Digital currency is coming

[FC]

https://youtu.be/ZSBLuGrs2Fk

[FC]

I consider myself a moderate prepper.  I got out of stocks and put a good chunk of money into gold.

[Dr.Hess]

I'm working on a financial analysis/what if.  I'll share it if you guys are interested. 

[FC]

Sure!

 

[Dr.Hess]

OK.  Keep in mind, this is just my thinking and I am open for suggestions.  My goal is to allocate assets to: 1. minimize losses. 2. perhaps come out ahead, but always minimize total losses.

 

I have the future laid out in several Scenarios.  Each Scenario will cause things to happen that I call Drivers.  The Drivers affect Assets one way or another and to one extent or another.  It's a very complex problem.  We have very limited knowledge.  That is, we have no idea what the BIS has in mind for us or when they plan on doing it, for example.  We can only look around and observe what is happening, not what we are being told, and look at history.

 

These are the Scenarios:

No change from today
Forced deep depression
Mild recession
Boom

 

Drivers:

Inflation
Stagflation
Interest Rates (paid)
Foreign entanglements (wars)
Foreign pressures (financial)
Oil prices
Energy independence
"Green energy"
Govt mandated climate rules
Succession
Employment

 

Asset classes:

Cash
Gold/Silver
Stocks
Real Estate
Blockchain "money like things"

 

With me so far?  Again, any suggestions, additions, etc. are certainly welcome.

[AzRednek]

A possible driver in my neck of the woods. Illegal migrants pouring into Arizona with the crime and mayhem they might create. In cities where mayhem broke out, retail businesses closed their doors. Access to food, gasoline or medical care could be sharply curtailed. A Minneapolis resident I spoke with. Told me during the riots she had to travel over 30 miles for gasoline then had to wait in a long line. She dropped of a prescription in the area and was told it would be 24 hours before it was filled. She opted to have it delivered and it took a few days. I wonder how a overwhelmed pharmacy would handle it if somebody needed the meds asap. 
 

Phoenix police did a great job of stopping an Antifa riot when Trump made a campaign stop here. I do worry that if the illegals start rioting if police can or will control it. A law was passed in Arizona making ammo and firearms retailers an essential business and can not be closed down. A good idea but what will one do if he can’t buy gasoline to make the drive. I have plenty of ammo and I could last at least 30 days with the food I have on hand. 
 

I recall a few years ago a satellite problem prevented my debit card access to ATM cash or any retail transactions for a day. My Bank of America closed their doors. My Chevron and Shell are cards were also malfunctioning. I also have a debit card linked to a small savings account with Wells Fargo. The card worked but I was limited to a $40.00 cash withdrawal. Fortunately it was only an 18 hour shutdown but what might happen if it lasted days, weeks or months. A Bank of America window clerk did her best to assure me they have back up systems in place but I had trouble believing her.
 

What might happen if Red China started zapping satellites with a powerful laser, we’d be forked for a long time. since the satellite incident I have a stash of cash in my vault. All small bills, mostly 5 and 10’s. I cashed out most my gold and silver several years ago needing to raise money fixing up a vacant rental house. 

[Dr.Hess]

That would fall under the Forced Deep Depression Scenario, Az.  In such cases, cash is king, however, it is also affected by inflation.  Enough cash to get by for a few weeks for basic needs such as gasoline, food, etc. should be on hand as a SHTF survival item.  Not really part of this study.  Also, water is most important, so a several day water supply and some filter method is really important.  Everyone needs one of these:

https://smile.amazon.com/gp/product/B01KOVSO1Q

 

and two 5 gallon plastic buckets.  Then you can filter any water source to potable water.  Now, in the desert, "any water source" becomes a problem, but here in Arkansas, a trip to the back yard where the creek is will do you.

 

[Dr.Hess]

Scenario:  No change from today.  This is today, tomorrow, maybe next week.  Not sure about next year.

