Plan to Survive 2009

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Editor’s Note: In today’s essay space, we bring you comments from fellow Daily Reckoning readers on how they will survive and prosper 2009. Inflation, deflation, depression, recession, there is a plan for all seasons!


Dear Dan,

I shall buy Gold, Silver and some resource stocks NCM, WPL, BHP. That’s about it. The balance will stay in Cash this year 2009.

Cheers

Tom P.
Western Australia


Dear DR,

My plan is not to try to predict anything, or believe predictions (Inflation? China going gangbusters again? New commodity boom?). I will just use what I have learned about technical analysis to:

  1. Find the newly trending stocks/markets. I will use Diggers and Drillers to help identify commodity stocks with a bit of fundamental flavour.
  2. Stay in them until my signal says sell
  3. If the All Ords gives a sell signal with my favourite squiggly line I will look for new shorts

So I will trade like a robot – the only way to survive financially and emotionally!

Cheers,

David

Dan,

You asked, “It’s an important question-probably the most important you can ask these days. So we’re going to collect and write up our thoughts over the weekend. Stay tuned! And if you want to send us your plan, don’t be shy.”

Here’s my plan:

  1. Continue to pray
  2. Continue to live below my means
  3. Continue to purchase precious metals
  4. Continue to build a “storm kit” We get pretty significant storms in Texas at times, so the kit is useful for the aftermath of nature’s storms and man-made economic storms. My kit includes foodstuffs, a water purifier, gun/ammo (hey, this is Texas!), diesel fuel (for my diesel car, which I think that diesel will store a lot better than gasoline), mutually supportive friends and a plan to pull it all together. I’m checking into generators, but don’t have one yet.

Thanks for the DR website. I really enjoy the contrarian analyses and the personality / humour the authors put in their contributions.

JL in Texas

Dear Dan,

To your question what should we do?

  1. Take notice of the Daily Reckoning analysis (with co-benefit of getting sorely needed laughs from the writers’ predilection’ for understatement of the obvious).
  2. Watch the original Mad Max movie and take some notes on survival techniques for ‘a future world that is coming to suburbs near you’
  3. Bemoan the fact that I am not living in a remote fully sustainable community of caring organic farmers with some ex SAS troopers and all the requisite equipment and supplies to sustain a long drawn-out cataclysm
  4. Invest in arms manufacture, security technology companies and the pharmas manufacturing headache and analgesic medicines
  5. Learn to speak Chinese


Hey Dan,

With the money supply going crazy surely mega inflation is inevitable in certain asset classes like energy (as China recovers) GOLD insurance and food. Probably as a more or less global phenomenon. Maybe everything except wages. I don’t think housing will suffer a serious price decline as the domestic economy is not badly affected long term as far as I can see.

I wouldn’t mind going into debt to buy local energy stocks. That’s about my plan. Wait for oil to double in price and then re-evaluate. The Aussie dollar has been pretty weak and over a year or two I don’t think it’s likely to recover substantially in that time frame. Oil should. Possibly. SWFs and hedge funds have to pile into something.

Maybe with the profits I will buy gold coins (or mining companies) and guns, and bars for my windows. And for my vege garden. Not sure when gold’s gonna do that 5th leg of the Elliott wave some of us are expecting. I prefer shorter time frames with all this volatility. What a ride. Whee!

I have been reading the DR for about two years and look forward to reading it. I really enjoy your, Bill and the rest of the crew’s reckonings, keep up the great work.

Cheers

Bas H.
Brisbane, QLD

Dear DR,

I always read your column with interest as a balance to the optimists who seem to infest the newspapers.

My strategic rearrangement of investments began in late 2006 when this GFC was first mooted in the UK press and overseas investments were repatriated and spread around the Australian banks as a risk management strategy. I was still buying shares but cautiously & only in 1% of cash resources at a time.

I then sold of some of my shares late 2007 but took my eye off the share market despite advice from others to liquidate my position. Since then I have been looking for shares in which to park my cash but only recently found a few prospects that might be worthwhile.

I was in North Germany in my UK based motor home late October 08 and needing a spare part. I noticed from the highway a large motor home sales yard bursting with new motor homes and visited.

Whilst there I was fortunate to have an interesting conversation with the owner when I commented that he had a full yard well past the end of the summer sales period & at a time when financial predictions were already quite negative.

His response was insightful. He advised that there was a collective German memory of the Weimar republic of the 1920’s/1930’s and the aftermath of WW2.

His customers saw a motor home as something of real value on which to spend their saved Euros “before they became worthless” and which was a portable house which they could move to somewhere in the Mediterranean sun if life became really desperate!!!!

His sales were excellent.

