Friday, Oct 13, 2006

A little Armageddon for the weekend, Sir?

HoweStreet: Another Stealth Depression in the Making

As the good times continue to roll, this educated US blog article may make people pause for thought. "First, I would like to call your attention to the Total U.S. Debt to Income (GDP). Note that it is now at 304% of annual national income. That is considerably higher than before the stock market crash of 1929." You get the picture...

Posted by harold @ 08:42 PM (487 views)
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18 Comments

1. sold 2 rent 1 said...

A scary article.

I think the need to get a balanced portfolio for your wealth is greater than ever.
Its no good just keeping a pile of cash ready to buy a property after HPC.

There is a need to hold Gold/Silver as an insurance policy for this nightmare scenario.

I am thinking of investing 5% of the cash generated from the sale of 2 houses into gold/silver/mining stocks

It is a win-win situation. If this financial disaster is avoided then gold will plummet and I lose 2-3% of my wealth. A small premium to pay for insuring your wealth

If the scenario described becomes true then gold will rocket into the stratosphere. Some people are predicting values $10,000 $30,000 an ounce. This gain will offset the fact that inflation has destroyed my real purchasing power of my cash.

A few years ago I had a friend who, on paper, was a dollar millionaire through his Oracle stock options. After the dot-com bust he was left with nothing. His reasons for not exercising his stock options were he did not want to pay capital gains tax. What he should have done is insure his stock options by buying put options on that stock. No matter what happens to the stock (fall or rise) his wealth is protected.

We cant be sure of what the outcome will be in the next few years.
We can insure ourselves though

Saturday, October 14, 2006 09:17AM Report Comment
 

2. holding out said...

Many people on this site have mentioned buying Gold. But no one has yet come up with an easy way of owning it. Does anyone have any ideas other than buying physical gold ? I know you can store it in vaults, at a price and the price is effectively a percentage of the gold rather than a fixed amount. If you are relying in a gold rocketing to cover your cash losses than this is the best way. As for gold stocks is there anybody here in the city who can recommend one - or are you too busy picking houses with your pending bonus.

Saturday, October 14, 2006 10:15AM Report Comment
 

3. holding out said...

Many people on this site have mentioned buying Gold. But no one has yet come up with an easy way of owning it. Does anyone have any ideas other than buying physical gold ? I know you can store it in vaults, at a price and the price is effectively a percentage of the gold rather than a fixed amount. If you are relying in gold rocketing to cover your cash losses than this is NOT the best way. As for gold stocks is there anybody here in the city who can recommend one - or are you too busy picking houses with your pending bonus.

Sorry - Left out a not

Saturday, October 14, 2006 10:16AM Report Comment
 

4. sold 2 rent 1 said...

On the subject of buying gold and renting - does anyone else have any problems convincing their partner that these are financially sensible ideas?

Our baby is due in January and I have convinced my wife to rent for 12 months. She has informed me this morning that after 12 months we must buy a house. She has accused me of having OCD with HPC, and to be fair she has a point.

It is very difficult to convince a nesting mother to rent for 5 years. Is anyone else in the same boat?

Saturday, October 14, 2006 10:49AM Report Comment
 

5. Maggots said...

would not buy so partner split with me. buying gold-does any one think that the price will continue to drop at least until the elections in the states in november

Saturday, October 14, 2006 11:50AM Report Comment
 

6. Retiredbanker said...

Savers are subsidising the profligate. Don't we just know it!.

If governments' do bail-out the over-spenders, then who in the future will bother to save?.

Saturday, October 14, 2006 12:51PM Report Comment
 

7. harold said...

Sold 2 rent 1

Similar boat, but we sold and rented so we could make career changes - we were fortunate to buy over 10 years ago and move up before selling. Even with inflation, the cash from the house sale would keep us going for quite a few years (no smugness intended). It works well - we can spend more time with the children as they grow up.

I have tried to protect the pot by diversifying into currencies of countries that do not carry huge trade deficits, and now only hold about 30% in sterling. So far this strategy has not worked spectacularly, but as I'm in it for the long-term I can afford to wait until the forex rate is favourable before converting to s, should I wish to. Let's face it the IS overvalued and at some point in the future will probably fall.

As for gold, I too think, despite recent falls, it will be a long-term bull market and should the price fall below $550 I will make a move in that direction.

The nesting instinct is strong - I suggest passing a few Armageddon articles her way to back-up your position. We have found renting great - the dishwasher breaks down, they send someone round to fix it straight away. And remember, should prices fall, you're accommodation will essentially be for free.

Saturday, October 14, 2006 01:32PM Report Comment
 

8. bidin'matime said...

Before you all get talked into buying gold, note that the article is by someone in that particular business.

As for renting / nesting etc., having faced this question during the last crash, I can sympathise, but as I have mentioned before, had I been able to persuade my wife to up-sticks with 2 young children and rent in 1989, when the idea first occurred to me, then bought back in at the bottom, we would be sitting on mega-bucks now. But you only get one shot at life and you have to do what you think is best at the time - we lived in the sort of place you couldnt find locally to rent (we even kept sheep - wouldnt go down well with your average BTL landlord..) and domestic harmony had to come before long-term financial gain.

