Credit Market Warning: Best Place for $
I just finished reading Chris’ article on Credit Markets and how bonds are in a precarious spot.
I have IRA money in US Treasury mutual fund that only handles short term bills, as well as a “cash” account that is FDIC insured with a big bank.
I’m also hearing talk that our cash bank deposits aren’t really ours and are considered an unsecured loan to the bank. All poised for a bail-in.
I’m wondering which is safer? Any wisdom out there?
If you can think-up of a safe secure hiding place, or better, several hiding places, that are fire proof/flood proof, accessable, but unlikely to be discovered by burglars, gov't officials, children, workers, etc. …. take USD cash in bills, that is, stacks of folding paper in 100,50,20,10,5,1 and some 1 dollar coins too. Stash it, along with bank withdrawal slips that prove its legally yours. To hedge the value of that paper,(because that's all it is) which may devalue, also have a box of silver dollars, have a bunch of old gold 20's or new gold 50's for serious value storage. Some folks like "junk" silver too, ….maybe, certainly it won't lose value or be as dangerous as holding a promissory note from a bank which is all a deposit is, 10 trillion US Bank deposits are protected by .03% of FDIC funds(feel safe huh?)
The money in Bank accounts and IRAs and promissory notes may be devalued, seized by govt, defaulted upon or otherwise locked-up when you need it most, or when you could maximize its value by using it to purchase devalued items in the panicked marketplace. I f that scarey out come doesnot happen, so what? you still have your cash. Its not like you can get any meaningful interest on a deposit…a deposit is reward free risk.
My grandpa lost over $40k in the depression, not in stocks, not in bonds, but in cash-in-bank deposits…He lost everything, his 4 fruit stores, and lived in relative poverty for the next 30 years till his death. He made me promise to keep at least half my savings "under-the-bed" always where you can reach it, always where you know its yours.
Sounds miserly and eccentric eh? a hoard? do it with a goodly portion of your holdings…just-in-case.
the up side is, you can't lose it in a lawsuit, bankruptcy, government seizure or bail-in, bank failure, etc the down side is you are not able to invest it to grow or benefit you…its just core security savings, like the plastic pails full of pasta and rice and beans in the garage, the rack of canned food you cycle through your pantry, its security which is priceless for a stressfree life.
Hopefully you never need your fire insurance, your life insurance, your car insurance, your medical insurance…hopefully these are just peace of mind expenses, and that bad thing we fear does not happen. If the huge collapse doesn't occur, and the world's pretend economy limps along for the rest of our lives, you didn't lose anything, you still have a pile of devalued cash next to a pile of up-valued metal in a stash of roughly the same combined value that it had when you stored it decades ago.
sleep well my friend
Thanks very much for the salient advice.
Can you give me your best piece of advice…I own a home free and clear, but it's too big for me. It's a 4 bedroom colonial with a 2 car garage and I'm located in a suburban neighborhood between DC and Baltimore, Md. I hoped to keep the home because it's paid off and eventually rent it when I retire. Would it be more beneficial to me to rent it or sell and downsize to something smaller. Where is this economy taking us. Will my home value go up much more or will it go down? How can someone buy gold at these prices? I just make it from paycheck to paycheck and will retire in 2 years. Thank you.
Since we have no crystal balls, we can’t tell what the best move is. My advice: go to tinaja.com and download and read “the incredible secret money machine”. think about the principles it gives.
A business that you can run, and produces income for you, is better than one that is too much for you.
But the details… please be careful of selling what you have and throwing the money down a hole. Really, who knows what will happen with gold or any other financial instrument. Do you need to bet your only retirement income? What if social security pops?
where are hiding places that are all of those things, i.e. fire/flood proof. In the home is possible fire and in the ground is possible flooding. It's a tough decision for someone like me, who's older and has the "old mindset" of keeping it safe in the bank. Thanks for any response.
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".I own a home free and clear, but it's too big for me. It's a 4 bedroom colonial with a 2 car garage and I'm located in a suburban neighborhood between DC and Baltimore, Md."
Consider selling if you can. The greater DC area has a lot of property taxes and taxes only move in one direction: UP! Renting can become a nightmare if you end up with a deadbeat renter. it can take more than a year to evict a deadbeat renter, and they usually trash the place before getting the final boot. Also as you get older, you make find it more difficult to maintain the house. As a landlord you will still be responsible for maintanence.
"Will my home value go up much more or will it go down? How can someone buy gold at these prices? I just make it from paycheck to paycheck and will retire in 2 years. "
In my opinion I doubt home prices will be heading up anytime soon. US home ownership dropped to the lows of 1967 and continue to fall. Few younger generations can't afford to buy and the boomers are not interested in up-sizing or buying homes high cost regions. Some areas saw price increases as Asians and Europeans bought homes in the US to get thier money out of their home nations. I think foriegn buying is reaching the tail end of the boom, and ww see prices start falling again in the next 12 to 24 months. Fewer american workers will consider buying a home because the job market it very unsecure. People don't want to be stuck with a home they can't sell if they need to relocate to another state to find work. That is another reason why home ownership is falling.
