Recession proof emergency funds

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Recession proof emergency funds

Post by Close_enough » Thu Nov 10, 2016 2:31 pm

First a warning: It's kind of obvious why I'm asking what I'm asking. But, I'm asking everybody to stay out of the politics of the situation. Let's call it a "Hypothetical scenario" if it'll make the moderators feel better.

Goal: To have a stash of emergency funds that will not devalue

Assumption: The dollar will lose a lot of it's value (Think about the Russian Ruble during the 1990's). This is not a TEOTWAWKI scenario. More of an economic crisis.

Requirement 1: It has to retain most of it's value regardless of what happens to the dollar.
Requirement 2: It has to accessible within a period of no more then a few days. No long term investments.
Requirement 3: It has to be accessible internationally (Mexico, Canada, Europe) as well as locally. This includes online banking, B&M institutions, and cash and carry.

Options I know of:
1) Intrinsically valuable materials (precious metals, stock in physical precious metals, valuables etc.):
Advantages: Not a fiat money, portable if all else fails
Disadvantages: Value tends to fluctuate. Considerable loss to convert to local currency from costs and commissions.
2) Stable foreign currency (Norwegian Krones, Swiss Francs)
Advantages: Stable. Most banks can readily convert it to the local currency. Transactions can be handled online.
Disadvantages: It is a foreign currency. Subject to the whims of a different government. There is still a percentage loss to the bank to convert it to the local currency.
3) Bear market safe stocks or funds, callable bonds, etc. I am way out of my depth here.

Thoughts from any economists here or BTDT folks?

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woodsghost
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Re: Recession proof emergency funds

Post by woodsghost » Thu Nov 10, 2016 3:35 pm

My go-to is Beans, Bullets, and Band-aids. But as you noted, they don't travel well. Well, they do, but how do you explain $20,000 in bullets to the French customs official? Probably a "best" option if you are setting up a new life in Somalia.

Gold or other PMs are a classic choice. That has been discussed before. My guess is you need to hold them off-shore. Leaving your hypothetical country and setting up life in another might be difficult if you are trying to leave with 4 lbs of gold bars or jewelry. That might also raise some "renouncing citizenship" questions and issues. I'd hardly wish to renounce citizenship over 4-16 years of problems. Well, maybe if I lived in Nigeria or Bolivia, or similar.

I really don't know the legal issues of moving wealth. I suspect there are some serious considerations as there are probably some people looking for drug dealers or other criminal enterprises, as well as those who might be less committed to citizenship.

The citizenship stuff is big on my radar because I read a bunch of stuff about how Congress is not very kind to those who renounce citizenship. I just suspect any sort of "leaving the country" would trigger some of those thorny issues.
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Re: Recession proof emergency funds

Post by quazi » Thu Nov 10, 2016 3:38 pm

Have you looked into crypto currencies at all?

I'm not very knowledgeable about financial stuff, so I'm definitely not endorsing anything, but it might be worth researching Bitcoin as something to put a fraction of your emergency funds into.

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Re: Recession proof emergency funds

Post by Close_enough » Thu Nov 10, 2016 4:54 pm

woodsghost wrote: The citizenship stuff is big on my radar because I read a bunch of stuff about how Congress is not very kind to those who renounce citizenship. I just suspect any sort of "leaving the country" would trigger some of those thorny issues.
Citizenship stuff isn't on the radar. Unless I have to deal with pogroms or similar problems, I fully intend to stay here. But, in a worst case scenario, I want to be able to self sustain in a neighboring country for a few weeks or months.

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Re: Recession proof emergency funds

Post by raptor » Thu Nov 10, 2016 5:23 pm

In recent downturns (depression 1930 all the way to the 2008 meltdown) the best form to keep emergency fund was simply cash as in $ bills. Obviously this poses a bunch of problems especially if you get over $10,000 in cash.

These problems include security and today even the ability to pay with $100 bills.

Still for emergency funds I recommend plain old cash and credit cards.

The question then becomes where do you keep the cash and in what form?

Speaking from a personal perspective I like to keep my cash reserves in two accounts, one in a local bank (albeit rural bank near my farm) and a national bank. The logic being that one is likely to survive and function in all but an EOTWAWKI event (and if that happens who gives a shit about $ then). I also have lines of credit at each bank to 1) establish a known presence and 2) in the hope that if the SHTF it will still function and I have an ability to provide additional emergency funds.

I also like to keep physical cash in $100 and $20 in sufficient quantity that I can survive at least a month. I have no intention of saying where that is kept. :wink:

That and I have physical PM that I likewise keep with the cash.

