The Darkness Is Coming

[Guest DissipatedYouthIsValuable]

I've said this elsewhere and I'll say it again - the great hope I have is that people tend to do the opposite of whatever has just been occuring when things fail. Right now, we have a weird totalitariansm via arguments from morality - I expect and hope that people will want to do the opposite of what they have just had once the consequences are known.

We've had prosperity and big statism.

I expect depression and a push for more freedom. Not only are there enough people talking about this stuff to make some sort of impact - the actual day to day experience of people will be that as government stops doing things like Rfid tagging their bins and hassling them in the street for drinking/smoking they are happier, even without the prospeity.

Or so I hope. The danger is definitely there though, you are right.

I predict doctors smoking while they work within the decade.

[sossij]

I've said this elsewhere and I'll say it again - the great hope I have is that people tend to do the opposite of whatever has just been occuring when things fail. Right now, we have a weird totalitariansm via arguments from morality - I expect and hope that people will want to do the opposite of what they have just had once the consequences are known.

We've had prosperity and big statism.

I expect depression and a push for more freedom. Not only are there enough people talking about this stuff to make some sort of impact - the actual day to day experience of people will be that as government stops doing things like Rfid tagging their bins and hassling them in the street for drinking/smoking they are happier, even without the prospeity.

Or so I hope. The danger is definitely there though, you are right.

I hope so too Injin. I look forward to a low-energy, peaceful republic with a sound money currency but I still worry in the short term the rise of a new Hitler rather than a Thomas Jefferson

Edit: sound money, not hard money

Edited June 30, 2008 by sossij

[Fully Detached]

So wtf are we meant to do to protect our investments then? I am not a gold fan, not least as I can well believe that confiscation would ensue if things really got that bad (as for all the people who claim they would get a case of selective amnesia, a government that would confiscate gold would also find some interesting ways of refreshing your memory).

I'm all in sterling with NS&I, and have only ever intended my savings to go towards a house. So to some extent I'm protected against a banking collapse, but if that collapse brings about a destruction of fiat currency, then I'm f***ed as well.

I'm all for this new found freedom and stuff, but if my money disappears I'm going to be one seriously pissed off free person. When people start talking about collapse on this scale, you seriously have to wonder if the safest investment of all would be a bloody house.

[General Melchett]

Shouldnt that be The Darkness ARE coming?

No one pays to get their haircut in a recession/depression. Outrageous Mullets all-round

[Sheer Heart Attack]

Shouldnt that be The Darkness ARE coming?

No one pays to get their haircut in a recession/depression. Outrageous Mullets all-round

Can't explain all the feelings that you're making me feel.

The economy's in underdrive and Gordo is behind the steering wheel.

I believe in a thing called meltdown.

[_w_]

Ditto, pavlovblack.

Something bad this way comes, and I need someone to help me understand it. I need to understand how to protect myself, my loved ones and my business.

I should have listened to the voices telling me in 2006 not to expand and double the workforce. I didn't and embarked on a one-man wealth destruction fest. Sounds like they'll be an awful lot of that to come in the next 18 months - self-imposed and imposed by others.

Just prepare for an economic downturn and a lowering of living standards. What no one can reasonnably say at this stage is how bad it will be but that should stop you from preparng for it.

I'm assuming this is the kind of advice you're after, if it wasn't or if you already know these please accept my apologies:

Business-wise, downsize, retrench. Focus on the areas of your business that are most cash generative and deliver the highest margins. Depending on the indutry you're in you should be achieving certain margins (it's documented), increase your prices if necessary and turn down any job that would not generate the required margins. Make your business cash positive and accumulate as much of it as fast as you can (e.g. cut your costs now, not later)

Prepare for bad debt problems by looking at facoring and insurance solutions. Cash is the greatest busines killer, particularly in a recession and in a credit crunch.