Drivers:

Inflation:  5%
Interest Rates (paid):  1%
Foreign entanglements:    Team America, World Police
Foreign pressures:
    Loss of reserve currency standard - unlikely.
    China unleashing another virus - unlikely as long as the Democrats don't ask for it.
    Syria - A few bombs to keep the military happy.
    Isreal - Keep them on a leash so they don't actually win anything.
Oil prices:  Slowly increasing
Energy independence: Decreasing
"green energy": slowly destroying the economy
Govt mandated climate rules: slowly destroying the economy
Succession: Not gonna happen
Employment:  Steady

 

Assets:

Cash:  down, slow

Gold/Silver: flat
    Funds with physical:  flat
    Actual physical: slightly up

stocks: up steady, few down turns but recoveries.
    Major Indexes:  up smooth
    Sectors:        
        Energy: up higher
        Foreign: flat
Real Estate            
    REITs: up with a recovery from current forced downs from lockdowns

Blockchain            
    Bitcoin: up, with occasional 50% setbacks and recoveries
        GBTC fund: up with bitcoin.
        Held at Exchange:  up, but with high risk
        Self holding:  up, but with high storage costs
    Ethereum/other:  unknown

 

On Precious Metals, particularly gold and silver (AU/AG), there are basically 3 different "types" of holding.  There is the hold it in your hand physical, which you have to put somewhere safe, and not in a safe deposit box, incurring potential theft losses but not incurring other types of losses.  There is a exchange traded fund that (claims to) actually holds physical in storage somewhere, and there are some "paper" funds which don't really hold any physical metal, but hold futures, options, and track the published price.  Those will evaporate if the world economy goes down and people start actually wanting their gold, for example.  They are also one of the methods used to suppress the price of gold and silver.

REITs, Real Estate Investment Trusts are easier to purchase and hold than actual real estate.  As AZ can tell you, real estate management is a great deal of work.  REITs took a beating with the forced lockdowns, and I think they are down at the present.  If you can find one that has potential to bounce back, say, housing (apartments and single units), commercial warehousing maybe, that kind of thing, they should do OK in a normal smooth recovery.  Malls, not so much.  They are done.  Strip malls, not sure.  Maybe.  People still need gasoline at the quickie mart.

Blockchain:  Have you seen how many of the exchanges have just vanished with people's millions of dollars?  A lot.  So, how do you buy these things without putting yourself at risk?  I'm not comfortable with that.  The fund GBTC seems to be a usable way to put money in bitcoin without those risks.  Not sure.

 

[AzRednek]

I do have a pretty good water filter but it’s very slow, 1.5 to, two gallons daily. I also have access to, two nearby canals and in Phoenix there are plenty of backyard swimming pools. I usually have one or two cases of bottled water on hand. Years ago after 86’ing a deadbeat renter that had their water turned off for non payment. They continued to use the toilets adding the Coleman chemicals used in portable toilets to control the stench. According to a neighbor the renter would stand on a chair and rapidly pour a bucket of water into the toilet causing it to flush. 

[FC]

Shortages of necessities as a driver.

Civil disturbances and increases in crime (like Rio).

Would hyperinflation be classified under a depression? My guess is the government would try to avoid that word, because it paints them as failures.

 

[AzRednek]

I have a good feeling about strip malls and the return of mom and pop small businesses. There will always be a need for things one can’t wait on Amazon or eBay delivery. I’m not smart enough or have the knowledge for big investments. My deceased brother had his hands into everything it seems but he did his best in the stock market. He did have trouble with some gold certificates after the twin towers disaster. The gold was eventually located in the wreckage and he didn’t take a hit. He would invest big bucks into something risky, seemed to pull out at the right time and did well for himself and clients. The crash during the Bush years hurt him especially with investments into life insurance co’s. Previously when a small life insurance co folded. The biggies like Metropolitan, Prudential etc would cover the losses to save the reputation of life insurance. After the Bush crash the biggies quit bailing out the industry. People started cashing in annuities and pulling out the money in whole life insurance. I don’t know how much he lost but he told me he went several months without writing himself a paycheck. The stress, very long hours and the losses is what killed him. He started drinking real heavy destroying his liver. 

[Dr.Hess]

Hyperinflation would be a possibility for a Forced Deep Depression.  Near as I can tell, that seems to happen wherever hyperinflation hits.  This country saw a deflation last time we had an official "depression."  I personally feel that we have been in a depression since about the peak of 1999, which would make the "Great Depression" pale by comparison, but it has all been painted over with "free" money from nothing.  They couldn't do that in the 30's, because money was gold and vice versa.  You can't print gold.

