Well this took me forever to write on another thread, so I'm going to indulge myself and give it it's own thread. -------

Here's my two bit opinion on y2k-wealth preservation.

First, diversify. Nothing original about that idea, it's what any pro invstment advisor will tell you to do. However, what they invariably mean by "diversify" is to hold approximately 100% of your wealth in paper/electronic promises to pay. What I mean by "diversify" is to ensure that you have a portion allocated towards each different kind of investment. And I mean DIFFERENT. i.e., you can cover yourself to come out ahead, (or at least relatively "ahead") if you have an investment strategy for any realistic y2k scenario, i.e. ranging from "Oh my Lordy by act of God we somehow escaped with just a killer recession", all the way up to "Capitaclysm with the lot, every organism for himself, much wailing and gnashing of teeth, woe, woe, woe...". Here's how to do it...

* Have 30% of wealth in precious metals in your possession. Gold seems to be the most popular, for strong historical reasons, plus because it is more easily hidden and transported than silver. Silver is bulkier, but apparently it is cheaper now even than gold is, going by the historical relative-perceived-value-ratio that the prices of these two metals have usually maintained. If you've got yourself a secure base where you can ride out the worst of y2k then I would lean more towards silver, without ignoring gold. If you're stuck in a city like me, then go for the gold.

Platinum is a bit more of an unknown quantity to me, basically because it hasn't been discussed much here at Yourdonfor's. It's price per ounce is higher than gold's, therefore I guess it has the same advantage over gold that gold has over silver, i.e. your stored wealth weighs less, takes up less room, is less conspicuous. A downside to platinum is its probable dimished utility in a mega-teotwawki scenario; I figure that a gold dubloon will find more acceptance as currency in a post-apocalyptic future than would a small ingot of platinum. An upside of platinum is that it has much more intrinsic? wealth than gold because it's current high valuation is due more to it's industrial applications than merely to convention, precedent and sentiment, which account for most of gold's valuation. (Platinum - 60% industrial utility, 40% rarity, sentiment; gold - 10% industrial utility, 90% history, sentiment.) But then again, there might not be a whole lot of that sort of industry going on, right? So platinum is not the metal to buy for mega-teotwawki.

But it might be a nice one to get into for a severe recession - through - to - severe depression, because it is mostly mined in South Africa, which is currently a chaotic shambollic place, and which will surely be much worse post '00. (Oh, the rest of the platinum comes from Russia!) I've never before heard of anyone actually owning and possessing platinum as a survivalist measure, maybe there are good reasons for this?, or maybe not. To summarize this metals section, go something like 20% gold, 15% silver, and maybe 5% platinum if you're feeling adventurous. (And diversify the hiding places too perhaps? Some in the wilderness, most in your safe, some at your friend's house??, some in a safety deposit box?????. Just hedge, hedge, hedge.) mithril?

* Have 25% of your wealth in cash (in hand, not in electronic form.) It's obviously less risky, more conservative (although not more conventional) to have it in your own possesion than to risk seeing it evaporate in a total meltdown. (unless you believe that Greenspan BS about robbers.) Not only is it good for getting you over emergencies, cash can also be viewed as a positive, for-growth investment given the strange times that are fast approaching. In Gary North's quite excellent "Open letter to Alan Greenspan", he explains how the purchasing power of cash would multiply eightfold in a scenario where electronic money has lost its magic power. If North is correct about this, then 25% in cash would leave you relatively wealthier than you are today, although the concomitant small-a apocalyptic landscape would dampen your spending spree enthusiasm a little. Small notes if you can.

* Have 5% of your wealth in "stuff". By this I mean stuff that is relatively cheap now, but will rise in value during a depression-plus. Stuff such as non-hybrid seeds, bullets, cigarettes, alkyhol, crack??, bic lighters, stored food. I'm guessing you don't own a warehouse so go for compact items. You can barter this stuff, or sell it at markets.

Having lots of stuff might make you conspicuous and bring danger, so that's certainly a downside. Seeds are a great one for multiplying value...you could buy 5kg bags of seed, divide the seed up into small portions, sell those portions at much less than the post-disaster going rate and still multiply your money considerably. Consider such stuff as an investment, not as part of your own preps.