Cut your expenses as much as you can, particularly the fixed ones. The more your costs are variable, the leaner and meaner you will be in case of a serious downturn, and the more likely you will be to survive. Fire people and re-hire them as freelance as and when there is work for them, pay them a bit more to soften the blow (but not too much, remember margin preservation is key. This sucks I know but your business is no good to them is no use if it goes bust. If you are struggling with debts used to pay for assets, consider selling those assets to pay back the debt. Those interest payments will suck cash out of your business at the worst possible time if things slow down.

Cash - Margins - Fixed costs are the three factors you need to work on.

One more thing to consider is your business activity. If you are not in an industry that fares well in a downturn, try to direct your business towards activities that do.

If your business survives then you and your family should be in a position to handle recession and price inflation. That's unless you're in the tin hat brigade and your after solutions that involve tin cans and guns that is .

[CharlieChuck]

So wtf are we meant to do to protect our investments then? I am not a gold fan, not least as I can well believe that confiscation would ensue if things really got that bad (as for all the people who claim they would get a case of selective amnesia, a government that would confiscate gold would also find some interesting ways of refreshing your memory).

I'm all in sterling with NS&I, and have only ever intended my savings to go towards a house. So to some extent I'm protected against a banking collapse, but if that collapse brings about a destruction of fiat currency, then I'm f***ed as well.

I'm all for this new found freedom and stuff, but if my money disappears I'm going to be one seriously pissed off free person. When people start talking about collapse on this scale, you seriously have to wonder if the safest investment of all would be a bloody house.

I was just typing pretty much the same thing, but you've put it better than me. There's a lot of meltdown press at the moment, I'm also thinking that a least buying a house ensures somewhere to live rather than just losing some or all of my money.

China and the oil producers hold a lot of US bonds, I can't imagine they will just sit back and watch decades of their profits disappear into nothing. What they can actually do about it I don't know, I guess they could virtually buy up the US banks and continue the charade for a bit longer. Maybe we're being a bit too tin foil hat, one things for sure this has got a long way to run and it's only just started.

[sossij]

Exactly sossij. History repeatedly shows that when times are really tough, people don't choose freedom of choice, they choose a strong-arm leader who promises to protect them. The trouble with this is that such leaders usually exact a very high price indeed for this service.

Better make some important decisions in the very near future as to which side you are on

Or whether it is better to be on none, of course....

Thanks Steve. In idle moments on the train I often try to imagine what living in this world will be like. I don't think that city living would be a good idea or hiding isolated in the country for that matter. I suspect that a form of small town agrarian living would perhaps be best. In such a scenario the townsfolk would ally themselves with a warlord/warrior class in return for protection of their crops, energy/water supply and, of course, their families. Surburban farming in areas of large cities might also work... I suppose a suburban variation of a type "motte and baily" type existence. It would be interesting to flesh out some ideas if anyone's interested.

[Sheer Heart Attack]

Business-wise, downsize, retrench. Focus on the areas of your business that are most cash generative and deliver the highest margins. Depending on the indutry you're in you should be achieving certain margins (it's documented), increase your prices if necessary and turn down any job that would not generate the required margins. Make your business cash positive and accumulate as much of it as fast as you can (e.g. cut your costs now, not later)

Prepare for bad debt problems by looking at facoring and insurance solutions. Cash is the greatest busines killer, particularly in a recession and in a credit crunch.

Cut your expenses as much as you can, particularly the fixed ones. The more your costs are variable, the leaner and meaner you will be in case of a serious downturn, and the more likely you will be to survive. Fire people and re-hire them as freelance as and when there is work for them, pay them a bit more to soften the blow (but not too much, remember margin preservation is key. This sucks I know but your business is no good to them is no use if it goes bust. If you are struggling with debts used to pay for assets, consider selling those assets to pay back the debt. Those interest payments will suck cash out of your business at the worst possible time if things slow down.

Cash - Margins - Fixed costs are the three factors you need to work on.

One more thing to consider is your business activity. If you are not in an industry that fares well in a downturn, try to direct your business towards activities that do.

