The Unrepentant Individual

...just hanging around until Dec 21, 2012

March 7, 2007

Investment Thoughts…

I wrote a piece over at The Liberty Papers about the potential destruction/decline of the American economic empire.

Basically I look at it this way: The housing meltdown, coupled with a recession and the bursting of an enormous mortgage-backed securities and derivatives markets, will make our economy take a serious hit. That, coupled with the inability to cut taxes further, a government in major deficit, and a tight credit market, and the situation will be nearly impossible to get out of for a while. Further, our government will attempt to provide liquidity by printing dollars, inflating away the housing crunch, and inflating away a lot of actual wealth at the same time.

Further, with the news that Venezuela is looking to divest the dollar as a reserve currency (worried about inflation), and the implicit assumption that a quickly-inflating dollar will cause more countries to do the same, and America could hit a level of hyperinflation worse than we’ve ever known here.

Bad, bad stuff.

So I’m wondering how to protect myself against it, and potentially reap some profit off the situation. Right now, the wife and I have a decent modest sum (at least considering our age) in 401k and Roth IRA, currently in vanilla mutual funds (decent risk for hers, S&P-based index funds for mine). I’m looking at the idea of rolling my 401k over into an IRA, where I have more ability to place it in investments I can control.

I think right now seems like a great time to jump out of the broader stock market and get into commodities (probably precious metals) and energy. After all, we’ve done fairly well in our generic stock market holdings over the past few years. But the market seems to be dropping out of a period of stable growth (as was evidenced in last Tuesday’s 400-point drop in the Dow), and that will destroy leveraged positions. Precious metals should do very well in an inflationary environment, and I think energy will carry some stability in an economic downturn, as energy usage is somewhat inelastic.

I was thinking about taking my wife’s holdings (about 33% of our total position) and splitting it between gold/silver directly and gold/silver mining stocks. I was then thinking of taking my holdings, and putting about half of it into the energy sector, and the other half in foreign holdings (if I can get them somewhere I think will avoid following America’s economic meltdown).

For those of you who understand investing a little better than I do, what do you think?

Posted By: Brad Warbiany @ 2:41 pm || Permalink || Comments (6) || Trackback URL || Categories: Economics, Personal Life, Ponderings


  1. That isn’t going to “destroy the American economic empire”. It might lead to a decade-long recession as in Japan, but to “destroy the American economic empire” would require a criminally poor education system, heavy restrictions on immigration…oh, shit.

    Comment by Phil Welch — March 7, 2007 @ 3:37 pm
  2. Phil,

    I’m not suggesting it will destroy the American economy, it will just end the situation where the US Dollar is the world’s reserve currency. It will mean that nobody wants to own our government debt. But if you want to argue the reasoning of the national and worldwide effects, I suggest heading over to the post at The Liberty Papers and do it there. I’m hoping to keep the discussion at this post to the personal finance levels, of how to respond to and profit from that collapse.

    Comment by Brad Warbiany — March 7, 2007 @ 4:02 pm
  3. Brad, My suggestion is to get out of debt…

    Comment by Lucy Stern — March 8, 2007 @ 8:48 am
  4. Brad – Can you roll your 401(k) into a Roth IRA without taking a tax hit? I was under the impression that you could not, but I could be completely wrong here. I, too, have recently transfered a significant portion of my 401(k) into more global mutual funds, so that I’m about half U.S. stocks and half foreign. But since I’m relatively young (35) and still working on building capital, I’m going to ride this slump out from here on. As you can probably tell, I’m no investment expert, but intuitively it seems that you’d be better off keeping your 401(k) – that is, if your’re still contributing to it – and doing some additional investing on the side. But that’s only my $.02 worth.

    Comment by rammage — March 9, 2007 @ 8:38 am
  5. Try it out on paper, first.

    Comment by VRB — March 9, 2007 @ 7:46 pm
  6. Brad,
    You are finally seeing the light. Ride Silver on the way up (dollar down) as it sees greater appreciation than gold in inflationary times (my PM’s are 70/30 Silver/Gold). And then switch to gold as a safehaven (store of wealth)prior to the hyperinflationary crash. Then go by real assets for pennies on the dollar. Mix PM’s with going concerns that make real products and pay dividends in countries with better fiscal policies than our own. Get dividend reinvestment, capital gains, and the curreny appreciation working for you. Euro Pacific Capital can help you. Commodities will do well for quite a while even when our country hits a re/decession. The rest of the world is trading in bicycles for motorcyles or small cars and getting used to indoor plumbing and other QOL items. These take commodities and infrastructure development. Don’t forget about the most precious commodity of all and the biggest investment theme for the next 20+ yrs. The only commodity that can not be substituted. WATER.

    Comment by Jeff — March 12, 2007 @ 9:57 pm

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