 1920s. I would have been better off converting all of my German marks into US dollars and buying stock in the US stock market before its collapse. Had I kept my life savings in German currency I would have been completely wiped out.

If one believes that the US dollar is going to collapse, which I don't, then I suggest that they follow my suggestion concerning Germany.

 

[imirza]

My thoughts :

WINNERS - People who have cash ( preferably in a currency other than the USD. Gold and Silver are good) . Lots of deals will be found in equities and real estate in the coming years.

LOSERS - People with high levels of debt. Even good debt ( rental cash flowing real estate) is bad in these times. Vacancy levels go up and you could end up with negative cash flow. Businesses with high debt levels will go under.

I don't think we will go into a depression. Bernanke and company will print lots of money to prevent this. What allowed the Great Depression to occur was

(i) Smoot-Hawley Tariff Act which increased tarrifs on imported goods causing our trading partners to retaliate in kind. Less exports meant worse business conditions.
(ii) Monetary Contraction - Banks ran out of capital to lend while the Federal Reserve did nothing to help. Today the Fed is injecting massive amounts of liquidity into the system.
(iii) The Fed raised interest rates back then which lead to liquidity contraction. Today they are reducing rates.

The likelihood of this bailout plan getting passed and eventually suceeding is pretty high. Bad assets will be taken off banks balance sheets allowing them to free up capital which they can lend. It will take some time but I figure things will start returning to 'normal' by mid 2010.

 

[hatterasguy]

If they start to print a lot of money holding a lot of USD's is going to hurt.

 

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[Russ H]

If they start to print a lot of money holding a lot of USD's is going to hurt.

Yeppers. I believe the technical term for that is monetary inflation.

All depends on how much inflation, or if inflation occurs while economy is slowing (called stagflation).

-Russ H.

 

[Kung Fu Steve]

Maybe I don't understand because I am so young but I just don't get it. Perception is reality. So if you are planning for devastating things to happen, doesn't it become a self-fulfilling prophecy?

I haven't been posting much on the threads because all I see is about doom and gloom. My business couldn't be growing any faster! I have people paying in full for our programs some giving me 10,000 checks! I don't feel it! I don't see it!

The last thing I need is to be sucked in to feeling bad because I think we may or may not be going into a depression.

I won't let it happen. But again maybe that's just because I'm ignorant with my age. I haven't been through a depression, I don't understand the severity. But everything is going amazing and I will do WEIT to make sure my life continues to grow and expand. Physically, Mentally, Emotionally, and Financially.

Ignorance is bliss :smxB:

 

[memenode]

I envy you Steve, but at the same time I think it helps to be informed because things wont affect everyone immediately and at the same time or, per chance, some might not be affected at all? (What are the chances of that anyone?)

Here's a funny thing though. As I read the business category of Google News I see great news from tech companies which seem to be continuing unabated with their growth interchangeably with news of the biggest US banks collapsing, being bailed out or bought out. I almost wonder.. if I were totally focused on a particular purely tech related business I'd still feel totally like we're in the golden age.

Ironically, the technology industry IS in a golden age. Prices of tech are going down while quality is going up. Digital technology industry is probably in the best shape of all.

So there's a sort of dichotomy going on.

But I can't not to wonder though.. when the financial industry is collapsing it can't not to affect every other industry. Sooner or later tech companies will have to brace themselves. I wonder how will that look like.

Here is an intriguing thought though: What if the salvation lies exactly in the technology industry? What are the chances of that? Maybe it's continued boom will help stabilize the overall market despite government's harmful injections of toxic capital?

 

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[Russ H]

Worst Case Scenarios?

If you are planning for devastating things to happen, doesn't it become a self-fulfilling prophecy?

It doesn't have to.

In fact, looking at worst case scenarios pretty much changed my life-- for the better.

I lived my life in total fear when I was a kid, and was headed into spending the rest of my life that way.

I wound up going into therapy when I was in college (during my parents divorce). After covering a lot of the standard therapy stuff (relationships, systems, etc), my therapist asked me to spend some time and figure out what I wanted my life to be about. "What's most important to you?" she asked.