There is clearly going to be hyper inflation in the cost of living in Australia which means that the real purchasing power of my cash at bank is diminishing rapidly.

As well, interest on cash at bank is derisory and is taxed at one’s marginal rate so the question is what to do with it “before it becomes worthless”.

In Australia every federal, state & local authority/city council is making a grab for income straight out of my pocket where they know I have no option except to pay up such as council rates, fees for government services, vehicle registration etc.

As well our collective or national wealth is being squandered on “feel good” and poorly conceived projects which will no doubt be executed with equal inefficiency. The National Broadband Network is such a plan that is not “Nation Building”. It’s “Nation Wealth Destroying”.

It’s worth recollecting the “Think Big” projects of the 1970’s and 1980’s in NZ which has left a legacy of national impoverishment that has lasted to today.

I agree with your sentiments that house prices are over-valued. This when taken with the unfavourable circumstances that landlords find themselves in when dealing with feral tenants due to an iniquitous “Residential Tenancy Act” makes rental properties an undesirable way of safeguarding wealth.

We have much to learn from the reformed Communists /Socialists who govern China and who have clearly understood their current strategic/financial advantages plus long term needs and are withdrawing their US$1.7 trillion of USA treasuries and converting it into a vice lock on all the mineral resources required for the long term prosperity of their economy when these resources are priced at desperation levels.

Clever chaps who are way smarter than those in UK & USA!!!

I am still at a quandary as what to do with my cash as fortunately I have few $ assets in Superannuation, no debts and I am a hands on person who can fix most broken things and maintain the prime items like cars and homes that I own so I am able to minimise my outgoings.

I don’t see many safe investments and I can see the real value of cash being rapidly diminished by inflation.

Regards,

Ken

The Daily Reckoning
The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.
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Comments

  1. Plan to Survive 2009

    Item 1. REALISM

    For the doom and gloomers – to which I lean – this means that we are NOT going back to the middle ages, to become serfs, barons and victims of the black death. We could possibly return to the 1960’s but you know that wasn’t such a bad time to live in.

    For the eternal optimist this means understanding that the world, particularly the money world, has changed forever. This is NOT a blip which we will pass and let the good times roll again. There will be a new paradigm out there and money is going to have to be earned by work, innovation and a full understanding of what you are doing.

    Item 2. THINK FOR YOURSELF

    Question everything and above all never, ever automatically believe what any one tells you.

    Every politician, salesman, moneylender, investment adviser, journalist et al has a vested interest and that interest inevitably takes priority in any relationship they have with you as an individual.

    Do not misunderstand me, seek advice from the best (I am not canceling my subscription to the DR) but check, test and think always.

    ITEM 3. BE CLEAR ON YOUR MOTIVES

    There is seldom a simple answer to any question.

    “is this a good time to buy a house?”

    Well if your motive is to make a quick profit and become a property millionaire overnight then NO it is not and possibly may never be again in a lifetime.

    If you need a home for you and the family, are in a reasonably secure job are able to finance current and future costs and you intend to stay in the neighborhood for a long time it may very well be. But dont take my advice THINK it through.

    The same with attitudes to the stock markets and investment.

    ITEM 4. ACCEPTANCE

    We are not all going to be very rich any more than we are all going to be celebrities. But what the heck – is that what you really want. I will settle for a degree of comfort, friendship, reasonable security, a clear conscience and the CHANCE to achieve my dreams.

    A “tinny” may not be the same as a 50ft yacht but you can still get a tremendous amount of fun from it.

    ITEM 5. SPIRITUALITY

    It’s a cliche I know but there really is more to life than material possessions. Find your inner peace where you want and where you can. It can be simple or complex. Sunshine and sea, your family, books, gardening, friends, even – if you are that way inclined – in religion, philosophy or science.

    Reply
  2. Currently holding gold which I have been selling for years. Also play energy and mining shares but sitting in cash position now as its probable to see further assett deflation hence far better time to enter market later……but watching closely.

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  3. number 1 – sell junk – clean your place of residence up from junk accumulated over many years – sell on eBay not for the money but your spirit – eat less, drink better wine, buy home brew beer espcially coopers – get off the grid if you are so inclined – go solar but build your own as 20% of the cost – waste less in everything you do

    number 2 – reduce exposure to equites or maintain as percentage assets until 2012-15 when the cycle will change [or when PE ratio get to 5-7] for a several decade rally – increase exposure to silver, rare art

    number 3 – learn to trade on margin – but as an income supplement – not professional as most people will lose their money – get a trading/ traders mentality over the next 3-4 years in assets – the bastion of information arbitrage is in art/ wine/ rare coins/ stamps

    number 4 – start to develop a framework for secondary income apart from your main primary income – trading is one option, but think in terms of an alternative sustainable income that can be built up but removes your risk with your current career

    number 5 – increase exposure to Asia either in hard or soft commodities – subscribe to alternative investment newsletters – learn what mean reversion means – if you expect to eanr more than 8% per annum over the long run you have risky expectations, hence the traders mentality

    richard goers
    April 24, 2009
    Reply
  4. We should now add Swine Flu Paranoia to 2009’s toxic economic mix.

