by Amy S.
There are long term trends developing. The problem is not a trading war or China. What worries me is that the FED also seems to be surprised by weakness – although our indicators showed that already in early 2018.
Frightened sellers commonly cause a crash. An unexpected economic event, catastrophe, or crisis triggers the panic. For example, the market crash of 2008 began on September 29, 2008.
Crashes generally occur at the end of an extended bull market. That’s when irrational exuberance or greed has driven stock prices to unsustainable levels. At that point, the prices are above the real worth of the companies as measured by earnings. The price to earnings ratio is higher than historical averages.
A new technical development called quantitative trading has caused recent crashes. “Quant analysts” used mathematical algorithms in computer programs to trade stocks. Sophisticated investment and hedge funds with thousands of computers were programmed to sell when certain events occurred. Program trading has grown to the point where it’s replaced individual investors, greed, and panic as causes of crashes.
Crashes can lead to a bear market. That’s when the market falls another 10 percent, for a total decline of 20 percent or more. It typically lasts 18 months. Bear markets usually occur with a recession.
A stock market crash can cause a recession. How? Stocks are how corporations get cash to grow their businesses. If stock prices fall dramatically, corporations have less ability to grow. Firms that don’t produce will eventually lay off workers to stay solvent. As workers are laid off, they spend less. A drop in demand means less revenue. That means more layoffs. As the decline continues, the economy contracts, creating a recession. In the past, stock market crashes preceded the Great Depression, the 2001 recession, and the Great Recession of 2008.
What Not to Do in a Crash
During a crash, don’t give in to the temptation to sell. It’s like trying to catch a falling knife. A stock market crash will make the individual investor sell at rock-bottom prices. That’s precisely the wrong thing to do. Why? The stock market usually makes up the losses in three months or so. When the market turns up, they are afraid to buy again. As a result, they lock in their losses. Most crashes are over in a day or two. In most cases, sit tight. If you sell during the crash, you will probably not buy in time to make up your losses.
Your best bet is to sell before the crash. How can you tell when the market is about to crash? There’s a feeling of “I’ve got to get in now, or I’ll miss the profits,” which leads to panicked buying. But most investors wind up buying right at the market peak. Emotion, not financials drive them.
If the economy does enter a recession, continued rebalancing means you will buy stocks when the prices are down. When they go up again, as they always do, you will profit from the upswing in stock prices. Rebalancing a diversified portfolio is the best way to protect yourself from a crash. Even the most sophisticated investor finds it difficult to recognize a stock market crash until it is too late.
The reality is that no one really know what will happen until it happens.
My personal opinion is that we are in the beginning stages of a collapse, and have been on the brink a few times in recent history. My main concern is that the more the powers that be continue to put a band aid on a bullet wound, the worse it’s going to be when that wound bursts open.
An economic collapse could be a complete breakdown of society, or it could be like the great depression, although because we are a more dependent society these days it is likely to be much worse.
Recessions in the United States occur on a regular basis. In fact, stock market crashes have occurred once or twice each decade since WWII. There are important lessons to learn before we pass through another unavoidable recession or stock market decline. These lessons helped me and my business survive a tough time, and internalizing these lessons will help each of us be more prepared for inevitable future crises that will occur.
Preparation is key. The best time to react to any potential market crash is before it occurs. Not after. Reacting in the moment can lead to expensive and costly mistakes. For example, if you saw that socks were on sale, you’d be more interested in buying socks. However, when it comes to stocks, people take a different view. When stocks are on sale, as can occur in a market crash, then often investors’ instincts are to run away. Thinking about your strategy ahead of time and writing it down, just in a couple of paragraphs, can be key. Then if the markets do crash, make sure to look at that document before you act.
In a sense, it’s understandable why panic occurs. In fact, one key ingredient for crashes is often panicked investors. First off, there is typically something big and scary associated with a crash. Yet, it’s often temporary. It’s important to remember that the markets have endured world wars, nuclear weapons, disease epidemics, inflation spikes, mass unemployment and presidential assassinations and in each case global markets have generally come back to make new highs.
Preparing for Economic Collapse
VIA : by FerFAL
How can I prepare for an economic collapse? is one of the most common questions I get. It usually takes me a second to start to explain how complex such a question is. It’s like asking an auto mechanic, Say, how do you build a car? or asking a computer engineer, What’s all that stuff inside my laptop?