So I thought about that for a bit.

And when I came back, I told her: "I want to be happy."

So we worked on that. How to be --deep down in your soul-- happy.

Turns out there were a LOT of things I was NOT doing b/c I was afraid.

FEAR was holding me back, and making my life boring/stagnant.

So we started to whittle away at the fear stuff.

Got so I would identify a fear, then figure out how to embrace it.

For instance:

One of my greatest fears as a kid was being buried alive. I had read a few stories, and they just scared the bejeezuz out of me.

So I thought about it: How to confront this fear, head on?

I took up spelunking (exploring wild caves). Always went w/a group of experienced cavers, and always had 3 sources of light, etc.

Had a blast.

There is something indescribably peaceful about being underground in a cave, with no one else around (I'd sometimes let the group go on ahead so I could be there, alone, in the dark, w/my demons).

It was really, really cool.

I did this w/other things as well, and I'm doing it w/money (since I was taught to be afraid of money--ESP losing money or "losing everything").

I've lived on pretty much nothing-- no home, no car, next to no money, etc-- for months. So I know what that's like, and I no longer fear it.

******

My coping system these days, based on embracing fears, is "What is the WORST that can happen?".

If I'm afraid of something-- or if I'm going into a new experience w/trepidation-- I just ask myself, "What is the worst case scenario here?"

And I think about it. Aside from a meteor coming out of nowhere and hitting the earth, what, specifically, is the worst that could happen in a particular situation?

Example: Invest hundreds of thousands of dollars into a B&B to generate millions of dollars in assets.

Worst case: I lose everything (money wise). Or I lose my health, or my life, or the life of a loved one.

Now that I know what the worst case is, I examine the likelihood of it happening. What *are* the odds I will lose my health? my investment? loved ones?

In most cases, the odds are pretty low. And I work w/my PLAN to improve those odds- making my success more likely, and any failures less likely.

*****

So when I talk about "worst case scenarios", I'm not being gloom and doom.

Quite the opposite.

I'm working out the likelihood of really bad things happening, so I can rationally take those things into consideration, and deal w/them (i.e., that my FEARS will come true).

Once I have identified my demons, and see that they're not likely to happen, I can focus on making POSITIVE outcomes more likely.

And I'm happy with that.

-Russ H.

 

[kimberland]

Actually,
knowing you can handle a worst case scenario
means you no longer have to worry about it.
Worrying takes up a lot of brain cells.

Geez,
if worst case happens,
you're going to be seeing one grumpy Kimber.
My house will be full of broke a$$ people.
Forget a plan for fiscal survival,
I'm going to need one for mental survival.

 

[zaiteku]

Water source
Land to grow food and raise animals preferably away from city centers
Areas to hunt and fish
Alternative methods of transportation
Weapons to protect it all

I dont think we will go into a severe depression but its not a bad thing to be prepared for one. My grandparents went through the depression but they had a farm. They said they hardly knew they were in a depression and were giving away food.

 

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[AroundTheWorld]

Yea - - - - I'm in the same camp as Russ, Kimber, etc.

All I need is a few minutes (or maybe a few days) to get my "worst case" in order.
Then, I can go about the business of creating abundance in my life.

Steve, you ask "why?" That has been answered already several times here.

I ask, why not? Why not take an extra hour or two... and extra day or two... to be prepared?

Also, it is a great lesson in going through the due diligence process when you are considering the purchase of an asset (real estate or business)

It is easy to put on the rose colored glasses and believe that it is a great investment and will make you millions.

BUT - - - take a little time to look at your "worst case" and have a plan for that too. It gives you a safety net (and your banker will love it too)

 

[AroundTheWorld]

My house will be full of broke a$$ people.
Forget a plan for fiscal survival,
I'm going to need one for mental survival.

Should I :smilielol: or should I :smxD: ?

I have come to the same realization over the last week.
Think I can find a therapist to move in too?

LOL