 

How would civil disturbances drive financial assets?  Perhaps dropping real estate as places where the democrats let them run found out.  People moving out of those areas, but into areas in Free America.  We can only hope they don't destroy FA like they did the places they are leaving.

 

I'm not big on annuities.  I had one once, Executive Life.  You can google it up for some fun reading, I'm sure.  I got it in the early 80's.  It paid 10% and was "rock solid, insured," etc.  Well, when I needed the money to buy a house in 1993, they went bankrupt.  All over the California news, but in Texas, we didn't hear about it.  Insured?  Yeah, well, "sort of."  The State of California sort of insured them.  Final outcome was "Well, we'll give you your money back in 5 years, or you can have nothing now and we'll call it even."  Hummm, tough,  what to do, what to do?  They sent me a check last year for $80 (and a 1099) as part of the settlement.

[AzRednek]

32 minutes ago, FC said:

Shortages of necessities as a driver.

Civil disturbances and increases in crime (like Rio).

Would hyperinflation be classified under a depression? My guess is the government would try to avoid that word, because it paints them as failures.

 

The shortages could be a big problem. I saw on the news months ago two couples in a dollar store got into a fist fight over the remaining few cans of Spam. I recall the empty shelves at Walmart. No can goods like soup and on one visit no Raman Noodles. I plugged up my toilet after wiping my ass with paper towels as there wasn’t any toilet paper. When I finally got toilet paper I paid $9.95 for, four rolls. I also paid inflated prices for bleach, Lysol spray, N95 masks and even Campbell’s soup to name a few.

 

Gas is now over three bucks here in Phoenix. I read on the net 4.99 in Beverly Hills. During the Carter era and gas shortages. I was an outside salesman calling on gas stations. I saw several fights in gas lines. One I saw up close after a guy got his 10 gallon limit. He drained the hose after the pump shut off and the guy behind punched him knowing he’d have to pay to refill the hose. Many of the fights over somebody holding up the line going inside the station arguing for the special need of more than the limit or trying to fool the attendant they were next in line. The warehouse I worked more than doubled the cost of locking gas caps and sold out in a few days. 
 

Theres no doubt about the upcoming inflation with the way the feds are spending. Hopefully it won’t be as bad as the Carter era but I fear it might be worse. If the 15 bucks per hour minimum wage, student loans paid off and the govt checks keep coming no telling how bad it might be. 

[FC]

Yup, everybody emptied the hose back then. Those were awful years. I try to impress this on my girls, but their eyes glaze over. I don't want to prep for family members that won't wake up.

[Dr.Hess]

Let's look at Mild Recession next.

Drivers:

Inflation: Could go either lower to 3% or higher to 10% (real) or more, no hyperinflation (100%'s or 1000%'s)
Stagflation:  Probably mild.
Interest Rates (paid to depositors, bonds):  Flatline to 0.0.  Unlikely to see negative rates in US
Foreign entanglements:  May increase with a small war
Foreign pressures:  Loss of reserve currency standard:  unlikely
        China unleashing another virus:  unlikely
        Syria:  small ramp up.  No Vietnam style, just drones and special forces.
        Israel:  tries to keep quiet

Oil prices:  down
Energy independence:  up
"green energy":  flat
Govt mandated climate rules:  new rules unlikely
Succession:  no
Employment:  down slighly
Shortage of Necessities:  Unlikely
Civil disturbances:  Only to drive Democrat voting if it looks like they're going to lose again.

 

Assets:

Cash: Down slightly    
Gold/Silver: Flat    
    Funds with physical:Flat    
    physical    : Flat     

stocks            
    Major Indexes:    Down more than slight.  Maybe 30%?    
    Sectors:        
        Energy:    down
        Foreign: Mostly down
Real Estate
    REITs:    Down to down a lot with bankruptcies    
Blockchain            
    Bitcoin:    Flat to up slightly    
    Ethereum/other: if a foreign government such as Russia adopts it, then up.

 

So, I think for a mild recession, you best "bet," for lack of a better word, is to allocate assets to cash, AU/AG, particularly AU, maybe some in bitcoin through GBTC.  I should probably include Bonds in the Assets class.  Bonds in a mild recession will inversely track the interest rates.  If rates are kept to 0, then bonds will retain their value.  If rates go up, and BTW, a broker at one of the BIG brokerages told me that internally they were being told that interest rates are going to rise this year, then bond values will decrease.  Short term bonds should be OK, as they expire and pay you full principal.  TIPS may be a good choice if inflation is ever acknowledged.