One possible open to get your home easier to sell or betting pricing make be to convert into a two family home (presuming the zoning will permit it and you won't have to spend a small fortune to convert it). That said I would recommend you do a lot of research and seek out advice from multi-family homes in your neighborhood.
My advice to get your home on the market and plan on relocating some where cheaper for retirement. It may take you a couple of years to sell. I don't recommend you buy your retirement home until you sold your primary home first.
If your living paycheck to paycheck, then you need to make some changes, now. First cut your spending (Ditch Cable TV, newspapers or other non-essential services). Look for ways to cut your energy consumption (use window fans instead of AC, add insulation/calking/replace worn door seals, lower thermostat in winter, air dry laundry when weather permits. Look for ways to reduce food costs (coupons, less waste, home cook instead of eating out). If you using a lawn service, stop and start cutting your own lawn.
Make a list of all your monthly expenses and start working on ways to cut them, you should have no problem to reduce your spending by 10% (unless you've already done it). Paydown any credit card or high interest rate debt. Find ways to reduce your phone service (ie switch from land line to an internet VOIP service) switch cell phone carriers if you can find a lower monthly fee, or ditch it completely.
On the other side, find ways to generate more income. Do you have a lot of unused stuff (aka junk)? Start selling it (look on ebay to get an idea of pricing) you can either sell on eBay, Flea markets, craig's list, or tag sales. If you sell your home, your going to need to get rid of your clutter anyway. Might as well make a few bucks instead of paying the trashman to haul it away.
You can also seek part time jobs, work as a security guard during the weekends (its easy, you get some exercise by walking through the property and you likely have time to read) You can also try libraries, or other less chaotic jobs (ie avoid working as a cashier at a retailer). Stock clerk, saleman, are all easy jobs you can do as part time jobs. You can also see if your current employeer has any opportunities for increased work (perhaps that need someone for a few hours a week to handle some tasks, or they need extra hands to impletement a new project. Never hurts to ask. Just tell them you want to start saving up for a vacation (or some other planned expense) and your looking for some additional income, even if its just an extra $25 to $75 a week. I have no idea what your skill set is so its difficult for me to make any other suggestions.
I would also recommend that you start looking to find a better place to retire. some place where the cost of living is low. Look to downside your living space. I don't you need a four bedroom home. It sounds like you make need to continue to work in retirement (if not full time, than part time). Look for locations that will offer job opportunities that match your skill sets. This make take several years so don't wait until your retired to start looking! Use your vacation time or weekends/holiday to scout out locations. rural VA and rural PA are good starting locations and may be in a day trip range for you, I would recommend avoiding some of the popular retirement states like NC, and FL. I see these states getting flooded from people in the North and will likely result in substantial tax increases in these states and increase populations forces states to spend more money on infrastructure, services and schools.
Be prepared to continue to work beyond normal retirement age. Most of the boomers I know are working to at least 70, unless they been permanently downsized or have health issues. If your skills are boardline "outdated" or not in demand, you also need to consider developing more skills that are in demand. I would avoid going back to school, but seek development via self-education. Use the Internet to find infomation, read books, or inexpensive on-line education classes. Find low cost or no cost ways to increase your skill sets. Perhaps leverage using part-time jobs to build work experience in other skills. Also try attending Trade shows to identify potential job opportinunites and skill sets. You can get a idea of new products and services being offered. You may also find trade shows valuable to find job opportunities by talking with vendors and attendees.
"I just finished reading Chris' article on Credit Markets and how bonds are in a precarious spot.
I have IRA money in US Treasury mutual fund that only handles short term bills, as well as a "cash" account that is FDIC insured with a big bank. I'm also hearing talk that our cash bank deposits aren't really ours and are considered an unsecured loan to the bank. All poised for a bail-in."
I don't think there will be bail-ins at US banks. The EU is a different story. The US Fed, Central bank has a different set of mandates than the ECB does. Recall that during the Lehman collapse, "The Reserve" (huge money market fund) announced thet broke the dollar. This triggered a huge run on Money market funds, and the Fed acted by announcing it was gaurenteeing every penny of the $19 Trillion money market fund market.
Bail-ins would bring about deflation and a depression in a week. The Fed and other gov't officials would do anything to avoid this crisis. At best I see some limited NIRP (Negative interest rate policy) in the US, but not enough to trigger a bank run. As soon as times get tough, the Fed will unleash QE4 and buy corporate/muni debt to stabilize the economy and inject liquidity.
For now, keep your money in cash (that what I am doing). Its likely that the market will continue to fall until QE4 is announced. I think we may see some trouble again in the credit/bond markets between now and the spring. The Fed will probably delay a bit before acting, but will eventually move foward with QE4.
Thanks TechGuy for the great advice. This makes sense.