*Put 20% in short positions on the futures market. Now this money could well evaporate into thin air if TS really HTF, but if things are that dire then you'll already be a relatively rich person due to the vastly inflated value of the cash and metals you're holding. But, in any situation from a mild downturn to a-killer-depression-but-the-system-survives, such futures investments will necessarily increase in value. The more the markets fall, the more they pay off. If the markets shed 90% of their value ala 1929-33, then an investment of 20% of your capital in short positions will more than cover the initial 100% you started with. You will have preserved your wealth. Now you may well not be able to access it for quite some time, but it will still be there on someone's books, and as the system pulls itself back together or mutates, you would in all probability see your electronic promise to pay being honoured. Unless maybe the government comes out with some kind of newfangled anti-carpetbagger law, which sees all short positions null and voided. And, or unless the honouring of these gambles is contigent upon the continued viability of particular market players??, perhaps those who you contracted with, I guess. Futures trading is esoteric and there's a great deal about it I don't know. Freddie the freeloader's threads in the banking/finance? section of the archives are a good place to start for more info, but I'd want even more info than is there before putting my money on the table. It's a good idea though, this selling short business. Maybe less than 20% in futures is sufficient to cover the 100% you wish to preserve, I'm not sure.

* Put 10% into extra teotwawki preparations!! Be thankful that unlike some of us, you have any money to worry about at all!

* Give 10% to other people, you greedy bastard! ;~) Spend that money on preps for other people, and you'll do very well on the big scoreboard in the sky.

There'ya, I've saved your moola and your soul. Unless..unlessss... there's bound to be something I haven't thought through?... do tell.

-- number six (Iam_not_a_number@hotmail.com), July 08, 1999.

-- number six (Iam_not_a_number@hotmail.com), July 08, 1999

Answers

I like the puts on the LEAPS for the S&P 500 as a way to short the market. Buy the puts outright, no margin calls. I fully expect the S&P 500 to trade for less than 10% of its value in about 7 months.

Now if you are sick and tired of dealing with the DWGI's, please remember the old Boston Irish politics slogan, "don't get mad, get even." Then just take extreme comfort that you are taking the $ from all the DWGI's. Don't get mad or sick, take their **** money!

And go spend some of it on something fun! I expect that antique Lionel trains will go for peanuts next year. Always wanted some more!

-- Tennessean (holladayl@aol.com), July 08, 1999.

#6, I agree that diversity takes on a whole new meaning for Y2K.

On a variation of "stuff", but not for barter, if you own your home and intend to stay there, consider getting those major house repairs out of the way that you have been putting off.

By far my largest Y2K expenditure was a new roof. (3 layers of shingles to dispose of, thanks to the prior owner.) My home is now physically sound, which is great peace of mind in itself.

If you are rearranging your investments and taking a hit on capital gains anyway, like selling off mutual funds, you may have extraordinary liquidity this year. Gotta be good for something.

-- Brooks (brooksbie@hotmail.com), July 08, 1999.

I agree, except I think the bank and stock market systems will hold together. If that happens and the stock markets fall, the governments will try to spend their way out. This will create inflation IMHO. So, I want my cash in money market account, not the mattress. Some of my gold is in gold mining mutual funds. I am also buying a little piece of the commodity market, which ought to go crazy before Dec 99.

-- noel (ngoyette@csc.com), July 08, 1999.

number six,

I guess I'll bring this along from that thread also.

Let me congratulate your: First, diversify.

On the other hand, while I think that cash may appreciate, I do not expect gold to do so.

But my primary reason for replying to your post is a concern about the "20% in short positions on the futures market". Futures trading is very risky, even for pros. Not only is guessing market direction crucial, but timing is also. Furthermore, trading in futures contracts can lose more than your initial investment, much more.

I have noticed Freddie's enthusiasm for, and confidence in, certain kinds of investments. Both the enthusiasm and the confidence can be hazardous when making investment decisions.

In another thread Freddie brought up LEAPS put options. These are safer than futures in that you are not on the hook for more than your intitial investment. There are various kinds of them, and some may be good investments now and some may be even better later this year. I happen to think that is the case, although unlike Freddie, I prefer index options to stock options. In any case, such investments need to be thought through carefully.

Jerry

-- Jerry B (skeptic76@erols.com), July 08, 1999.

Hi jerry, I had been worried about the thought in the back of my mind that futures can lose you more money than you initially bet on them, so thanks for bringing that up. ** So, where I've said "buy short futures" everyone please read it as "buy LEAPS put options". ** I agree that index options are a better way to go than stock options, although Freddie appears to like living on the edge a bit more, and/or sounds like he might know what he's doing and so he might pick the right stock options.

-- number six (Iam_not_a_number@hotmail.com), July 08, 1999.

Can anyone help me out:

I want to short the market but have less than 1000.00 allocated for this. Any suggestions?

thanks,

gigi

-- gigi (gigi@lectrocottage.hum), July 08, 1999.

Number six, thanks. I love to talk about money. I yelled at my sister about money today, then I went, "What the hell it's not going to be worth anything later anyway..." I am 90 percent out of the market-- can't bear to sell some of my bearish stocks... (yes, greed). I just went into 10-year, inflation adjusted treasuries. But I am going to diversify in capital preservation type ways. Hell, it's a shot, even if a long-shot. The futures market? How are you going to get out when the phones and mail don't work? Any ideas for when money is devalued? DEfuinltey buy all the consumer goods you can. They might not manufacture them after 12/31. Ever the optimist...

