Freedom Lawyers of America

There's safety in numbers
Tips for managing the deflation of all things paper

By Thom Calandra, CBS.MarketWatch.com
Last Update: 10:58 AM ET Sep 5, 2002
SAN FRANCISCO (CBS.MW) -- In the coming bad months and years, the ones that deflate paper assets and shrink the oceans of debt and credit sloshing 'round the world, investors and workers will be asking what they can do to avoid a total meltdown of their personal portfolios.

This includes their homes, their bank deposits, insurance policies, even their paychecks. Here are some starters, gleaned from many fine sources, including the Weiss Safe Money Report, Robert Prechter's new book, "Conquer the Crash," and "Crisis Investing" author Doug Casey's International Speculator.

Do investigate the integrity of all money markets, bank deposits and other cash instruments at your disposal. Not all money market accounts or funds are created equal. Those that are based on risky short-term paper, from corporations or even government agencies, probably won't allow you peace of mind in the event of a fiscal meltdown. Several sources, including the Weiss Safe Money Report, Bankrate.com and Grant's Interest Rate Observer, examine safety and liquidity issues surrounding commercial banks and the fund companies that manage money markets.
Do investigate cash equivalents that exist outside of your home country, in the event of political risk. Switzerland's bank reserves, unlike those in the United States, are backed by a 25 percent savings rate that is required of citizens by law.
Do sell all stocks that are losing you money. Do sell all stocks that are making you money.
Don't consider buying any stocks, or bonds, or anything considered a paper asset, unless you are prepared to take a 25 percent loss. Or unless you are prepared to hold for 15 years or longer (just ask the folks who still own Ford Motor (F) shares.)
Don't be lulled into a sense of false security by the interim rallies staged by Wall Street. The rallies are perfectly normal in that they allow sellers to exit with just a bit more cash than they had a month ago, but not nearly enough to make up for losses in this, the third year of falling equities.
Do buy gold and silver -- coins, bars and even some bullion proxies, such as Central Fund of Canada (CEF), if personal storage of the metal is a challenge. If currencies self-destruct from the drag of decades of credit issuance by national and corporate treasuries, bullion almost certainly will become a commodity with monetary status.
Do eliminate as much debt as you can -- credit cards, automobile loans, margin interest, mortgages, second mortgages. The credit overhang in the United States, more than $30 trillion owed by U.S. companies, individuals and the government, is three times gross domestic product, the highest ever. Besides saving you or your home from personal bankruptcy, default or repossession, your elimination of debt will be a service to this country's economy.
Keep your day job, sell the SUV and if you really see the red writing on the wall, start short-selling some of the major equity indexes, especially the price-weighted Dow Jones Industrial Average's exchange-traded Diamond Trust (DIA) and its major components, like high-priced 3M (MMM).