If your business survives then you and your family should be in a position to handle recession and price inflation. That's unless you're in the tin hat brigade and your after solutions that involve tin cans and guns that is .

Sounds advice and thanks, williamdb.

I have cut costs to the absolute minimum in the last few months. I'm in advertising and currently have the contrarian thought that there will be an increased demand for advertising packages into the public sector if we operate very tight margins and try to hammer competitors through that as their cost bases (according to their credit reports) seem a lot larger than ours is or was.

With two staff working part-time to get customers in, it could restore the company's previous cash position and help us bunker down. My yardstick of how well or not my business is doing is how long could we last at current cost structure if we simply never sold another thing again. Currently it is at 8 months but I need to get that up to 2 years. It won't be possible using our current portfolio of products to get there in 12 months, but adding "credit crunch friendly" advertising could.

There'll deffo be a change in the attitude of employees during this time. Hopefully, people will be more grateful to have jobs and work harder at them, if they are scarce.

If this all goes to pot, I'll stock up on corned beef, duck fat, cheap lighters and new potatoes.

[WSG]

[alexw]

So wtf are we meant to do to protect our investments then? I am not a gold fan, not least as I can well believe that confiscation would ensue if things really got that bad (as for all the people who claim they would get a case of selective amnesia, a government that would confiscate gold would also find some interesting ways of refreshing your memory).

I'm all in sterling with NS&I, and have only ever intended my savings to go towards a house. So to some extent I'm protected against a banking collapse, but if that collapse brings about a destruction of fiat currency, then I'm f***ed as well.

I'm all for this new found freedom and stuff, but if my money disappears I'm going to be one seriously pissed off free person. When people start talking about collapse on this scale, you seriously have to wonder if the safest investment of all would be a bloody house.

There is no real way to protect yourself if things turn out as badly as some predict.

Modern society works on massive infrastructure, technology, business activity, etc. And it needs a critical mass to function.

For example if there is a financial collapse, those owning gold might think themselves ok. You might be able to buy food with gold, but how, for example, do you pay phone bills or gas bills with gold? How do you buy clothes when the importer is out of business? How do you keep the telecoms systems up and running in a financial collapse short of martial law?

"investments" need the system to function, to exist as investments.

[_w_]

if we operate very tight margins and try to hammer competitors through that as their cost bases (according to their credit reports) seem a lot larger than ours is or was.

You've clearly got a handle on things. One piece of advice if I may, for you do take on board or ignore as you wish:

The strategy you describe above is risky and will only work if you have a very strong balance sheet. Weakening yourself and bleeding cash to push them out at the very begining of a downward cycle is perhaps not the best solution. That's the sort of thing you would do at the end of a downward cycle to finish of the last survivors and as busines is about to pickup.

If your competitors overextended themselves and are weak then they will be even weaker and easier to beat in a couple of years' time while you will be stronger if you've battened down the hatches. You will get their business without lifting a finger if they go bust, in the meantime you and your business will have followed a safer course.

My two pennies .

[Sheer Heart Attack]

You've clearly got a handle on things. One piece of advice if I may, for you do take on board or ignore as you wish:

The strategy you describe above is risky and will only work if you have a very strong balance sheet. Weakening yourself and bleeding cash to push them out at the very begining of a downward cycle is perhaps not the best solution. That's the sort of thing you would do at the end of a downward cycle to finish of the last survivors and as busines is about to pickup.

If your competitors overextended themselves and are weak then they will be even weaker and easier to beat in a couple of years' time while you will be stronger if you've battened down the hatches. You will get their business without lifting a finger if they go bust, in the meantime you and your business will have followed a safer course.

My two pennies .

We think we've identified weaknesses in the models (financial and structural) in competitors' products and our aim is to offer very much a one-size-fits-all alternative in which our customer would have limited scope for changes.

By doing this and essentially standardising the process of sale and distribution, some of the cost savings are actually surprisingly high. Our gamble is that a customer, comparing the products, would look at what's on offer and decide to pay up to 40% less and not have something meaning any ROI would be greater because of the reduced cost of entry.