    While early signs indicate that this strain loses some of its potency as it mixes and evolves in human hosts, I expect an economic impact that is at least as bad as what SARs did to us a few years ago. Not good news for the travel industry, restaurants, shopping malls and higher education providers.

    For those who are interested, the following link provides informed reading.

    http://www.cidrap.umn.edu/cidrap/content/influenza/panflu/biofacts/panflu.html

    Coffee Addict
    April 27, 2009
    Reply
  5. C.A…actually you could argue that the threat to humanity via something like a major flu is a lot greater than global warming. Even in a worst case scenario you can in theory move/adjust if climate change starts to cause you problems but a nasty virus will get into just about every part of the globe. Certainly this flu is right out of left field as they say and it should just remind all of us that forecasts are at best, guesstimates and can be invalid as soon as you finish writing one up.I hope the experts quickly get a handle on this situation but you are right I reckon, this bug has the potential to cause havoc in certain sectors.

    Reply
  6. Hi Greg. I told you a mistruth a few months ago – I do indeed have $600 from Kevin. It’s on its way to my tax agent! Where will I spend it all??

    After being on holidays for some time, I would be happy to discuss with anybody the status of some gold juniors including CTO. The CTO share price is langishing and I don’t know why. Before I bought them I knew they had significanly overcapitalised on infrastructure (in proportion to their size) BUT with no debt, a presumably positive cash flow outlook, a solid gold price and a production ramp-up I’m wondering what the problem is.

    Coffee Addict
    April 27, 2009
    Reply
  7. CA: I’m with you on CTO. I have some myself. However it is not just CTO that is languishing, you need to look at other juniors aswell.

    I had a look at most of the Australian gold related miners and the trend is fairly flat…for now.

    I think we need to look further ahead than this month or next.

    You seem to have the right idea so far as favourable company conditions are concerned:
    – very low or no debt
    – large amount of cash/available capital
    – good prospects on exploration becoming production
    – good management

    Although those things are pretty standard for any company wishlist.

    Another thing to consider is ‘proximity to larger miner’ and ‘proximity to ore processing facilities’. For example, I bought DIO before their takeover announcement by AVO. One reason for the takeover is the fact that they are neighbours. Another miner I am considering has processing facilities available nearby.

    Personally I wouldn’t stress about CTO just yet. ALK is still doing very well. CGT is on my ‘to sell’ list, because the low volume of transactions and low total shareholders concerns me. This can be a real problem if you need to sell shares quickly at a reasonable price.

    One non-smallcap that I am interested in though is CXC. It might do okay. I meant to buy some today but got caught up in other things. So naturally it went up 18% :)

    The smallcaps game is a tricky one. Even ‘winners’ can still lose out. I know of a few companies that have de-listed from the ASX temporarily because they feel their shareprice was far lower than what they believe the value of their company to be. A sign of the times.

    Overall the problem with CTO may be any of a number of things…but it could be as simple as a lack of focus. Maybe if it has some ‘big news’ that would put it back on the radar.

    Reply
  8. Hi Pete. Perhaps I should spend my $600 on AVO as they satisfy my investment critera. To go any further with them I would do an NPV analysis ( perhaps assuming a $550/oz production cost as well as the $450/oz quoted by the company.)

    CXC rides on the back of the world silver price. I would consider buying them if a further market shake out leaves them underpriced.

    Back to CGT the half dozen or so major shareholders (who control 70% or so of the stock) come over to me as both a strength and a weakness. By observation, they and the directors seem to be buying a slow trickle of stock at a low price. The other good news is that the major shareholders are in a position to align company interests with shareholder interests. The bad news is that they are not transparent and are not, at the moment, clearly interested in coughing up the dosh needed to keep up the exploration . As an alternative to hand sitting my view is that CGT company should either delist or merge. With a good underlying resource they remain a Hold for the very long term investors only.

    Coffee Addict
    April 28, 2009
    Reply
  9. Re gold price, always good to check what price their forward contract are at and what their current long term commitments are to that price. I am no expert but I have seen one miner assume a major liability in the $600 range and no doubt that will take some time to clear to look better on paper.

    Reply

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