-- Mara Wayne (MaraWAyne@aol.com), July 08, 1999.

gigi,

There are various ways to short the market. Each of them has pros and cons, and many of them require more than $1000 to get in the door. All of them depend on timing, although in different ways.

I do not make investment recommendations, but I can mention some aspects of my approach to shorting the market on a tight budget.

There are LEAPS (i.e. long term options) on the Dow Jones Industrial Average. (There are LEAPS on many things, but my approach uses DJIA LEAPS.)

DJIA options are collectively termed DJX options and have "strike prices" of one percent of the DJIA. So, for example, a DJX option with a strike price of 110 would equate to a DJIA of 11,000.

There are call options and put options. To "short the market" one would buy put options.

Then come the key questions: when will the market drop, and by how much?

The answers: real soon now, and a whole bunch, are not good enough.

So, I plan to take several guesses regarding the when, and I am guessing "more than 20%" for the how much.

Today, I could have bought a DJVML contract for $175 plus brokerage fees. (Actually, I bought a few two days ago at the same price). DJVML options expire in January 2000 and have a strike price of 90. If the market continues recent trends, this contract will become absolutely worthless in six months!

In another three months, if the market continues recent trends, I expect to buy March 2000 contracts, perhaps, for example, DJVOL. And then in another three months, June contracts.

I could have bought June contracts today, but, for example, DJVRL, a June 2000 put at 90, would have cost 337.50 today, plus fees. If I wait until December, and if the market continues rising, I would be able to get contracts with a higher strike price at a lower cost.

Meanwhile, if the market tanks, the contracts that I (will) have bought will appreciate. If the market tanks so much that options trading breaks down before I get out, my investment will become moot. (You will forgive me for continually bringing up the fact that there are risky aspects to this stuff.)

Again, this is not a recommendation for anyone to follow; it is just one person's approach to a tricky situation.

Jerry

-- Jerry B (skeptic76@erols.com), July 08, 1999.

You can follow DJX options at:

http://quote.cboe.com/QuoteTableDownload.htm

Enter DJX in the entry field and press the download button, etc.

I will be offline for a couple of weeks, so I won't be able to post follow up replies for a while.

Jerry

-- Jerry B (skeptic76@erols.com), July 09, 1999.

I feel that I better put a caveat on all this, i.e. this is not investment advice?, I know nothing, talk to a pro, yadda yadda ... If you feel comfortable taking investment advice from a young unemployed philosopher (now there's a tautology) who doesn't even believe in Capitalism (at least not on Mondays, Wednesdays and Fridays) then by all means do what I said. ok.

It's just that I'm enthusiastic about the notion that y2k aware people are in a GREAT position financially, well at least compared with everyone else. Instead of y2k'ers thinking "Oh no, bad news on the horizon, I hope I don't lose my money", we can instead realise that forewarned = forearmed, and that this advantage enables us to create $-plans that would see us cover all the bases and pretty much guarantee continuity of wealth, (callously disregarding the social and humanitarian consequences of y2k for the moment.)

Following my plan, you would lose maybe 20% of your wealth in a mild y2k-recession, due to capital gains tax incurred cashing in stocks to buy metals, inflation devaluing your cash, and due to owning unnecessary "stuff" plus extra unnecessary preps.. Although the increased value of the LEAPS puts and the metals would ensure you couldn't lose tooo much.

If y2k produced a savage recession, the puts would be worth a lot more, the metals would too. If you lost your job you could be a "stuff" seller for a while, plus you'd have all that cash on hand to tide you over. Your friends and extended family probably really appreciate some of that y2k-preps you bought them, they might be inclined to return the favour or return the stuff if you're in real need. Which you shouldn't be, because your LEAPS puts would be worth so much, maybe so much that you'll break even or better on the plan.

If y2k produces a depression or a Greater Depression,(now we're talkin') then the LEAPS puts will have gone through the roof, the metals would have too, the cash might be shakey if there's hyper-inflation but would still be nice to have on hand (or else just spend it quickly on whatever). If things were so dicey that your puts disolve into the ether, then it is a fair bet that your metals will have roughly tripled in value, thereby preserving your wealth. If things hold together sufficiently for you to collect on your puts, then you will probably have profited considerably from the whole sch'mozzle, you evil bloodsucker you. :~}

If it's small-t tEOTWAWKI through to The Fall of Western Civilisation, well then you've got your metals, (which may or may not be worth something), you've got you cash, (which may or may not be worth something), you've got your stuff, (which will be worth lots), you've got your preps, (which will be priceless). And you'll have helped out quite a few people with the preps you gave them, (which will be worth lots in karma, warm fuzzies, self-respect, and afterlife credit entry points.)