However if you really want a decent emergency store of value, good commercial property that produces rental income and farm land that you either lease or operate yourself will produce income (or food in the case of farm land) in all but the worst of situations.

The best emergency store of value is an income producing asset. I would note that neither cash nor gold will do this. In addition cash in particular can be subject to devaluation through hyper inflation.

Still if you look at 2008 as a recent example everything including real estate, PMs, stocks, bonds basically everything declined in value, except the USD (and some other currencies as well).


However, to the question of recession proof. Recession proof is like bullet proof, there is no such thing, there is only a varying degree of recession resistance.

There really is no magic formula other than a diversified portfolio of financial instruments to minimize the risk in any one sector. A portfolio weighted towards safety will risk losses to inflation. A portfolio weighted toward growth will face risks from market risk and loss of income. A portfolio weighted toward income faces risks from a lack of growth and market risk.

You have to balance your income needs to appetite for risk against your desire to sleep at night.

The best approach to life is to live below your means. If you clear $100/day learn to live on $60/day and save the rest.


Also a lot depends upon what you are trying to do. For instance if you think you may have "escape" to Canada, Switzerland or Hong Kong you can legally open a bank account there as well as a stock trading account. There are some hoops you have to jump through and a tax form that has to be filed ...and bank in those countries may have other restrictions depending upon the amounts involved. For instance Swiss banks hate American accounts because of the paperwork issues so unless you want open it with a balance of $1mm or more you may find they do not want to do business with you.

You can open a bank account with Everbank (www.everbank.com). It is a US internet based bank and they will hold and invest in both PMs and FOREX. But if things are going sideways the last thing you want is "paper gold" and an internet bank.
Last edited by raptor on Thu Nov 10, 2016 6:03 pm, edited 1 time in total.

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Re: Recession proof emergency funds

Post by quazi » Thu Nov 10, 2016 5:48 pm

Do you have a relatively certain idea of which country it would be? You could run into problems trying to take too much cash or precious metals across the border at once, but if you know where you're going you could make a couple trips and take a little at a time and/or acquire the funds while you're vacationing in the country you're thinking of going to. It also means you can exchange your currency now if you're thinking the exchange rate might not be as favorable in the future.

On the other hand having the emergency funds in your house now gives you a lot more flexibility. You can choose to go a lot of different places, and if you decide it would be better to stay put and weather it out you still have access to it. But if they discover your money belt full of gold coins at the border or at the airport you're probably going to have a bad time. IIRC if you have over $10,000 in cash, gold, bearer bonds, etc. you need to fill out a form and give it to the TSA. If you don't you can be fined and possibly your money will be seized. Also, if traveling with more than one person the $10,000 amount applies to the group, not the individual.
ETA: It looks like Raptor already mentioned the $10k thing.

Since you're talking about a few weeks or a couple months this seems a lot easier than trying to have enough money to start over from scratch.

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Re: Recession proof emergency funds

Post by Close_enough » Thu Nov 10, 2016 6:36 pm

quazi wrote:Do you have a relatively certain idea of which country it would be? You could run into problems trying to take too much cash or precious metals across the border at once
........
Since you're talking about a few weeks or a couple months this seems a lot easier than trying to have enough money to start over from scratch.
It depends on the situation. An unplanned departure would probably put me in Mexico. If I had a week to prepare, then Canada.

I did not know about the problems with trying to take large sums of cash, bearer bonds, or precious metals across the border. That changes the calculus a lot. It means that international banking or wire transfers now becomes the preferred method. Unfortunately, I know near zero about those. My only experience involved cashing travelers checks in Canada during my honeymoon.

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Re: Recession proof emergency funds

Post by Stercutus » Thu Nov 10, 2016 7:07 pm

Dollar is at near record highs for the year today so I am going to stick with the dollar. I expect the upturn of the DOW to really lay it on now. If corporate tax rates are indeed cut and those companies that exited the US market get punished with sanctions I expect a DOW well over 20K by the end of next year and the dollar jumping to an all time high vs the Euro.

If silver dips through my buy price I may get some. It is kind of looking like it may. Might be a good time to buy in the 1-3 month time frame.
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Re: Recession proof emergency funds

Post by raptor » Thu Nov 10, 2016 7:22 pm

Close_enough wrote:
quazi wrote:Do you have a relatively certain idea of which country it would be? You could run into problems trying to take too much cash or precious metals across the border at once
........
Since you're talking about a few weeks or a couple months this seems a lot easier than trying to have enough money to start over from scratch.
It depends on the situation. An unplanned departure would probably put me in Mexico. If I had a week to prepare, then Canada.

