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Protecting Your Savings


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2008 Jan 27, 5:53am   46,634 views  390 comments

by Patrick   ➕follow (55)   💰tip   ignore  

safe

With the government now mounting a full-scale assault against savers by cutting interest rates, attempting to keep housing prices unreasonably high, and even handing out raw cash (do I hear helicopters?) what can responsible people do to protect what they've earned?

Some options and problems with those options:

  • CD's: fully taxable, low rates (under 4% now), some risk FDIC won't cover bank failures
  • Treasury Bills: no state tax, less risk, but even lower rates (2.5%)
  • Gold: pays no interest, price very hard to predict. Lost value for 20 years after last peak.
  • Stock: falling prices in falling economy as earnings decline
  • Housing: massively overvalued, likely to keep falling for years
  • Commercial property: also seems to be on downside of a bubble
  • Commodities: falling prices as economy slows

One bright point: if you're saving to buy a house, your cash gets more valuable as house prices fall. And you get interest on top of that.

Patrick

#housing

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1   Patrick   2008 Jan 27, 6:09am  

I know we've covered a lot of this before, but I promised I'd do it again.

2   Peter P   2008 Jan 27, 6:09am  

Gold: pays no interest, price very hard to predict. Lost value for 20 years after last peak.

How many years did stock lose value after the 1929 peak?

Have you considered going short as a class of investment?

Not investment advice.

3   Peter P   2008 Jan 27, 6:10am  

Going short = owing.

Owing = wealth.

Debt is wealth!

4   anonymous   2008 Jan 27, 6:19am  

I'd not put any money in a bank that I'm not willing to lose.

I'd work on learning about silver coins, how to buy low so you can sell later high.

Gold is also good, but for day to day transactions silver's likely to be much more useful.

I'd also advocate getting out of ALL debt even if that means selling your place and renting for now, selling your place and getting a smaller place, etc. Get ride of that leased Lexus and get a reliable used car. Decrease monthly outlays like that $150 a month cable bill.

I'd consider under the mattress to be safer than a US bank for your money.

5   Patrick   2008 Jan 27, 6:19am  

The stock market bottomed out in 1932, so it was only 3 years of losses.

Going short (or safer, buying puts) might be viable. There is significant "counterparty risk" lately though.

Hmmm, if I can issue my own debt, does that mean I can just issue my own money?

6   Peter P   2008 Jan 27, 6:28am  

The stock market bottomed out in 1932, so it was only 3 years of losses.

IIRC Dow did not regain the 1929 high until the mid-1950's.

Going short (or safer, buying puts) might be viable. There is significant “counterparty risk” lately though.

Exchanged-traded products have much lower counter-party risk because of variation margins.

Hmmm, if I can issue my own debt, does that mean I can just issue my own money?

Just be a real American and load up your credit cards. :)

7   anonymous   2008 Jan 27, 6:45am  

I believe also it took the Dow a long time to regain its 1920s high, perhaps not until the early 60s?

Also, gold was confiscated by the gov't and the price of it artificially fixed. I wonder how much gold was smuggled out of the US and exchanged for fair value or simply hidden and brought out when it became legal for US citizens to own gold again, which I don't believe came into effect until the 1970s?

I agree with Ran Prieur (wwww.ranprieur.com) that the key to coping with the fall of the Empire to to mainly stay out of its way while it collapses. Stop paying it, stop paying its banks, detach from it as much as possible, keep good trade-able valuables in a safe place at home as opposed to in a bank where they can be "disappeared' and just ride out the crash.

8   Quiet Renter   2008 Jan 27, 6:53am  

Hello All,

Heavy infaltion will be good news for those with big non-collateralized debt, like student loans. Boomers who saved are going to feel the squeeze.

I've been mulling over foreign currencies as a sure thing for the next year. As crazy as it sounds, even Iraqi dinar might have some potential, as their economy stablizes and ours heads down the toilet.

9   NVMike   2008 Jan 27, 7:31am  

Right now, my big guns are gold and bonds, corporate and municipal. Smaller guns are energy and agricultural commodities.

Sure, there's inflation and risk but no investment is risk-free and sure to outperform inflation. You look at the market assess your own comfort level wrt risk and then jump.

10   Patrick   2008 Jan 27, 7:50am  

Gold actually fell for 20 years. The dow actually fell for only 3 years after 1929.

Had you bought stock in 1932, you'd have done well.

11   DennisN   2008 Jan 27, 8:04am  

And if you had bought BA real estate in the 1940's you would have done OK too.

My dad bought his little house in Palo Alto on Cowper St. back in 1947 for $10,500 - GI bill, payments around $60 IIRC. The developer tried to talk my dad into buying several more houses on the block as an investment, but my Dad refused. He was scared about "being in debt". But in those days you could get a mortage with no down (GI bill) for multiple properties at fixed rates of around 3%.