It is something we firmly intend to make profit from - it would work well if we hit sales targets and provide the company with quite a cash boost within 2 months at not very high outlay. If we get this right, it has the potential to hammer the rainy day money of competitors.

Thanks again for your two pennies.

[thod]

Here is an account of one guys experience in economic collapse, what you can expect and what you can do.

http://www.dailypaul.com/node/35536

[huw]

So wtf are we meant to do to protect our investments then?

To the extent that much current wealth is illusory, you can't.

Bank deposits are illusory if the banking system is insolvent.

Company shares are illusory if there's no demand for the company's product.

Gilt-edged stocks are illusory if the government or its tax base is bankrupt.

The kinds of wealth that are not illusory (such as the unmentionable metals, land, commodities, and even houses) are in so short a supply that it is impossible to convert all illusory wealth into real wealth (any attempt to do so would expose the illusory nature of the former, through hyperinflation).

When people start talking about collapse on this scale, you seriously have to wonder if the safest investment of all would be a bloody house.

Exactly. The danger is that the collapse doesn't go as far as that, then you're a nice juicy immobile tax target for the government.

(typo)

Edited June 30, 2008 by huw

[zceb90]

Ditto, pavlovblack.

Something bad this way comes, and I need someone to help me understand it. I need to understand how to protect myself, my loved ones and my business.

I should have listened to the voices telling me in 2006 not to expand and double the workforce. I didn't and embarked on a one-man wealth destruction fest. Sounds like they'll be an awful lot of that to come in the next 18 months - self-imposed and imposed by others.

Pacific State,

As well as the 'credit crunch' fundamental changes are at work with regard to food and energy. A combination of rapid instrialisation in Asia etc (including switching to a more western type diet) and limitations on the amount of food and energy which can be produced in response to relatively rapid increases in demand has led to much higher food and energy prices. I believe the current credit crisis was coming anyway due to irresponsible lending practices but it's been precipitated somewhat faster by households, especially in US, being squeezed by food and energy price hikes. Faced with a choice of eating, keeping warm or servicing the mortgage many at the economic margin in US have chosen the first two.

I don't believe the trend toward higher food and energy prices is short term...unless hundreds of millions in Asia revert to pre-industrial living (and I don't see that as a likely outcome). In short a big transfer of wealth away from OECD to India, China and the OPEC nations is underway and will take decades to play out.

With regard to your work / business the best advice I can offer is to position yourself wherever possible on the non-discretionary side of the economy i.e. focus on what people need rather than what they want. From one of your subsequent posts upthread I understand you are 'in advertising' in which case areas of the economy which will be in demand include food / agriculture (especially that locally sourced), energy (especially renewable energy) and public transport. Activities which are most likely to suffer in a downturn include leisure activities such as expensive theme parks etc, fuel-hungry SUV's, long haul holidays, fashion accessories etc. In short if you don't really need the item / activity for everyday living then millions are likely to quit buying it as they will no longer have sufficient spare funds.

The other key point at this stage in the economic cycle is to reduce / eliminate debt as having no debt provides much greater freedom to change one's career / location / business should future economic conditions so determine. I'd also like to add one other point - there's every possibility that oil prices could surpass $200 - $250/bbl and gas (and electricity) prices in UK are certain to rise substantially. Try to position yourself and your business to require much less energy - better insulation, lower heating settings. In addition try to think much more 'local' - position yourself so as to be within walking, cycling or public transit range of work, shops and services. The days of long commutes in singe occupancy vehicles are most surely numbered.

[Sheer Heart Attack]

Great post, zceb90.

I have reduced the business debt to zero and we're sitting on a surplus at the moment. Part of my reasoning for shifting the focus of our advertising from B2B to business-to-public sector is that the public sector is one of the few areas of the economy that will remain relatively stable (and perhaps grow) during whatever the darkness is going to be. General expenses have been reduced to the bone - the accountants and I put together a plan that has shaved another £25k a year off costs.

