Introduction
How imminent is this crisis? If we go by rational standards, by which I mean drawing conclusions from logically constructed premises, its probability of happening is 99% (leave 1% for an asteroid hit). This follows from the same economic and financial laws that let us predict with confidence that in 2025 financial markets will still exist.
Predicting the end of civilizations (or societies) however is another thing; these are complex systems whose purpose and existence look like they are part of an intelligent plan put in place by Higher Beings. While that statement is hard to prove (due to its recursive nature) reasonable conclusions can be inferred IF such Beings are rational or consistent since any system that lacks such qualities would have long ago deteriorated or even vanished (13.75 billion years is too long a time for any material system to survive without external support). Indeed we can even infer that IF such Beings are rational and consistent, a scenario of the type we are now seeing should be normal. Think of it this way – how long can humanity abuse the planet and inflict injustice on fellow humans and expect no comeuppance while believing that Nature will give them a pass?
Total prescience is not needed because all that is important is bounded rationality which means that if systems are working and robust, Transcendental causes would be unnecessary because they are doing their assigned tasks.
Bounded rationality means we only have to be concerned with the rationality of things that can affect us greatly. Since Expected Value can be high because the Outcome is high even if the Odds are low, we need not worry about accuracy. So what are the assumptions that we ought to scrutinize carefully even if we are not 100% sure that they will happen, insofar as the economics of personal finance is concerned? I believe that these are the key ones:
a). Global GDP will contract by at least half; keep in mind that in 2008-9, a far less severe crisis took out nearly 40% of GDP. A 10% additional GDP cut from a crisis whose parameters are nearing 3-5 times higher will be conservative.
b). A cutback in global GDP of that magnitude means that unemployment will jump to 50-70 %. There will be long bread lines with entire families roaming the streets in search of food and shelter (if utilities are even running).
c). Unlike during the 2008-9 crisis, the US and its major partners could launch massive ‘make work’ public projects and rescue plans. Not one of them can now, because all of them are bankrupt, led by the biggest of them – the US. They’d be lucky to limp then
d). This means the prospects of quick recovery will not only be lower but will take a longer time. Global trade, and with it jobs, wages, poverty incidence and security will take years to recover, and most likely in fits and starts.
e). Financial markets will recover first not only because it is critical to any recovery plan but because unlike goods production and distribution it is not physically bound, relying on confidence and the same greed/fear factors. This is why I keep saying be careful when condemning ‘greed’ because its outward-oriented form is what will save you. It is the other self-oriented greed that ought to worry us because that is what caused all these.
f). With millions of people jobless and dependent on basic subsistence (growing food, trapping wildlife, etc.) the financial markets will gradually pull the economy from its doldrums. It is not clear how soon this will occur but without financial markets the situation will be worse. That is why governments will not let markets vanish even if many banks especially the weak ones will close. I am not sure if there will still be Central Banks but the new technologies and abolition of fiat money creation may render their presence unnecessary eventually.
Until the world economy recovers, the threat to people in terms of famine, diseases and crime will be so high that for that reason alone I doubt that such an extreme scenario will happen. But there is no assurance, mass extinctions of species and wholesale destruction of planets are more common than supposed. [Recent findings indicate that Mars’ entire plant and animal life disappeared from some event, who knows if it was for the same reasons that Earth is now about to go through]. There is some predictability in human nature that makes it easy to forecast what will happen if they keep being stupid. We do not know and should not plan for that, only those we can do something about.
Given the Above Premises What Can we Plan For?
We should assume that goods and services will gradually move from barter/exchange to a medium of exchange like money that is created by consensus and not via the same money creation process involving banks that led the world down to this same problematic path. Bear in mind that people were using shells and even stones to denote value exchanges before banks and Central Banks came to exist, and here it is not even posited that both will vanish.