That house sold a few years ago for $1.1 million. Check it out. 2545 Cowper St. PA.

12   OO   2008 Jan 27, 8:17am  

Which brokerages are seen as the safest?

Although SPIC guarantees $500K principal, but if your brokerage goes belly up, you'll need to get your money stuck in SPIC processing for months, during which time your stock value could plummet like hell without being able to unload.

I also wonder if SPIC has ever been stress-tested like FDIC. When was the last brokerage crisis?

13   Peter P   2008 Jan 27, 8:26am  

Gold actually fell for 20 years. The down actually fell for only 3 years after 1929.

Doesn't that make gold more tradable than stocks? ;)

Not investment advice

14   anonymous   2008 Jan 27, 8:28am  

DennisN - that $60 a month would have been about the same as renting, not 3X=4X. So it was a slam-dunk. Some old OLD neighbors of mine told me you never invested in real estate to make money, that's a very recent thing. And I know Cowper St, that's a fairly nice area. Your Dad did OK.

15   OO   2008 Jan 27, 8:28am  

I am all commodities, PM and foreign currencies, almost 0 exposure to USD bonds or cash. I am comfortable with my investment, but I am not 100% comfortable with where my investment sits.

First of all, I am afraid of a "brokerage run". I have no idea whether our brokerages are well capitalized as they should be, or if they are lending out my stocks without my consent. If Merill, Bear Stearns, Citi, HSBC and Societe General are in the shapes they are in today, I won't be surprised that some of our brokerages have quite a few skeletons in the closets themselves. I was not worried about this before, but as time goes by, everything seems possible.

Second, I don't trust US Treasury. I own Australia Treasury instead, because at least here is a government that is solvent. I think the risk of default for US Treasury, in nominal sense, is ZERO. However, in the sense of loss of purchasing power, it is guaranteed, it's a matter of whether you will lose 5% or 10% a year. I also believe that we are in a gigantic USD bond bubble, so I stay away from USD bonds completely.

16   Peter P   2008 Jan 27, 8:42am  

What about putting gold in a swiss bank safe deposit box? Will that work?

17   Peter P   2008 Jan 27, 8:46am  

I think it is more important to take market opportunities.

Optimists get killed because they are fearless.
Pessimists get nothing because they are too fearful.

We should become misanthropic opportunists!

Not career advice

18   netdance   2008 Jan 27, 9:13am  

For people who want to short, but don't know how: Google Proshares Short ETFs. The Ultras are an especially risky way to go, but have the highest returns.

For people who like the Euro, may I point out that Spain is going bankrupt at a speed that makes even the Shrub's profligacy seem tame.

For people who like physical gold, please remember that the US Gov't confiscated it last time we got into big trouble.

For people who like Gold ETFs, please remember that they don't necessarily have any gold in the vault, and even if they do, you don't own any of it.

And for those who with to invest in resource-rich countries with little industry (like Australia, Canada and New Zealand), may I humbly suggest that you do a little research on how well they did last recession - say, 1991. Hint: not well.

19   Peter P   2008 Jan 27, 9:33am  

For people who like Gold ETFs, please remember that they don’t necessarily have any gold in the vault, and even if they do, you don’t own any of it.

Huh? GLD has more gold in the vault than China. You can also own and store gold overseas.

USD is not tied to gold anymore. There is no reason for the government to confiscate gold. They don't care if gold surges to $100000 an ounce so long as median home prices stay high.

However, buy-and-hope strategies do not work. Be cynical and take opportunities!

20   anonymous   2008 Jan 27, 9:46am  

We need to come up with some standard terminology here:

Inflation = infaltion
Deflation = defaltion

That is all.

21   requiem   2008 Jan 27, 9:49am  

Gold is perfectly fine if you measure your lifespan in decades or centuries. For the average human the volatility is a bit much.

22   Richmond   2008 Jan 27, 11:11am  

What do you folks think,
25 or 50 basis points this week?

23   requiem   2008 Jan 27, 11:14am  

A bit OT, but it sounds like 60 Minutes did a bit on the meltdown.

http://www.cbsnews.com/sections/i_video/main500251.shtml?id=3756665n&channel=/sections/60minutes/videoplayer3415.shtml

Well, I guess the proles know now.

24   empty houses   2008 Jan 27, 11:18am  

I heard that with the new BK law that you could walk away from your house but not your Credit Card debt. I'm sure this has been covered here at one time.
Anyway, how bout refi the house and pay off the cc debt, take any extra and buy gold, then walk away from the house with no CC debt and a pot of gold. Move to someplace cheap like Costa Rica.

25   Richmond   2008 Jan 27, 11:25am  

Yeah, I saw the housing deal on 60 Minutes. Some of those people pissed me off.