Hopefully you'll still have your life.

Think of it like a roulette game where you're placing the same amount on the red and on the black, but where the green zero is oversized, and the croupier could go berserk at any time. But you have to play.

-- number six (Iam_not_a_number@hotmail.com), July 09, 1999.

gigi,

Anticipating a couple of possible questions:

1. Let me reword the sentence:

Then come the key questions: when will the market drop, and by how much?

to:

Then come the key questions: by when will the market drop, and by how much?

As long as the anticipated market move occcurs before the expiration date of the option contract, the contract appreciates.

2. If I had to make only one guess for the "by when", it would be either March or June.

As of yesterday, March DJX 90 puts, DJVOL, could be bought at $256.26 per contract, June DJX 90 puts, DJVRL, at $ 337.50 per contract.

There are various pros and cons for each.

3. If you download the DJX info as mentioned in my previous post, you will see, among other things, three sets of December options. The first is for December 1999, the second is for December 2000, and the third is for December 2001. A new set of the info is available each trading day, and includes prices on about 170 DJX options. Sometimes that site is very busy right after market close, so I wait an hour or so before trying to do the download.

4. Here is what an entry looks like:

Mar 90 (DJV CL-E),24 3/4,pc,25 3/8,26 1/8,0,200,Mar 90 (DJV OL-E),2 1/8,pc,2 3/16,2 9/16,0,12164,

The Mar 90 (DJV CL-E),24 3/4,pc,25 3/8,26 1/8,0,200 part on the left is a call, and the Mar 90 (DJV OL-E),2 1/8,pc,2 3/16,2 9/16,0,12164 part on the right is a put. The parts in ( ) contain the symbols. Throw away the blank and the -E, and for the put you get DJVOL.

Parsing the put info: the Mar is the month that contract expires. The 90 is the "strike price", in this case meaning that that contract will be "in the money" if the DJIA gets below 9,000. The 2 1/8 is the last price at which it traded. The pc means it did not trade yesterday (if it had traded yesterday, that space would have shown the difference since the previous closing price). The 2 3/16 was the closing bid, and 2 9/16 was the closing ask. When you buy, you pay the ask times 100, when you sell, you get the bid times 100 (in both cases you get to pay broker fees). The 0 is the volume, the number of that contract that traded yesterday. The 12164 is the "open interest", i.e. the number of DJVOL contracts that existed as of yesterday (or perhaps the day before; I have an idea that that info is a day old, but no big deal).

Here is the corresponding info from June 8 when the DJIA closed at 10,765:

Mar 90 (DJV CL-E),24 3/4,pc,23 3/8,24 1/8,0,200,Mar 90 (DJV OL-E),4,pc,3 5/8,4 1/8,0,12092,

Things change, sometimes slowly, sometimes quickly.

Jerry

-- Jerry B (skeptic76@erols.com), July 09, 1999.

number six,

Yes, one must watch out for those croupiers. :-)

Jerry

-- Jerry B (skeptic76@erols.com), July 09, 1999.

One more item: these options expire the Saturday after the third Friday of the expiration month; in effect, they expire at the market close the third Friday

Jerry

-- Jerry B (skeptic76@erols.com), July 09, 1999.

Excellent job, number six! The Village is proud of your thoughtful essay.

One additional consideration: You may be the only financial "GI" in a family of "electronic promises to pay" investors. You might consider investing more than those percentages in the more TEOTWAWKI- level investments to hedge against a family (or inheritance) losing most of its wealth.

And, Brooks, I think it was --

'On a variation of "stuff", but not for barter, if you own your home and intend to stay there, consider getting those major house repairs out of the way that you have been putting off. '

We've wondered about deferrable home repairs -- maybe labor will be cheaper (help out your unemployed neighbors) but materials unavailable (or more costly) after January. Hard to do, perhaps, but maybe stockpile the materials if you know 'em, (with a potential contractor's quick advice?), then see what the cash and overall picture is next year.

Jerry B offers sound financial thoughts. I hoped he would also add the idea of "implied volatility" in put options. In other words, the price builds in the requirement that the market drop a certain percentage before you start to make money. It's not a dollar-for- dollar result as short-selling is (which is itself riskier overall).

Markets are not totally stupid -- they do their math very well on the things they are taking into consideration and they make you pay the fee for your position. Our only edge is that we believe they have not adequately factored in y2k. We might do a little better than them if our perspective bears out, but not as much as some people would like to think.

-- jor-el (jor-el@krypton.uni), July 09, 1999.