Friday, September 4, 2009

Reply: "Bank Failure: What to do with my savings?"

Don Williams said...

1) Any investment strongly depends upon how the economy and government behaves.

2) In the US Great Depression, my great grandfather bought up a lot of land with coal under it at Sheriff's auctions. That is when the landowner does not have enough money to pay taxes and the local government seizes the property and sells it to highest bidder.

3) My great grandfather had recognized the warning signs prior to the 1929 crash and had pulled ALL of his money out of the banks into cash. Since he had cash --and many did not --he was able to buy property at extremely LOW prices. (Government just wants some money from taxes -- doesn't care if the landowner gets ANY of his equity back from the sale.)

4) A few years later, Roosevelt got us into WWII , the government was spending $Billions on steel for armaments, the steel industry badly needed coal and my great-grandfather made huge profits either leasing the coal or mining it himself. (OF course, his worthless children became playboys and nothing came down to me. Sigh)

5) As people here have noted, gold is kinda high at the moment. But there are a LOT of special rare earth metals that are largely found in CHINA and which CHINA recently decided to restrict on exporting. Some of those might be a better investment than gold.


I believe that the USA has to get most of its tungsten from China now.
September 4, 2009 5:23 PM

Don Williams said...
The larger point being that products sold to the common citizens may not do well in hard times --because the citizens don't have the money to buy.

But the rich and large corporations will almost always have money to spend. Stuff THEY need will usually keep its value, provided supply is limited.

I don't disagree with Ferfal re Real Estate but caution that real estate has value only so long as the local economy does well --or at least maintains itself.

There are a lot of empty houses in depressed areas like Detroit (collapse of General Motors and Chrysler auto makers). In the past, I have seen housing values fall through the floor in some areas when the local economy collapsed.

But if you buy in a national capital -- like Buenos Aires or Washington DC --you are usually ok.
Although I have some doubts re Washington DC now because of the huge size of the US government debt.

Even house prices there fell in 1990 by about $60,000 (for a $250,000 house) with the huge defense cutbacks at the end of the Cold War.

Excellent points Don, thanks man.

You got that right, its better to buy a small place but in a strong downtown neighborhood, one that simple wont go down unless the country is destroyed, which is very unlikely to happen. (nation or sate capitals are good places, also college towns, the older the better)
We have ghost towns here as well, or parts of town were property lost a lot of value. Better to buy small but safe, don’t buy a mansion in a town that is ½ dead already.

About economies doing well and rent, we found that after the collapse, of course there was no credit, and people had lost their savings, so renting was the only way to go for most. That or move back with the old folks, which a lot of people did. Very common of collapsed societies and such: family and several generations, grandparents, uncles, cousins, all living as they can under the same roof.
So, because people couldn’t buy like in the good old days, rent went up and beyond, becoming a very profitable business.
The key: Choose location wisely. Buy small, but buy in a safe, secure location, a place with potential clients.


1 comment:

Anonymous said...

The trouble with commodities investing, like in "things that corporations need" is that they don't need ten pounds of whatever it is, they need industrial quantities, and they are not set up to buy from you - they want to buy from a broker, who is going to take his cut off the top.

And when they do buy, they aren't going to pay cash, it will be on credit, and paid for ninety days from now, if you are lucky. I have been on the losing side of a few negotiations with big companies, and gotten laid off because of capital shortfalls.

Suppose I had a hundred pounds of pure raritanium - I would have to store it (safely), guarantee it's purity, deliver it, make sure nobody steals it, etc, etc.

It just isn't practical to bet heavily on any single commodity. The phrase "putting all our eggs in one basket" has been around for a long time as a caution against that behavior.

I way you should buy stuff that you can use, or stuff that you like, or stuff that you can sell or trade. (and Trade goods are only good if the people you are trading with have something you want.) I like the idea of income property, with one warning: large apartment buildings will be hit with rent controls sooner than small buildings. Single houses are a pain to rent because of the maintenance. Duplexes or triplexes are a bit better. Once you are past ten units in the same building, you risk bureaucratic interference.