Well, our note reset and the price went down. It doesn't make any scense. Why should we have to keep paying? Whaaaaaaaaa, Whaaaaaaaa.

Because you signed the note and said that you would you snotty little twit !!!!!

26   Richmond   2008 Jan 27, 11:26am  

I, sooooooo, wanted to use Surfer X's vocab. on my last post.

27   requiem   2008 Jan 27, 11:39am  

Remember, Richmond, profanity is the crutch of the inarticulate motherfucker. I do hope that someone watching that is in a position to make an example of that couple.

To your other question, I think 25 is more likely (at present) than 50, especially after the "rogue trader" story. They could also hold rates steady, but then, they are running scared.

28   Richmond   2008 Jan 27, 12:06pm  

requiem,

Paragraph 1: LOL

Paragraph 2: I got a 20 on .25 but Asia is bleeding out again so I don't know.

29   Malcolm   2008 Jan 27, 12:20pm  

It should go without saying but paying off debt at this point makes the most sense to me. I'm always amazed at how many people take on debt for investment and don't understand it is very difficult to try to build wealth by outgrowing the debt. Paying unsecured nondeductible debt is the best safe investment you can make. Paying $100 to an 18% credit card balance is equivalent to investing that $100 and earning over 30% before taxes on the same money.

30   Malcolm   2008 Jan 27, 12:24pm  

So in a way, yes it is a time in which savers are not rewarded but high income debtors should find this a very good time to prepare for another buying opportunity in real estate or stocks. Instead of using debt as an extension of credit you can look at it as using debt as a tax free savings account.

31   Malcolm   2008 Jan 27, 12:27pm  

Whoever suggested watching the "Closing Escrow" movie, thanks. The mainstream wouldn't find it that great but readers here will find it very amusing.

32   goober   2008 Jan 27, 12:27pm  

I just read an article that used the term "Fed Cat Bounce"....

That strikes me as funny....

33   Randy H   2008 Jan 27, 1:00pm  

Savings in "too big to fail" banks and funds. We covered that when the banking system first started to crack. The US government *will not* allow money funds or other cash equivalents to fail at large institutions. This would be perceived as a failure of the banking system in total. Remember that the problem isn't just "savers" as we usually talk about them. It's also every retirement fund, pension fund, government fixed-income fund and most entitlements that are dependent upon these cash vehicles.

Take on currency hedging or speculation at your own risk. Most will lose money trying (but a few will get lucky and come out fabulously).

If you have a relatively high taxable income -- which is most folks in the BA simply due to our local inflation basis -- then I am a big advocate of exploiting tax vehicles to gain returns. Look into tax exempt money markets and munis (at too big to fail institutions). You may be able to offset a lot of your shrinking cash returns with simple tax savings. Especially as taxes are almost guaranteed to rise in the near future.

Most of all, don't worry. The world isn't ending (despite the fact at least a few here are cheerleading the end of times). Remember, you're on the right side of this all. You may not squeeze every last penny out of your position. But you have already saved yourself 90% of what you stood to lose by not buying an overpriced bubble home.

34   danville woman   2008 Jan 27, 1:05pm  

@OO

How could one purchase Australia Treasury ?

35   Randy H   2008 Jan 27, 1:08pm  

Maybe @@ DS. He'll know.

36   netdance   2008 Jan 27, 1:48pm  

For those who think LTCM proved the "too big to fail" theory, well, I have a new theory for you:

Too Big to Bail

It's like "too big to fail", only bigger. Much bigger. That $2 Trillion in Iraq has almost cracked us - but the housing crash is going to be AT LEAST $8 Trillion, and almost certainly more, once it shakes out.

Too Big to Bail.

37   netdance   2008 Jan 27, 1:51pm  

I cant eat, drink, burn for fuel or hump gold,,,,,,

No, but I assure you, as long as you're willing to trade gold coins for it, all four will come to you.

38   HelloKitty   2008 Jan 27, 2:16pm  

60 minutes piece BLOWS LID OFF the bubble

the whole segment is here

http://tinyurl.com/374fh5

its ALL there, the fraud, the cash back at close, the no lending standards, the look the other way fraud everywhere. Even bay area speculators are mentioned. 60 minutes is where the smart sheeple watch.

39   Randy H   2008 Jan 27, 2:38pm  

RE: Goldbugs and doomsday wet dreams

If your dreams come true and you end up holding gold after the apocalypse, and that gold is valuable, then I hope you enjoy using it exactly once for whatever trade you think you're going to do with it.

Remember, the penitentiaries and jails will probably empty out after this rapture occurs. No matter how big of a badass you fancy yourself, you won't be wanting to flash your gold around the Thunderdome crowing about how shrewd you are.

40   HelloKitty   2008 Jan 27, 2:50pm  

"two men enter,one man leaves" what a great flick. Mel Gibson during his glory(pre insanity) days.

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