You’ve probably heard of the “Black Swan Event”, which is a term to explain how unforeseen events often destroy economic prosperity and cause market crashes. The term was coined by Taleb Nassim, some essayist and professor who published a book about it in 2004. He wasn’t even close to getting the timing right about the Financial Debt Crisis which finally came four full years after he called for it, finally hitting in 2008. Which leads me to the topic of this week’s Revolution Investing Newsletter — How to prepare for the next Black Swan/Market Crash/Economic Crisis.
Always remember that when the markets are going straight up for weeks on end and are continually blowing through all-time highs, that such action is never sustainable for long. I’m obviously still bullish and I remain much more on the net-long rather than the net-short side of the ledger, which means I’m still positioned for the markets to continue to go higher for now. But importantly, I have reduced what used to be my very aggressively net long positioning in stocks and call options on those stocks. We’ve far outperformed most any so-called “professional money manager” that you can find out there, as most have been wrongly bearish and short even as the markets and corporate economy recovered.
The Federal Reserve and the Government’s Socialist Economic Policies are always going to fail over the long-term. Every retiree and/or saver I know is desperate to find some sort of yield on their money. The FED can print more money, can allow the big banks and giant corporations to borrow money at 0%, can allow the banks to fictitiously mark their worthless assets at any price they want, and the Fed can buy all those worthless assets with yet other printed money, and the FED can allow the big banks to front run all of the FED’s own trading in Treasuries and other securities such that they report 100% profitable trading days each quarter. Does any thinking person think that all of that misallocation of market capital will work out for the best? It will continue to get more corrupt and egregious til they can’t possibly push it any further. You hear all the mainstream media outlets and the talking heads they quote “warning” people about the end of these FED policies, as if that’s a bad thing. Sure, the ongoing stock market and Treasury and other paper asset bubbles will be crushed at some point when the music stops. So the policies are all designed to keep that music playing as long as possible.
Whatever the cause of the next Black Swan Crash, you need to have taken some precautions to prepare you and your family for it. Buy physical gold and silver bullion and coins. Buy land in crashed real estate markets near where you live. Have some cash. Maybe buy yourself a couple BitCoins, because if the next Black Swan is bad enough, they might work out to be a hugely profitable investment as the dollar continues to be destroyed. Remember that the dollar is down 99.5% relative to gold since the Federal Reserve was created back in 1913. And as I just explained above, that 99% of that collapse in the dollar relative to gold was BEFORE they created all these new ways of devaluing the hard-earned dollars in your bank account.
Do not leave all of your gold, silver, and cash in a bank’s so-called “safety deposit box” because when the next economic/market crisis hits, we’ll likely see a “Bank Holiday” for at least a few days if not longer. So you want to make sure when that happens that you have both some cash and some gold/silver laying around somewhere safe that you can get to. People in Cyprus and Greece thought that their deposits and safety deposit boxes would always be available to them, especially since they’d joined the EU. They were wrong. People here in the US and around the developed world shouldn’t think a bank holiday and deposit acquisition can’t happen here.
Remember how I spent 2009 and 2010 in this newsletter pleading with all of you to recognize that the aforementioned Fed’s policies above would create a huge stock market bubble? Long-time subscribers will remember that before the markets crashed in 2008, I was pleading with all of you to prepare for a coming market crash and economic downturn. I used to tell my viewers on Fox Business in 2007 that I’d sold all my stocks and closed my hedge fund and gone to TV because that was the best trade I could make as the markets were likely to crash soon. I quit TV and got back into stocks and investing in 2010. Ebb and flow, see?
I’ve often talked about the idea that you should recognize that the markets will both spike and crash and that the best way to build your wealth in the markets over the long-term is to trim down your exposure when the markets are at all-time highs (like today!!) and to increase your exposure when markets have crashed. The idea is certainly not to try to time and catch every market bottom or top, but the idea is to ebb when the markets flow and vice versa. If the stock market bubble continues to blow up bigger over the next year or two as I expect it to, we’ll still have big profits in many of our stocks and we’ll still have the opportunity to trim our positions down more as they increase in price. But I also fully expect that at some point before 2018, we’ll see another market crash and economic crisis and that the markets will be markedly lower than they are here in May 2013.
Finally, what do I expect to cause the next Black Swan Event/Market Crash/Economic Crisis? The gold and silver markets are in turmoil and there’s some major disconnect between what the real value and amount of physical gold/silver that’s available to be delivered to people who hold paper promises for that gold/silver. It’s akin to the disconnect in 2007 of the value real estate/mortgage-backed securities vs. the prices they were being sold and marked at on the balance sheets of the banks and investors around the world. There is likely 10x or more paper promises of gold/silver than there is physical gold/silver out there to deliver. Gold and silver are acting wildly volatile, which is another similar sign to 2007 in the real estate/mortgage-back securities Black Swan just before it hit.
I don’t think we need to be “Preppers” per se, meaning that I don’t think you need to run out and build a bomb shelter and stock up on canned goods and guns and stuff like that. But I do think you should be a “Preparer” for bad times when the markets are at all-time highs.