I do have some first-hand experience in this matter, though. The economy in my country, Argentina, has gone through various crises, but none as large as when the economy collapsed in 2001 after a decade of apparent prosperity. The currency devaluated, and Argentina defaulted on its USD$132 billion debt, the largest default ever. The middle class took to the streets after bank accounts were frozen, and the president was forced to resign, escaping the presidential building in a helicopter.
What I’ll do is provide five quick foundational steps, based on what I know, for you to follow so as to be better prepared if something like what happened in my country ever happens in yours.
Steps for Greater Resiliency
Step #1: Secure a percentage of your savings in bullion.
Five years ago, even the most paranoid person claimed that you would never see “nationalized” banks in the USA. The gung-ho survivalists claimed the entire country would go up in flames and open revolts would start before something as insane as a $700+ billion bailout to save the “too big to fail” rich elite was laid on the backs of the American working class. Yet here we are.
When I try to explain this very important issue to my American friends, they tell me that banks would never steal people’s money because there are laws against that in the USA; their money is insured. We had those same laws in Argentina, but still it happened. We had a constitutional right to private property. Yet the constitution mattered little during the collapse. Go right ahead – sue the government of the United States if something like that ever happens. Maybe you’ll get some of your savings back in a few years. If they feel like returning it.
What people don’t understand is that laws are written by men, not some greater power. As soon as those running the show feel an emergency decree or law is in order, existing laws are simply rewritten. They may even be ignored altogether! What do you do if something like that happens? You may complain, you may sue, but you’re not changing the cold hard fact that as of right now, that bank door is closed, that ATM has no money in it, and you still have to survive. This is something Argentines have experienced and know very well. Hundreds of thousands of us have banged the doors of our banks for years without a penny being returned. You still sued, and waited, and spent the little money you had by hiring a lawyer. You lose, they win…unless you have some of that money at hand before they decide to steal it.
Every single Argentine wishes he could go back in time, close his bank account, and put that money into gold. We would all do that if we had a time machine. Since you can’t guess the future, all you can do is estimate what can happen and play the odds in your favor. In the event of a full economic collapse, if you have 20% of your savings in physical gold and silver, that’s a percentage of your savings that is spared. It’s not an investment; don’t go crazy over gold and silver going up or down a few dollars. Just be content that it’s not getting any lighter as it sits in your safe. If the economy collapses or even if there’s simply inflation (as there clearly will be), that percentage of your savings in precious metals is safe and will likely go up in price beyond its standard purchasing power as things get worse.
During the first stages of a severe economic crisis, you will see ATMs running out of money fast, and many stores won’t be accepting credit cards. As the saying goes, “Cash is king” during those times. Your precious metal can be sold to a dealer, but you better keep that stored for now. When everyone is running around looking for an ATM with a few bucks in it, having a month’s worth of expenses in cash means you won’t be one of them. Why not more than a month´s worth of expenses? Because if the economy fully collapses, that paper money will lose its value within hours. It may drop 50%, 60%, or 75%, as happened in Argentina. Who knows? All you know is that as the currency loses value, the value of the precious metals you have stored goes up in proportion. Still, during those first days, a wad of cash gets you what you need.
So, Step #1 is acquiring precious metals (I generally recommend 20% of your savings but each person is a separate case) and a month’s worth of expenses in cash, kept safe at home.
Step #2: Stock up on food.
The more you have, the better. There may be periods of civil unrest like the ones we saw where stores are being looted and closed after that. There may be problems with resupply because of logistical complications. It’s better if you already have 6 to 12 months worth of food in your expanded pantry. Also, keep in mind that the food you buy now will be considerably cheaper compared to post-inflation prices.
This large supply of food will bring peace of mind in case of job loss, as well. Who knows how long it will be before you find another source of income? After the 2001 collapse, some people genuinely spent YEARS looking for a job without finding any. I can’t emphasize enough the peace of mind it brings knowing you still have some time, and that you can, in fact, put food on the table the following night.
The food should be long-term storage type, requiring little or no cooking, at least for some of it. Water is also essential, so having a two-week supply is advised. The minimum amount is a gallon per person per day, and you should double that for flushing toilets and taking an elemental bath in case the water service is interrupted.
