Protect Your Assets During the Spending Crisis

Protect assets during the spending crisis; fortunes will be made at the bottom.
Protect Your Assets During the Spending Crisis
By: George Noga – October 21, 2018

         This is the second and final post about protection during the coming spending crisis. Last week’s post, available on our website www.mllg.us, focused on timing issues and on protection for your family. This post is about protecting your assets.

         Protecting assets during the crisis is hugely complex as it is difficult to know what peril to protect against and when. We must consider (1) deflation and depression; (2) economic collapse; (3) inflation and hyperinflation; and (4) repudiation, restructure and repression. Moreover, we must consider these perils singly, successively and in combination. We will address each scenario and suggest essential protective actions. Finally, we will reveal how you can profit from the greatest crisis of our time.

Deflation and Depression

           Deflation, followed by depression, is likely but may follow a period of inflation, as government initially floods America with newly printed money. Assets that provide the most protection from deflation and related perils are cash (treasury bills), US dollars, long bonds and quality dividend-paying stocks of companies that make products essential for survival. Avoid real estate, commodities and precious metals.

Economic Collapse

       A prolonged depression (or hyperinflation) could lead to economic collapse. Many banks will go under. For protection, you should have an account at an ultra safe US bank, of which there are only a few; research this on the internet. You also should have a foreign bank account; for simplicity, consider opening an account in a Canadian bank denominated in Canadian dollars. During the crisis, government will prohibit new foreign accounts and will impose exchange controls to prevent money leaving the US.

      Avoid debts and US government securities. Be dependent on government for as little as possible. Protection can be gained from precious metals and foreign currencies. Consider government or corporate bond funds in developed countries with low debt ratios such as New Zealand (22%), Chile (24%), Switzerland (44%), Nordic countries (40%), Germany (64%) and Canada, which has a high, but stable or declining, ratio.

Inflation and Hyperinflation

      Government’s first instinct will be to print money, at least temporarily while it gropes for solutions. Prolonged inflation is distinctly possible. Protect with TIPS (Treasury Inflation Protected Securities), commodities, real estate, precious metals and foreign assets. Avoid stocks, bonds, cash and US dollars. It is better to be a borrower than a lender. To combat hyperinflation, own blue chip foreign equities and assets in resource rich countries such as Australia, Brazil, Canada and New Zealand.

Repudiation, Restructure and Repression

      Although outright and total debt repudiation is unlikely, restructure and repression are very much in play. Government could: (1) reduce interest rates or even impose negative rates; (2) lengthen maturities; (3) accrue (rather than pay) interest; and (4) mandate conversion into some other (less desirable) security. As happened in Poland, government could confiscate a portion of all IRA, 401(k) and pension assets. As in Cyprus, there could be a forced “bail in” whereby government overnight confiscates a percentage of all bank accounts. Cash transactions can be banned. To counter this, avoid government debt directly and indirectly in money market accounts. Keep funds outside the US and denominated in other currencies to the extent possible.

Five Low Risk Actions to Consider Now

       To get started, following are five actions to take now. These are the most obvious, embody relatively low risk, work under the most crisis scenarios and deliver the most bang for the buck. Nor will they be unduly penal in the unlikely event you are wrong.

  1. Open a foreign bank account denominated in foreign currency. Switch most of your cash into uber-strong US banks – of which there are only a precious few.
  2. Hold 5% to 10% of your assets in precious metals. Keep small denomination gold and silver coins at home for use during a crisis.
  3. Invest a portion of your assets in TIPS.
  4. Own bond funds focusing on highly rated bonds in places with low debt ratios.
  5. Retain some portion in a quality stock portfolio, invested mainly in dividend paying stocks of companies producing essential products.

How to Profit from the Spending Crisis

You can profit by leveraging safe assets, shorting government bonds and through options, derivatives or hedge funds geared to benefit from the crisis. However, merely protecting and preserving your assets will result in considerable profit. If you preserve your assets intact while everyone around you loses most of theirs, you are a big winner.

The bottom of the spending crisis will represent the best buying opportunity of a lifetime. Many fortunes will be made acquiring valuable assets at or near the bottom. This is harder than it appears. Everything seems darkest at the bottom and precious few investors will be able to summon the courage to act at that time. Will you?


Next we present ultra short topics including socialism and the Supreme Court.