Whenever I look at the news and CNBC I never really see anyone that's defined themselves as a “financial weatherman.” We have our nightly news where our weatherman tries to predict what's going to happen in next day to 5 days, but even then it's hard for them to really know. To me, my financial weatherman would be looking at the trends of fronts that would colliding, and would have the foreknowledge of previous storms. Storms that span more than the last 5-10 years, but has thoroughly reviewed 50-100 years of history.
I think there are a lot of storms on the horizon, and there is a need to prepare now! With how much we prepare for severe weather storms by ran-sacking grocery stores of milk, bread, and beer, we should do the same to prepare for financial weather storms. A lot of time has passed since the 2008 crisis, and allowed many people the chance to save, cut spending, and “hunker down.” Much like a squirrel saves nuts for the winter or bad weather, we all must do everything to prepare for financial storms. At the same time, there is a balance there. It's not about worrying per se, but preparedness. As the sole breadwinner for our family I struggle with the balance too. I can begin to worry and trust more in myself than in the Lord. So remember first and foremost…
…the Lord is your shepherd and works to protect His flock!
What would my financial weatherman be saying now? What fronts or weather patterns are coming? Here are 3 storms I see on the horizon:
Financial Super Storms (supercells)
Lately it's seemed like weathermen are using the term – “supercells”. I wonder if it's just a new buzz word meant to scare us or what. Regardless, there are supercells brewing. You can see it every day. It's manifesting itself in our National Debt, and the storm clouds are brewing! Today Americans owe more per citizen than any other country in the world! They owe 35% more than Greece's citizens. I would have never had guessed that if I was asked.
With this debt, the whole world is watching us. With our currency viewed as the reserve currency of the world, they are watching the decisions we are making with our debt. We've accumulated $16 Trillion essentially over the last 100 years (since about 1910), and have no intention of stopping the excessive borrowing. The supercell of our national debt is growing, and I hear the grumbling in the clouds to the west.
Flooding – Quantitative Easing
In the Midwest last year we got what people call the flood of the century. The entire Missouri river flooded its banks, people lost farms, homes, and even my in-laws lost their home too. The dams and levies couldn't stop the flood/rain that was coming from up north. The Federal Reserve is flooding the markets with printed money, and there has to be a reaction. If you haven't heard of Quantitative Easing (QE1, QE2, QE3), then look it up now!
What is Quantitive Easing (QE)? Essentially, QE is the Federal Reserve printing money to buy US Bonds. They are printing money to finance our debt, which is supposed to ease monetary liquidity. However, to all the cash savers this is a losing proposition. It's a tax on all the savers because more printed dollars means our dollars in hand are worth less. Right now, the Fed is printing $40 billion per month until unemployment gets to around 5%.
Drought – The Next Great Depression
My Grandpa always worried about a drought to his crops. More than any storm or flood, droughts put the fear of God in him. Perhaps my Grandpa was worried about them because he lived through the worst drought in our countries history – the dust bowl. The financial drought that is coming could be in the form of depleted savings or job loss. Much like the Great Depression that experienced 25% unemployment it exhausted families incomes and savings. Just like a drought, no one saw it coming, because if they had they would have been prepared. The depression and the coming depression remind me a lot of Joseph's interpretation of the pharaoh's dream in Genesis 41.
Seven years of great abundance are coming throughout the land of Egypt, but seven years of famine will follow them. Then all the abundance in Egypt will be forgotten, and the famine will ravage the land. The abundance in the land will not be remembered, because the famine that follows it will be so severe.
Be prepared like Joseph prepared the pharaoh's country.
How to Preparing for the Coming Storms
Now for each type of storm that is approaching, we don't always prepare the same. For a flood, you don't prepare as you do in a tornado (and go to the lowest point in your house), but you prepare according to the circumstance. During a drought, you would stock up beforehand much as the Pharaoh did in Genesis. In the same way here are few tips to prepare for a drought, flood, or supercell.
- Drought (Depression) – have enough savings on hand to last 12+ months on unemployment Many people fail to realize that during the peak of the depression there was 25% unemployment. That's a lot different than 8-10% unemployment than we've been experiencing the last few years. In general, it's smart to have a lot in savings to take advantage of many investment opportunities that might come about from another depression (not to mention weathering the storm).
- Flood (QE) – invest in precious metals, particularly silver. The Fed's actions of printing money will have even more pressure on our dollars. It will undoubtedly devalue our dollars and they will be able to purchase fewer goods and services. I started in silver in 2007 when it was around $11/ounce. Since the Fed has done QE1,2,3 it's risen to $32 today (high of $47). Hedge against this monetary policy, and invest 50% of your savings in precious metals.
- Supercells – preparing for this type of storm is much different than any other. If the national debt continues to rise then there might be one or two scenarios that play out Either currency warfares or higher interest rates, because the government has defaulted on their national debt. Regardless, it's important to pay down your debt now, because rates will skyrocket. The other scenario will spur higher interest rates as inflation from all the Quantitative Easing begins to stoke the inflation fire. Either way, pay down your debt now or lock in your rates now while they are at all-time lows.
I'd love to hear other people's thoughts on what “storms” are coming and how you are preparing.