Everyone Into The Bunker!

The title for this post comes from a couple of articles from the other day. One was from The Housing Time Bomb blog (great name) and the other from The Business Insider.

First from Housing Time Bomb, Jeff (the blogger in question) asks the very reasonable question that if someone like Stanley Druckenmiller thinks it is too difficult to navigate through the current market then why should any of us think we can navigate through. Asking the question is practical but completely pulling up stakes may not be, at least I don't think it is.

The big macro of course is that the US equity market has done this before; the 1930s and 1970s to name the most recent two. While I don't know first hand how bad it was in the 1930s I do have some first hand knowledge of the 1970s as do many people reading this post. It was bad, there was concern that it was over for the US (the Businessweek Death of Equities cover) and then it ended. As mentioned many times here before, the details were different but the market behavior was similar, at least up to this point. Following this line of thought this event will end, even if it takes a few more years, and at that point down 24% for another decade becomes a very low-probability event.

As I read the Housing Time Bomb post it seems he is talking about the US markets to which I would reply that, just like last decade, there will be many foreign markets that can still provide normal or closer to normal returns. Another point to add is that if you think in terms of having enough money when you need it then even just having tread water (thanks to a decent allocation to foreign) and having continued to put money away leaves you far ahead of the market which gives you a better chance of having enough when you need it. What I mean here is that the average 9 or 10% annual return over very long periods of time includes decades like the 2000s. If the decline from that sort of period can be mostly avoided then you come out much farther ahead of the market over your investing lifetime--something I have been writing about for a long time.

The Business Insider post was titled 7 Investment Ideas for the Worst Case Scenario. It isolates seven themes with some details on why the particular theme makes sense and ideas on how to access them with stocks and or ETFs.

The themes are farming, water, uranium, gold, rare earth metals, defense companies and alcohol and tobacco. Long time Seeking Alpha contributor Alex Filonov immediately jumped on the SA version saying that for the real worst case scenario you need land where you can grow your own crops, seeds, long dated canned food and durable clothing among other things.

If we focus more on a bad investment environment than a Beyond Thunderdome environment then most of the themes make sense but I'm not too sure about uranium and rare earths. It seems to me that uranium relies on demand for power so even if there will be more nuclear plants in other countries, and there will be, a down and out global economy creates downward pressure on energy demand. And as the article notes the price of uranium is down about 2/3rds in price from its high from a couple of years ago as a very bad scenario, even if not worst case, has been playing out. It might be a great buy, just not sure it fits with the worst case scenario idea.

In talking about rare earth metals the article notes that they are by definition rare. That is not quite right. As I understand it the quantities are vast but very concentrated which adds a political element given that much of the concentration is in China. Rare earths have applications in defense, tech gadgets and batteries (redundant to defense and gadgets) so there is a tie in to defense as mentioned in the list but if we are really talking about the worst case but stopping short of a complete tearing of the social fabric then I would think demand for gadgets and certain types of batteries would drop.

The farm idea is always interesting but in the post in question, not so much. The investment ideas included PowerShares DB Agriculture Portfolio (DBA) for obvious reasons, Lindsay Corp (LNN) which is an irrigation equipment company, Potash Corp of Sask (POT) for fertilizer and Archer Daniels (ADM) for food processing.

For now there seems to be more talk about farmland investing than ways to do it through the capital markets. The chart captures two stocks I've mentioned previously New Britain (NBPOF) in blue which is a palm oil company headquartered in London with operations in Papua New Guinea and the Solomon Islands and Marine Harvest (MNHVF) which is one of the Norwegian fisheries-- a farm of sorts. Both names have obviously done well of late although another name in this context that I have mentioned before, Black Earth Farming (BLERF), has not done well.

There are many other similar stocks to research and decide whether they make sense for you but they are part of this theme. Depending on your online broker they can also be quite accessible. As a side note I still cannot believe that Schwab is now several years behind other brokerages in direct and cheaper access to foreign exchanges.

Back to the TBI list of seven, most of the things on that list have a type of demand that is very easy to understand. Food and water are basic to survival, gold among other things plays on fear that many people have and defense companies (hopefully) protect us against threats. While figuring the best way in to these themes may not be easy the dynamics driving them are easy to figure.