We're about to move to a very nice house, renting for a little over 3% of it's market value, belonging to someone who bought it to retire to, but is going off travelling for a year or 18 months before moving in. So we shall have a nice place to live, but it wont be ours and we shall be back sifting through the Rightmove listings again before we know it. But it's all about frame of mind - we're trying to regard it as a sort of working holiday - living somewhere different, but still doing the same during the week - it will have more room for our hobbies than we have at present and it's got a south facing balcony with a bit of a view, great for those sunny winter days. But we wouldnt buy it - dont much like the 1960's design, but it will be an interesting experience, a phase in our lives when we lived somewhere we wouldnt have done had we not been renting and, who knows, it may even change our view of 1960's architecture.

So the key is not to regard renting as putting up with living in someone else's house, but as an opportunity to try out a different way of life, one you might otherwise prefer not to commit to by buying (or have the time for with all that DIY..).

Saturday, October 14, 2006 02:58PM Report Comment
 

9. Bhuvar said...

Gold is the traditional way of storing wealth, it has been for the past 3000 years. If it's been going on for that long, what has changed in the past 100 years to make us believe that gold is no longer required in the modern financial system. Everybody should hold at least 10% of their assets in gold/silver, if everything around you collapses at least u will still have something to build yourself back up again. You can't rely on your government, your central bank or even the company you work for to look out for you and your families interests. That's down to you as an individual to make the right decission at the right time. There are many ways of buying gold apart from 1 oz gold kruggerrands off Ebay (which I dont recommend). Look into websites that allow you to trade and buy gold at the current market price such as www.bullionvault.com, there are a few others like e-gold.com and e-money I think.

Saturday, October 14, 2006 03:40PM Report Comment
 

10. harold said...

"Before you all get talked into buying gold, note that the article is by someone in that particular business."

bidin'matime, good point - the article should be read with that caveat in mind.

Saturday, October 14, 2006 03:53PM Report Comment
 

11. d'oh said...

holding out - you could look into the Perth Mint certificate scheme or www.bullionvault.com

As for convincing partners, I don't know what to do. I have friends whose partners are putting extreme pressue on them to buy. All one can do is present them with information. It is one of the most important decisions of your lives, so they should at least agree to consider and think about the possibilities. If they aren't willing to at least discuss the situation and do some reading themselves, then I'd be a little scared.

Saturday, October 14, 2006 05:18PM Report Comment
 

12. inbreda said...

Holding out - I have an online share trading account with selftrade.co.uk and have had no problems with them whatsoever. It is possible to purchase shares in gold (search for Lyxor). Very easy. No problems with storing or insuring. Can sell at the click of a button.

My missus wants to buy - maybe I'm just being arrogant but I just tell her no. Job done.

Saturday, October 14, 2006 05:59PM Report Comment
 

13. holding out said...

d'oh and inbreda - Thanks for the tips.

Harold - I wasn't planning to buy gold on the basis on this one article. I just want some gold as a hedge against runaway inflation. It may not happen in which case I may lose on it (but even then I don't think so) but it might do in which case I don't want all my eggs in one basket.

As for convincing WAPs I too have two kids and am being not so much pressurised as having houses for sale pointed out to me. Provided they are not going up too much the pressure is reasonably off - steer clear of the Daily Express/Mail etc.. (Sound advice at the best of times).

News of late hasn't helped the crash argument but a couple of interest rate rises should help Mind you even that looking a bit iffy now. It looks like you might have to hold your nerve for upto a couple of years before some positive news comes our way.

Saturday, October 14, 2006 07:09PM Report Comment
 

14. Countdown2007 said...

With regards to nesting and longing for your own place....

We have got two young kids and have been renting for years now.
A good argument for me as the mother is that, we can afford the rent on one salary, which allows me to stay at home and look after our little one.
Would I insist of buying now that would mean taking out a huge mortgage and us both having to work and someone else would have the pleasure of looking after our children!
I am happy to stay put for now and wouldn't want to have those sleepless, worrying nights...!

Hope this might help to convince some of your partners too...

Saturday, October 14, 2006 10:17PM Report Comment
 

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16. Nick said...

on buying gold, I don't call it an investment, but a hedge, (ATS bullion are exellent, even post on Fryday so you can sighn the RD slip Saturday) buying a life jacket isn't usually termed an investment and no-one will sell their life jacket after the ship starts too sink, I'm tempted to STR but paper money these days is actually worthless, only has value so long as we all belive, if we all stop believing then no value and incidently no economy

Sunday, October 15, 2006 09:23AM Report Comment
 

17. nick said...

on buying gold, I don't call it an investment, but a hedge, (ATS bullion are exellent, even post on Fryday so you can sighn the RD slip Saturday) buying a life jacket isn't usually termed an investment and no-one will sell their life jacket after the ship starts too sink, I'm tempted to STR but paper money these days is actually worthless, only has value so long as we all belive, if we all stop believing then no value and incidently no economy

Sunday, October 15, 2006 09:24AM Report Comment
 

18. Jolo said...

Holding out - I think the next rate rise will be a HUGE blow to VI's. Especially if it is November, even if it's the last rise for the next 6-12 months at least the VI's will be a lot less cheery and will start sweating each month one day before the mpc get together. I still laugh over the last rise in August the amount of panic among them for only a 0.25 raise. Belive me Vi's are just as bothered on the other side of the fence as we are.

Sunday, October 15, 2006 09:57AM Report Comment
 

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