I did not know about the problems with trying to take large sums of cash, bearer bonds, or precious metals across the border. That changes the calculus a lot. It means that international banking or wire transfers now becomes the preferred method. Unfortunately, I know near zero about those. My only experience involved cashing travelers checks in Canada during my honeymoon.
Open an account with the Royal Bank of Canada which has branches in in the US, Canada and Mexico. Keep your emergency stash of funds in that bank.
A link to Canadian Banks in Mexico.

http://www.canucklinks.com/canadian_banks_in_mexico.htm

If it is a US bank account the funds are still subject to US banking rules/laws and it is not as simple as say going going between branches in the US but the balances are accessible to customers in other countries after an internal transfer and conversion costs.

BTDT and have the receipts to prove it.


The other thing about Canada is that there is an import duty on gold and silver bullion but NOT on Canadian Maple Leaf coins. They are legal tender (albeit at face value) in Canada and hence when they are declared for Canadian purposes they are considered in effect currency.

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Re: Recession proof emergency funds

Post by Close_enough » Thu Nov 10, 2016 7:29 pm

<deleted as already answered>

Also, assuming worst case hyperinflation here, how well is the CDN expected to hold up?

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Re: Recession proof emergency funds

Post by raptor » Thu Nov 10, 2016 11:30 pm

There are way too many variables to even guess. Tell me the scenario and I will opine.

The CDN $ forex strength is bolstered by it oil and mineral industry. So petroleum prices have an impact on its health.

Also true hyperinflation is really more of a currency collapse and loss of faith in the issuing country. In that scenario anything but that currency will do ok. Obviously somethings will do better than others but in a Weimar or Argentine currency crisis you want anything but that currency.

In 2008 the CDN lost value against the USD but that was a deflationary cycle and not hyperinflation. In Oct 2008 the only positions that made sense were all cash positions or the fetal position.

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Re: Recession proof emergency funds

Post by Stercutus » Fri Nov 11, 2016 7:25 am

raptor wrote:
In 2008 the CDN lost value against the USD but that was a deflationary cycle and not hyperinflation. In Oct 2008 the only positions that made sense were all cash positions or the fetal position.
Maybe. But if you had gone long on Ford and a few others you could have retired to your own island.
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Re: Recession proof emergency funds

Post by raptor » Fri Nov 11, 2016 11:56 am

Stercutus wrote:
raptor wrote:
In 2008 the CDN lost value against the USD but that was a deflationary cycle and not hyperinflation. In Oct 2008 the only positions that made sense were all cash positions or the fetal position.
Maybe. But if you had gone long on Ford and a few others you could have retired to your own island.
Your ability to retire depends upon whether you bought the stock pre-Sept 2008 or post Oct 2008.

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Re: Recession proof emergency funds

Post by Stercutus » Fri Nov 11, 2016 7:43 pm

raptor wrote:
Stercutus wrote:
raptor wrote:
In 2008 the CDN lost value against the USD but that was a deflationary cycle and not hyperinflation. In Oct 2008 the only positions that made sense were all cash positions or the fetal position.
Maybe. But if you had gone long on Ford and a few others you could have retired to your own island.
Your ability to retire depends upon whether you bought the stock pre-Sept 2008 or post Oct 2008.
Long options not the stock. But yeah, probably January of 2009 would have been ideal.
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Re: Recession proof emergency funds

Post by Close_enough » Fri Nov 11, 2016 11:49 pm

raptor wrote:There are way too many variables to even guess. Tell me the scenario and I will opine..
2013 government shutdown writ large. The federal government has been shutdown with no end in sight, and the treasury has to default on its bonds. Assume that the economy is in the same condition as it was in late 2013.

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Re: Recession proof emergency funds

Post by raptor » Sat Nov 12, 2016 3:01 pm

A US gov shut down actally was shown to have minimal effect on the economy.

A default on US debt on the other hand would have a huge impact on the US and world financial markets. That would be in a word disasterous.

This is opinion only:

My guess is that the world would be looking for a safe currency. I say this because the USD is still consider a reserve currency. In 2013 there were fears the BRIC nations or the Euro would displace the USD by 2020.

With the exception of China none of the other BRIC narizona or the Euro is likely to take that place.

My guess is that in this situation the USD wold suffer a devaluation or even a currency collapse.

In this scenario the CDN $ is also likely to suffer but not to the same extent as the USD. I would guess that Swiss Francs would be a good currency to hold. This may also be a scenario where gold and silver would be good.

