Wednesday, May 18, 2022

In the Next Financial Crisis, What Assets Should You Hold?

In the Next Financial Crisis, What Assets Should You Hold?

There have been a lot of skeptical voices — academic and others — that believe a new financial crisis is coming in the near future. Most of them point to the U.S. as a starting point for the trouble. If it happens, what assets are most valuable for you to hold? It depends.

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It kind of fits, looking at the history of financial crises. From the 1920s to the 2008 crash, many started in the U.S. or had some link to the nation. Despite the current U.S. president trying to get jobs back to his country, it may not be enough. Some experts suggest the polarized U.S. political system will be matched by other entities trying to destabilize the U.S. Some name the “deep state” or even China as possible actors to start a set of actions that work toward that exact goal.

How a Crisis Could Hit

There are suggestions external actors could destabilize the country by inciting violence. Here’s how it happens: the state reacts with appropriate force to quell the rebels. Then some “credit rating bureau” will step in and downgrade said country for political reasons. That action can have repercussions on the stock and financial markets which, if severe enough, can plunge the world into the next financial crisis.

Some even suggest that, in this ever-more politicized world, credit rating bureaus could be the tips of the spears of political actors that want to slow down opponents by pinning them down financially. 

It’s a possibility, and there are indications that some of the potential actions could take place. If we use Standard and Poor’s own publication on how they rate countries’ credit and other ratings, we see they take into account “operational and administrative risks”.  Links to the documents are below. Others, like regulatory and legal risks — especially when one party is bogging the ruling party down — can have an adverse effect on a country’s rating. You should take note that they do not strictly define these words, so it can be either taken broadly or not, usually hiding behind a lot of legality.

As soon as experts see some “bad moon rising” they will use their flash-word vocabulary to bamboozle the average Jane and Joe public to “diversify your portfolio”, to have enough wiggle room to survive financial upheaval. That is easier said than done with literally thousands of options, most of them involving a lot of risk.

In this article we will give the pros and the cons of alternative investment, along with some basic tips what to look out for, so you can navigate the treacherous waters of a financial crisis better.  

Bitcoin and Crypto

Pro:

  • Genuine world currency.
  • Need only power and internet to access.
  • Extremely fast transaction speed.
  • Online/offline storage capabilities.
  • Digital currency.
  • Keeps value and rises ( finite amount).

Con:

  • Connectivity to internet and power.
  • Other crypto problematic (usability)

Many assume that if there’s a financial crisis, internet and power would still be readily available for everyone everywhere. However if the crisis is severe enough, or there’s a cyber-attack on power or internet providers, you can have $100K worth of bitcoin in your wallet but can’t get to it because of power outage and/or no connectivity to the internet. Good luck using them bitcoins.

Conclusion: bitcoin and cryptos are great to have because they’re real world currencies you can use all across the world where there is power and an internet connection. But the huge strength of this new currency is also its Achilles Heel. If you don’t have access to internet or even power, for whatever reason, you will have a hard time. Still, today we have portable generators and it is quite easy to get power — so that part is at least covered.

The risk of getting bitcoins is rather low and the chance it will vanish, or some elite rich guy/girl will run away with your bitcoins, is highly unlikely.

Precious Metals: Gold and Silver Bars

Pro:

  • In use everywhere in the world since beginning of time.
  • Accepted everywhere.
  • Keeps value and finite amount.
  • Something to hold on to, physically.
  • Rise in value, especially in times of crisis.

Con:

  • The bigger the bar, the higher the potential loss.
  • The bigger the bar, the higher the scam probability.
  • Even if you check papers, you still can end up duped.

I have written articles and consulted many people on this subject. If you want to invest in gold bars, I always recommend going for the smallest ones. These are very difficult to drill into, a common scam to hole out big bars and fill them with tungsten, and the risk/reward ratio with small bars is minimal for scammers. Also keep an eye on scratches and small putty-like holes, especially if you still want to go for the larger bars.

