Monday, 19 December 2011

Investing for the end of the world

"-...well...i don't like the way the country's ran, don't you know,
and, erm...that's pretty much what i was expressing in my poem.
the government...the american government -
they're sneaky, they're very deceitful,
they're liers, they're cheats, they're rip-offs.
i mean, the american government is one systematic government that...that nobody can trust.
i don't trust them myself.

and how long have you been writing for?


how long have you been writing for?

-since i was four."

-Bill Bailey Finnegan III 
quoted on Slow Riot for new Zero Kanada EP

In the event of total meltdown many people seem to consider buying gold a good idea. However I would suggest that one needs to have the physical gold or some other from of non-financial asset if one really believes in Armageddon . This is because of course total Armageddon implies the loss of all banks and counterparties.

Now I am not so sure that buying gold is a great idea in preparation for a world without money. Surely the main things people will want are food, fuel and shelter so a large cache of all three sounds a better bet. Aside from this how can one hedge one's exposure to a non catastrophic outcome? After all building a bunker and filling it with gold, food and fuel whilst liquidating all your financial assets might not be a sound idea if said apocalypse does not arrive. (I wonder what Harold Camping's asset composition looks like). 

So I would argue a good hedge is to liquidate all your observable financial assets by taking your money out of the bank/stockbroker etc. You could preserve this as physical cash or investment in previous metals (not diamonds due to their being a horrendous investment.) You can bury this in your garden or some other 'safe' place (or even your bunker should you already be so advanced).

Now should apocalypse not occur the taxman may wonder what you spent your cash on. You may even be out of a job having been so convinced of the oncoming collapse of the modern financial system. So I would suggest creating a plausible cover story for your spending. Likely outlets for the cash would by a drugs problem or strippers.

I would recommend stating you spent the cash on strippers rather than drugs due to (i) a lower social stigma (except with your spouse who is probably in on the scheme) (ii) you are less likely to find yourself referred to a treatment plan and (iii) you can make up great sounding war stories from your strip club blowouts to entertain your friends (you need these cover stories too in order to convince the taxman). Ensure that you have been to a couple of strip clubs during the run-up to your liqudiation to lend credibility to your argument. Take some friends as witnesses and ensure you are seen spending lavishly. This is also easier than pretending you spent the cash on drugs as you might actually need a bloody nose or some track marks to keep that line convincing. However clearly if you already have a drugs problem option two is more feasible.

Now this is the trick if there is no end of the financial world; with no observable assets you can survive on state benefits for as long as you need to since without the apocalyse the welfare state still exists. One can claim state welfare as one now has no assets, except perhaps a bunker where you live.

The gold/cash / food / physical metals you bought are still there and you can sell them off for cash in increments when you need it for top-ups and luxuries. There are plenty of dealers who buy metal for cash no questions asked. If you are really risk averse you could also hedge the price of the underlying gold etc as without an apolcalypse the price of gold could fall during your holding period. By buying a few put options on your assets you get some downside protection cheaply and its a win-win. If the banks collapse your hedge is worthless but your physical is probably worth more. If the banks dont collapse you have a nice put option to cover your potential capital losses.

Just an idea for all those doomsayers who read Roubini and post comments on the Telegraph.

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