If this is your fear then open a bank account with Credit Suisse which has US branches and hold Swiss Francs.

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Re: Recession proof emergency funds

Post by Close_enough » Sat Nov 12, 2016 6:59 pm

raptor wrote:A US gov shut down actally was shown to have minimal effect on the economy.

A default on US debt on the other hand would have a huge impact on the US and world financial markets. That would be in a word disasterous.

This is opinion only:

My guess is that the world would be looking for a safe currency. I say this because the USD is still consider a reserve currency. In 2013 there were fears the BRIC nations or the Euro would displace the USD by 2020.

With the exception of China none of the other BRIC narizona or the Euro is likely to take that place.

My guess is that in this situation the USD wold suffer a devaluation or even a currency collapse.

In this scenario the CDN $ is also likely to suffer but not to the same extent as the USD. I would guess that Swiss Francs would be a good currency to hold. This may also be a scenario where gold and silver would be good.

If this is your fear then open a bank account with Credit Suisse which has US branches and hold Swiss Francs.
That is my fear
What about a foreign currency account in a U.S. bank? Credit Suisse just discontinued private banking sevices in the US earlier this year. But, Everbank has foriegn currency accounts that allow me to store my money in the form of Swiss Francs, Canadian Dollars, or other currencies.

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Re: Recession proof emergency funds

Post by raptor » Sat Nov 12, 2016 9:30 pm

US Banks do not have FOREX accounts to hold FOREX in the US. Everbank which I suggested earlier does not have this but rather has time deposits and other instruments denominated in FOREX so it is not exactly the same thing.

If your plan is to leave the US to be resident of another country you should plan well in advance and establish residency now. It is really not very easy and takes time to do this.

If your plan is to stay in the US and simply diversify your portfolio to include non-USD denominated instruments there are firms geared to handle this.

Everbank's investment arm is one source. Another source is www.europacific.com.

It is also possible to buy stock in countries based all over the world. For instance if you own Statoil, based in Norway; it actually pays the dividend in kroner though you receive it in your US trading account in USD$. In the situation you describe if the USD has collapsed the kroner being converted to USD will be based upon the then exchange rate which would be very good.

Now all of this assumes that the banking system still works and in a SHTF that is not a good bet.

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Re: Recession proof emergency funds

Post by DarkAxel » Sun Nov 13, 2016 12:04 am

Diamonds. Small, lightweight, and easy to conceal. As long as Belgium is relatively stable they should hold value well.
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Re: Recession proof emergency funds

Post by raptor » Sun Nov 13, 2016 9:55 am

DarkAxel wrote:Diamonds. Small, lightweight, and easy to conceal. As long as Belgium is relatively stable they should hold value well.
Ever try to resell diamonds ? I once liquidated a jewelry shop. The creditor loaned 50% of the wholsale (not retail) cost. In other words 50% of what the jeweler paid.

The creditor got back about what he loaned. So if you paid the wholesale price you should plan on getting back only 50 cents on the dollar.
Obviously YMMV.

BTW the gold, platinum and silver ring stock sold only for the melt value.

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Re: Recession proof emergency funds

Post by Stercutus » Sun Nov 13, 2016 11:45 am

BTW the gold, platinum and silver ring stock sold only for the melt value.
Still did way better than the gems.
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Re: Recession proof emergency funds

Post by .milFox » Sun Nov 13, 2016 1:37 pm

Staying put? Beans, bullets, books.

INCH? small concealable bits of precious metals. There's a reason why our family's wedding gifts were that sort of thing. Since we had to GTFO of two different countries in two consecutive generations.

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Re: Recession proof emergency funds

Post by Stercutus » Mon Nov 14, 2016 7:59 am

You should scan those out of print books and have a printer with lots of paper ready to go.

Oh and not to beat the "I told ya so" drum so loudly the bond market is in absolute freefall and the dollar is soaring through the roof. I bet we see better than $1=1E before the inaugural.
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Re: Recession proof emergency funds

Post by Close_enough » Mon Nov 14, 2016 3:19 pm

Stercutus wrote:You should scan those out of print books and have a printer with lots of paper ready to go.

Oh and not to beat the "I told ya so" drum so loudly the bond market is in absolute freefall and the dollar is soaring through the roof. I bet we see better than $1=1E before the inaugural.
I think I'd rather have both the paper copy and the scans before I need them. Belt and suspends and all.

I'm also just hedging my bets and not betting the whole kit and caboodle on one outcome. If my fears are wrong, I only lose part of my investment (painful but not irrecoverable). But, if my fears are right, then I'm not a penniless refugee.

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