Step #3: Acquire the essentials by putting together a survival/emergency kit.
This will include your typical camping gear: a tent, sleeping bags, a stove (have enough fuel for it in case services are disrupted), first aid kit, medicines, LED flashlights, and several spare batteries. Depending on how bad civil unrest gets, there may be problems with the infrastructure. After the economy collapsed in Argentina, the power company simply couldn’t afford the repairs needed, and it hadn’t planned for something like this. Rolling blackouts became common, and having LED lights and rechargeable batteries was a blessing. You could easily spend two or three days without power during the summer. At one time, downtown Buenos Aires was left without power for five days. Imagine the complications this brings. If natural gas service is interrupted, you may need other ways of cooking. A camping stove and enough fuel will get you through it. Military Battery Reconditioning
Step #4: Improve your personal and home security.
If you ask any Argentinean what concerns him the most, 9 out of 10 people will have the same answer: security. In second place is the economic situation. Ten years after the economic collapse, things are nothing like they used to be. Half of the middle class became poor and its standard of living has decreased considerably. We’re still a high-risk economy, and it shows. Inflation is still rampant and can be anywhere from 5% to 10% per month, usually hitting the middle class the worst. But that’s something we’ve grown used to. That’s something we can live with.
What concerns Argentineans the most is the crime problem, and the out-of-control violent crime we suffer is the major legacy of the 2001 economic collapse. Poverty sure didn’t help, nor did social segregation. But the greatest cause responsible for the crime levels we suffer is our own government. The liberal government that took control after the collapse considers criminals to be poor victims of brutal capitalism. The unofficial stance is that criminals have a right to steal, murder and rape – in their view, it’s how the “poor” get back at the rich and middle class who thrived during the 1990s. Of course, with a government like that, the crime problem just keeps getting worse. Defense Strategy and Capabilities .Conflicts and alliances around the globe are shifting constantly, enhancing the need for reliable and timely research and analysis. CSIS analyzes a wide range of issues related to defense strategy and capabilities.
During the first days after the economy collapsed, civil unrest, rioting, and looting were out of control. A state of siege and military law was declared, enforcing curfew hours after 10 pm. This lasted a few months, and for months after that, while order was recovered in the capitol district, there were still occasional revolts and looting. The sense of lawlessness extended way beyond the visible accounts depicted by the TV and general media. It’s during times like these that you realize you must have means of defending yourself and your family.
My advice is to make your home as secure as possible against criminals that may take advantage of the lack of control during the worst of the rioting. After that, a better security plan for the entire family must be worked out. As things get worse, you understand that you can no longer afford to be lax about your personal and home security. Those that are quickly become vicitims. With a more secure home, you may want to consider having a weapon to defend yourself. Certainly not an easy decision, and one you must be extremely serious about. If you have the self-control and maturity to handle one, having a firearm and getting the minimum training to know how to use (it if it ever comes to that) is something you should consider doing.
Crime and insecurity will be one of the greatest threats people all across the USA will suffer, and very few will be ready for it. It won’t happen one dark gloomy night after watching the latest horror movie. It will happen in the Walmart parking lot at 3 pm, with plenty of people around (people who will hurry out of the way, pretending not to see anything). You’ll be thinking about what you just bought, that you maybe should have bought Lucky Charms instead of Corn Flakes. That’s when the nice-looking person with two other buddies, all well-dressed (with neat haircuts, too), will pull a gun on you. Developing a sense of awareness will be the most important part, as well as making the rest of your family comprehend that times have changed and you can no longer be careless regarding security.
Step #5: Embrace a different mindset.
When Argentina went through its economic collapse, people handled it differently. Maybe the most common response was denial. The “I can’t believe this is happening “ attitude was pretty popular. Others complained, but you soon understood that it changed nothing: It only made you feel more miserable, more stressed, and that was something you could do without. Others just ended their misery. Suicide rates doubled after the collapse, with people sometimes jumping under the train at early rush hour in a desperate attempt to make their misery noticed by others.
