Wednesday, February 11, 2015

Don't Go To War Armed With A Stick!

The Economic Battlefield Is A Very Dangerous Place
I began thinking recently about how most people are totally unprepared for any kind of massive financial shock to society. This vulnerability and invisible burden is carried by the masses as most people do not have at their disposal the full range of investment options those very engaged in the markets have developed. You should view the economy as an economic battlefield and imagine your enemy carrying an M16 while you are armed with only a stick.

Building a better arsenal is not an easy task and cannot be accomplished overnight, it takes both planning and a great deal of effort, this is not a task that should be outsourced or entrusted to someone else. Your financial survival depends on it, often people learn this lesson only after great disappointment and loss. Even though we are often lead to believe shortcuts exist the truth is the learning curve in how to invest and protect your assets is both long and hard.  Simply reading a book, taking an investment course, learning a new charting or technical system is no guarantee you will make money. Most investors only learn after a series of costly mistakes and errors how difficult investing really is.

This is a very important message because a lack of investment options means that many people will be left unable to react if and when a trend dramatically shifts. This leaves the bulk of society extremely vulnerable when a shift does occur. You do not want to be in this group! A major concern should be that we are often lulled into being far too complacent as to the real economic risk that surrounds us. A glaring example of this is how people just assume the bank will honor their credit lines or they will be given access to their savings in the case of economic difficulty. In a crisis as everyone rushes to the exit, it is silly to think you will be served in an orderly fashion or even fairly. Mind the "small print" and remember the bank is not your friend.

When will the next financial crisis hit and how deep will it be? That is a hard thing to predict or answer, just as difficult is speculating the form it will take. It has been many years since panic has dominated the streets and most Americans have never faced such a situation. It is important to recognize several catalysts exist that could usher in such a scenario, but predicting such an event is complicated and difficult to time. Watershed events can occur in the blink of an eye or be spread out over weeks or even months. The base on which our economy sits is comprised on ever growing debt that is unsustainable. Because this system has been able to exist for so long does not mean it can continue.  The fact the economy muddles through and forward does not guarantee that we will not suffer financial harm as individuals.

The study of economics is often baffling and confusing. Many economic theories exist, but they are full of holes and conundrums. Much of how people react to an overall economic policy may have to do with timing and perception as much as it does with reality. The science of economics is riddled full of loops that feedback upon themselves and unexpected pitfalls based on expectations that may never take place. All this can become quite abstract with economist seldom agreeing and often predicting events that never unfold as expected or planned. Many of the "modern monetary theories" in use today reflect an attitude that we can control economic cycles better than in the past by using newly forged tools that have not been proven over time.

Few people really think about the economy to any great degree or even try to understand it as they go about their daily existence. We who find the subject interesting and study it or are involved in seriously self-directed investments often forget this fact. While they will tell you otherwise the average person only begins to care about "the economy" when they are directly affected or financially slapped in the face. To navigate the treacherous terrain of investing without a road-map or knowledge means you travel at your own peril. This does not mean that even a person totally ignorant of basic economics will not have an opinion or garner a huge following.

I contend that never before has mankind diverted such a large percentage of wealth into intangible products or goods and this is the primary reason that inflation has not raised its ugly head or become a major economic issue in recent years. Like many of those who study the economy, my misgivings with current economic policies are many, of chief concern is the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.  If a great deal of this money would suddenly shift into tangible goods seeking a safe haven inflation would soar even as debts go unpaid and promises are left unfilled. In such a situation you will want to be able to defend all you have worked for with more than a stick.

FOOTNOTE: I encourage comments and urge you to explore the archives for any other articles that might interest you.

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