On the personal front, I am currently 6 months ahead of my mortgage and aim to get 2 years ahead by next summer.

If you are correct and oil reaches the levels of which you speak, all bets are off for the next few years.

[Fully Detached]

one things for sure this has got a long way to run and it's only just started.

There is no real way to protect yourself if things turn out as badly as some predict.

To the extent that much current wealth is illusory, you can't.

In a funny sort of way, chaps, you've cheered me right up. It's one thing to lose everything and know that you could have prevented it; entirely different to lose everything and know that you couldn't.

Someone remind me I said that when I'm crying into my dandelion beer in a few months time.

[zceb90]

Great post, zceb90.

I have reduced the business debt to zero and we're sitting on a surplus at the moment. Part of my reasoning for shifting the focus of our advertising from B2B to business-to-public sector is that the public sector is one of the few areas of the economy that will remain relatively stable (and perhaps grow) during whatever the darkness is going to be. General expenses have been reduced to the bone - the accountants and I put together a plan that has shaved another £25k a year off costs.

On the personal front, I am currently 6 months ahead of my mortgage and aim to get 2 years ahead by next summer.

If you are correct and oil reaches the levels of which you speak, all bets are off for the next few years.

Great you are well on top of the debt issue. You should build into your business model an allowance for public sector cutbacks as tax receipts will take a hit during an economic downturn - less earnings and profits = less income tax and corp tax receipts; lower spending = less VAT receipts. On this forum we are also familiar with another weakness in Gov't revenue - lower house sales = lower stamp duty receipts. At the same time unemployment will rise meaning more claimants. On this basis, and on the same theme as my earlier post, try to focus on what the public sector needs to do - diversity officers and other fancy-sounding titles are maybe all well and good in benign economic times but when the state is faced with falling receipts and rising bills at the same time something has to go as the budget otherwise doesn't add up.

Energy investment banker, Matt Simmons, knows more than most about the oil / energy business; I've been to 2 of his lectures and his command of the subject is impressive. In today's Times he's giving a clear warning that oil production in 2015 may be much lower than today; he was also quoted in my local regional paper last week as 'not being surprised if oil reaches $500/bbl within a few years'. My own view is that the price would not stick at these levels as widespread recession would ensue but the effects or expensive oil and full employment or cheaper oil and recession are similar - a sizeable (and increasing) percentage of consumers would be priced out of oil consumption. Btw that has to happen if hundreds of millions in Asia are to use large amounts of energy - utlimately their consumption can only come from our corresponding reductions.

[kzb]

In my lifetime we have had 3-day week due to miners' strike, winter of discontent, mass unemployment and riots going off all over the country in the early 80's (NOT just Toxteth, there were riots all over), Black Wednesday, and seemingly constant "things are bad because of the world recession" under the Major government.

Really we've had it easy over the last 15 years or so. Ever since the early 80's I have constantly thought society was in danger of sudden collapse, but it never happened, despite all the above.

So it's difficult to believe it will really happen this time around. Just because some already non-existent money was lent out? Why are the current troubles so much greater in magnitude than all the previous troubles?

[Jack Sparrow]

It's been a funny old June.

Americans are living in their vehicles as their currency plunges, unhelped by the unconvincing verbal support of the Fed and the US Government. The price it costs to drive those vehicles is higher than its ever been in terms of petrol prices.

Over here, hundreds of thousands of mortgage holders are seeing 25% increases in their payments and their choice of mortgages to shift over to has dramatically declined. Inflation is at 10%, producer prices are rocketing as are staples like food, energy and water

Three major banks and the Bank of International Settlements are predicting everything from extreme financial market turbulence to a complete meltdown.

Would someone smarter and cleverer than me please tell all of us just what is going to happen, how it's going to affect our lives and work and when it will be over?

Thanks in advance.

Its quite simple really, the Arabs are going to buy you up with their soverign wealth funds, its payback time, then they will close all your factories making toilet paper and make you wash your arses, using your left hand of course, with bottled water.