I recommend small bars because if there is a complete breakdown in society, complete anarchy, the small gold bars are easier to trade in. The bigger the bars, the more loss you will have to take. Conclusion: if you want to diversify your portfolio with something tangible, go for the small bars, due to the reduced risk of being scammed. Also, buy these things from reputable sellers, not some dingy backwater shop with an inch of dust covering the windowsill.

Precious Metals: Gold and Silver Coins

Pro:

  • Real investment, but know when to buy.
  • Something to hold
  • Certificate often accompanied.
  • Low level scam probability.
  • Condition is king.

Con:

  • Need to have knowledge about coins you’re dealing with.
  • Though low level scam probability, the ones you encounter are extremely hard to identify most of the time.

The same arguments from point 2 can be inserted here. The only thing you need here is a good magnifier when dealing with gold and silver coins. Condition is everything with coins, so if you see a scratch and it says “proof” on the label, you should start haggling — because the coin will be worth less (I’m talking about modern day 20th century coins).

However if you want to start with coins I would suggest you start with your official country’s own mint. Those, in this case, are trustworthy and give assurances that the amount of precious metal is really in your coin. Usually you get the following: a sturdy wooden or hard plastic case; your coin is encased in another plastic case to prevent damage and you get a certificate with information about the coin.

Now if you want to delve into earlier coins, like numismatic coins from 6th century BC Greek city-states, you should start studying up on those. These coins are highly sought-after, and thus scammers will try and bamboozle you. Even the experts with 40 years’ experience in the field can be fooled. Forget Sotheby’s or auction houses — because these people are most often wrong about coins, antiques and basically anything, because they look only at who owned it and sold it (usually elite or filthy rich, and good luck proving they sold you a fake). Of course, if you are an expert or have an expert with you, that is different.

If you really want further information on this, visit your local numismatic group.

Antiques and Art

Pro:

  • You have something tangible.
  • Easy to trade in when needed.

Con:

  • Depends on item, sometimes styles fall out of favour.
  • Expert knowledge required.
  • LOADS of reproductions and scammers out there.

This is a highly-profitable yet also high risk investment strategy, mainly because art is the favorite form of scams for most shady characters. Antiques can range from books to jewelry and everything in between. Keep in mind that antiques are at least 100 years old. Usually antique investors play the long game where they buy a piece of furniture, jewelry, etc and keep it for the next generation — or to pass on to their children.

Most of the time they either break even-ish, or they make a great investment and sell them for x amount the buy-in price. The only problem is you have to know your stuff about all the art forms you wish to buy. There are a lot of reproductions out there, especially when it comes to furniture, jewelry and paintings. If scammers can bamboozle the experts, be sure that you as a novice will be taken advantage of for sure.

The only foolproof way to make sure you have a genuine antique, and not a reproduction, is if you can buy some objet d’art from a family that is selling its heirlooms. That is why you see all these dudes with vans going from house to house on “antique hunter” style shows.

All Other Kinds of Collectables

Pro:

  • Good investment for when crisis hits (especially limited editions or variants)
  • Condition is king.
  • Resale value is more often greater if kept in original packaging.

Con:

  • Loads and loads of fake items on the market.

This is one huge market with a lot of niches. Be it comics, LEGO, statues or everything in between; if someone collects it, there is a buck to be made. If you want to make a quick buy and sell in half a year to two years; then statues are your thing. Go for the Star Wars franchise — from hot toys, sideshow collectibles, gentle giant etc. I once bought a gentle giant Bobba Fett (animated) for €100 (never opened and all in order). Two years later I sold that statue for €850, which is a nice bit of profit.

It is your choice how you diversify your portfolio and business. You can mix it all up, using bitcoin to buy antiques which will be a nice long term nest-egg — depending you know your stuff of course.

Is the next financial crisis coming? What’s in your portfolio? Let us know.


Images via Pixabay

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