How would one manage personal finances in a stripped down and healthier financial system and markets? The following seems logical to me:
a). The enterprising (‘greedy’) among folks will still amass surplus beyond what they need or can invest directly
b). Governments will still function though more sanely and focused on survival and eventually development. The first thing they will reestablish will be well regulated and efficient markets because they need to mobilize savings and invest them in the manner explained in the seminal paper (No. 1) on the New Economic Order
c). As savings increase, companies will sell shares, debt will be issued followed by derivatives (futures, options, options on futures, etc.). This assumes that all finance went to zero, which is not realistic (just tamped down and better regulated)
d). Soon market speculators will appear and they will provide the liquidity and demand that will grow markets. The thinness of markets will extend price discovery and trigger episodes of volatility that can destabilize markets. The difference is that the volatility is not deliberately created for political or unfair market advantage.
e). Then savers will need help to raise the returns on their savings, and people will plan their lives around it. The difference this time is that the process will be slower but the demand will be greater because jobs in the basic sectors will be difficult to come by. [Most of the jobs and incomes will be generated in the sectors listed in the last essay. By inference those are also the sectors where most of the New Investments will flow into]. But the more efficiently ran markets will snuff out most of the abnormal returns earned by those who used to enjoy privileged access to information or had an unfair advantage due to position, resources or contacts.
So, How Exactly Will Above Average Investment Income be Earned?
a). Buying and Holding Investments will not generate above average returns. Volatility will reduce the incentive for earning returns based on beginning and terminal period. There will still be room for value investing but for extremely long term investments which will be incompatible with volatility (that will drop to < 10 years initially)
b). Trading assets will remain the primary source of extraordinary returns, but not the type of trading that the markets have seen in the last 3-5 years. There will be more instruments (equities and bond futures, options and options on futures) and trading will become more value oriented than speculative price fluctuations driven.
c). The combination will be as follows: Investing will still be driven by fundamentals (scale of growth, financial numbers and some measure of insider activity). This is Paul M’s winning investment approach for which he will issue a written guarantee to turn $ 10 thou to $ 100,000 every year (and he is not the world’s top hedge fund investor for nothing. Hedge fund managers of that caliber do not issue such guarantees lightly esp. that they do not benefit from issuing them, think about that. The undersigned deals with a half dozen of these pros and I am satisfied that they all meet my competence standards.
d). Having identified the sectors, the next step will be structuring the trades and managing them. Here is where Roger S’ approach delivers 300-2000% returns (vs 2.5% that banks provide). The secret is using Options and Futures which is the only way to earn such returns. Does it mean assuming outsized risks? If one does not understand how such trades are done [the undersigned not only teaches them but bet on such trades amid the recent political news driven market instability in order to see that this works down to the last step]. Those who are not willing to lose money to see this first hand will not understand this process and should stay away.
e). If this process is so complicated, how then will an average layman who did not go to finance or economics school ever have the chance to earn above average returns to make him prosper and not just survive in the New Investment Order. The answer is easy: these investment pros have reduced the process to an efficient formula – they do all of the analytics, you subscribe to a service for a fee, they send you each week their trade recommendations and you enter the trades yourself (as simple as reading an email to your broker). You don’t need to understand trading let alone the arcane points of derivatives (which can rob you of your life). The annual fee ranges from $ 1500-$ 2,000 but you could get as many as three to five trades per week (250/year) of which 70% will make money at returns ranging from 20% per week (20×52=1,000% pa) to 50 % per week (2,500% pa).
Traders do not guarantee perfect wins (60-70% is typical but their profiit rates are high enough to get those returns. In Paul M’s fundamentals driven approach his astute selection (the best in Wall Street) gives 300-2000% returns BEFORE USING OPTIONS TO JUICE UP RETURNS. This is why he can afford to give written guarantee of 10x return over a year. Combining his fundamentals approach with Roger S’ trading strategies, the returns can defy anything that theory says, except that they work and I’ve seen their track records.
f). There is still one problem – the investor whose knowledge of finance is zero or is so antiquated that s/he cannot hope to participate in any of these. The undersigned has two solutions. The first is for them to still open their brokerage accounts (in the US or Canada if possible), I will subscribe to the service and allocate the cost, I will evaluate the trade recommendations and pass on only trades that meet my investment criteria. In fact this is more of a confidence boosting measure because I cannot presume to be more knowledgeable than these pros given their 20-30 years lead over me although there are times when I can spot potential losers; if the trades are OK, I will trade them in my own portfolio and constantly relay how they should manage them, which the pros often leave up to them.
The second solution is that I will manage a portfolio made up of their savings (some donated for them) and give them the returns. There remain legal questions that need to be resolved but will be before I start towards the middle of this year. The key point is that investors need not know trading to get these results. But I also have met and traded with 60, 70 or even 90 year olds who learned the basics and are doing very well on high incomes working half an hour a day.
Without this fallback income, I can say that life in the New Economic Order will be very arsh indeed. (End of Essay)
sonofbastiat 