 

Speaking of inflation, I am seeing it creep into our society all over.  Middle value cars (not million dollar ones, just 20-30K ones that regular 'collectors' can afford) are way up.  Low value cars are way up.  I poked around Craigslist the other day and there wasn't a single Toyota under $2K, regardless of condition.  There used to be a page full of them.  Old milsurp rifles are up maybe 30% or more over just 2 years ago.  Price a K98k, ZOMG $1K?  I'm not talking black rifles or handguns that are being scooped up all over, I'm talking old stuff with barely a use for deer hunting, like a hundred year old Spanish Mauser that may or may not make keyholes.  Food prices are up.  Now, thanks to the democrats, gas prices are up.  That will put a hold on the whole economy right there. 

[FC]

For the short term this might be the scenario, but the government and the Federal Reserve Bank can't keep this up. I'm not sure what this means, but I saw a video where an old stock market guy said the government will not roll over bonds to new bonds, but instead give cash (worthless paper, really). I don't know if that's true.  This lady is really good: https://youtu.be/mAM0D_Lc-6Y

I'm not as convinced as she is that silver and gold will still be the basis of money when FedCoin comes into play, but who knows? I'm got money into metals now, so we'll see. The future is looking bleak though.

[Dr.Hess]

The thing about metals is that historically, they are always worth the same thing.  You don't get rich on metals.  You do preserve your wealth.  A really nice suite today costs about the same as one ounce of gold.  Two thousand years ago, a really nice toga cost about the same as one ounce of gold. I may have mentioned it before, but gasoline today priced in silver is about the same as it was in the 1960's.

 

The Fed has been rolling and bullshitting so much and so long, they will keep doing it forever.  Meanwhile, a loaf of bread was 5 cents in 1900 and 3 dollars today.  And nobody noticed.  PM's (precious metals) should certainly be part of the mix for asset preservation.  But what percentage of total assets?  Depends on what scenario happens.

 

Also note that there may be taxes involved in purchasing PM's.  APMEX, I think the largest dealer in the US, now charges state sales tax.  10% for Arkansas residents.  On U.S. money!  That's crazy.  A U.S. gold eagle one ounce piece is U.S. money.

[FC]

Over $1500 should be no tax, well, at least no Federal tax. I don't notice being dinged. I thought about what you said also. It's a hedge against inflation, and may not be a profit-making mechanism. However, if we knew the future, we'd be rich. Wife is in the market, but since I'm 60, I pulled out of the market. We can't maintain these levels indefinitely. 

I have seen data that shows gold and silver undervalued, but the big boys play the markets and keep prices down. 

[Dr.Hess]

Who are you buying PM's from?

[AzRednek]

On 3/12/2021 at 11:27 AM, Dr.Hess said:

Who are you buying PM's from?

www.Swissamerica.com.  
It’s been close to 20 years since I dealt with them. I’d give them an A+ for their honesty. 

[FC]

JM Bullion, SD Bullion (has veteran benefits), APMEX, and Provident. I initially bought from Money Metals, but they fudged their BBB rating.

[karlunity]

Worth thinking about. But what if Mr Biden does an FDR and bans gold or makes you sell at a Gov set price???

karl

[Dr.Hess]

That's going to be very unlikely this time for several reasons.  Last time, gold was money and money was gold, all over the world.  Today, gold has value, always did, always will, but "money" is electron charges on a hard drive.  There would be no need to take gold to acquire more "money" for the government.

 

I also don't suggest putting everything you own in PM's.  Diversify. 

[karlunity]

Good point sir.  But if gold can be used as "Value" it will be seen as money some pol will want to "Protect us" by controlling it..for the children of course.

karl

[FC]

They could try to confiscate it, but I’m less and less inclined to obey government without Constitutional basis in their rules. I heard one guy say his great-grandma turned in her gold because FDR said it was because the country’s economy needed it.
 

The only things I can think of diversifying into are land, skills, and tools.

Monument Metals seems to have better prices.