What you need to do is become more positive, more active. Be someone who, while accepting those things you can’t change, does something about the things you can. Get involved now. Do what I just recommended right now; it will bring you peace of mind. Remember to stay positive and put every problem into perspective. Complain less. You’ll have enough to complain about when inflation gets worse. Soon you’ll understand that material things can be replaced, and you become more grateful for what you have instead of worrying about what you don’t.
It’s essential to keep a positive attitude. Being someone who gets easily depressed will be the end of you as the economy worsens. Problems much worse that what you are used to will be a daily occurrence. You’ll just have to roll with it and learn to cope with the new world you live in. Reinforce your relationships with people. Fight stress by finding a hobby you enjoy, hopefully one that has a practical side as well. After the collapse, lots of people started their own businesses when they realized there were no jobs to be found. It would be better if you get started now, just in case you ever need it in order to earn a living.
These are my recommendations. I know many people could have used such advice back when our economy collapsed.
Some common questions regarding hyperinflation
How quickly does it happen?
These events occur fast, but there are warning signs: lack of investment, higher interest rates, unemployment. When banks start coming up with excuses so as to not give you your money right away when closing an account, that’s usually not a good sign.
As for inflation and hyperinflation, they happen right in front of your eyes. It actually happened to me that the price of an item I picked in a store almost doubled in price by the time I reached the cash register. The employee just placed the sticker with the new price over the old one (no time to remove them) Employees rushed around changing prices several times a day, all day long, during the ongoing crisis. It was fun to peel back the stack of stickers with the different prices and see how they had gone up in a matter of hours. Rioting happens fast, too. Once the banks close, rioting is just minutes away.
How to Prepare For An Unthinkable Crisis!There is still time for you to prepare, but you have to start learning how to make your own survival foods as soon as humanly possible. The best way to do it is to get the inside scoop on how to do it right. Fortunately, there is a way to get twenty years worth of The Lost Ways. This new food storage system is called The Lost Ways. You do not need a lot of expensive equipment to store foods for a crisis using the methods taught here. Even better, The Lost Ways pays for itself quickly as you begin to put away garden produce or even meats that you buy on sale. For most folks it’s simply the biggest bargain of their lives. You can finally become self-sufficient and any extra money saved in food expense goes right back to your pocket. Frankly, at the end of the day, The Lost Ways actually makes you money! What’s more, the videos take you by the hand, step by step, through the entire process of “putting away” almost any food you can think of. It’s very much like having a food storage professional right there with you every step of the way.
What happens to your savings/investments?
I didn’t have much but managed to close my account just a day before the banks closed their doors. My parents are accountants and saw the signs mentioned earlier. When we went to the bank, a nice lady told us they didn’t have USD$1,000 in the bank. Our jaws just dropped. That same day we went to the main branch and closed the account my sister and I had. The next day all banks closed and the accounts were frozen.
As for real estate, that was a pretty safe investment. Eventually rents went up to compensate for the devaluation. Of course, you were much better off with your money in bricks and mortar than in a bank account.
How does the populace react?
Violently, as you’d expect when your life savings are stolen from you.
What is the government saying/doing?
Laws were changed to make everything nice and legal. The excuses then-president Fernando De La Rua came up with in his speeches during the crisis just made everything worse.
Just days before the bank holidays, they promised none of that would happen. Same thing before the devaluation. They swore on their mothers’ names that they wouldn’t do such a thing – then did it the following day. Politicians tend to do such things, and they are all similar worldwide.
What happens to the capital markets?
The stock market dropped like a rock, then shut down. What surprised us the most was how everything was simply frozen in expectation. No one wanted to spend a single cent, not even to buy half gallon of paint for a work site, because you just didn’t know what would happen in a matter of hours, let alone next week. The biggest investors had sold and left the country months before everything went down. Another sign to look for.
Does violence and crime become an immediate concern?
Yes, it does. While stores were the more common targets, houses were looted, too. The best thing to do was stay home, have a defendable position, and be armed. I had looters not 20 yards away from my home. What do you do if they rush your home? Can you just open fire on them? What will they do when/if you do? All these things flash into your mind.
A significant amount of people behave themselves because they believe there’s a punishment if they do otherwise. Once that fear is removed, because the authorities have clearly lost control, you see the worst of people’s nature. It’s not a pleasant thought, but it’s better to be ready.