How does one make money in a failing economy? *UPDATED*

Mr. Bookworm had an interesting question.  He noted that it looks as if several states are going to default on their bonds, along with the possibility that these same states will file for bankruptcy.  He wondered if, armed with knowledge of these imminent economic collapses, it was possible to make money in the market.  As I said, that’s a good question.  I know that, no matter the economic disaster, one always reads about someone who walks away counting the piles of cash in his hands.

Do any of you have any idea how to turn the failing stock/bond markets to ones advantage?

Likewise, the real estate market is still in collapsed mode.  In theory, that means there are bargains to be had.  However, bargains work only if you’re reasonably confident that you’re buying in a market that will, sooner, rather than later, rebound.  How do you pick the next hot market?  A few years ago, my sister and her husband thought they’d found the next “hot market.”  Instead, when the real estate market collapsed, they found themselves in one of the most foreclosed upon market in the U.S.  They were completely unable to unload their real estate investments, and ended up handing them back to the banks.

Those are the two examples that came to my mind but, generally speaking, is there a way to use money to make money right now, or is the sinking economic tide bringing down all boats?

UPDATE:  This charming, interesting post perfectly articulates the confusion that I see when I try to figure out how people are supposed to make money (or not lose money) now.  (Although I’m not going to rush out and buy gold and silver.  I tried that last year, only to have Mr. Bookworm tell me that this was a right wing wacko investment idea.)

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Comments

  1. says

    Invest in things that are increasing in value due to economic destabilization, like gold. But it has already been awhile, so gold is at a pretty high point. Depending on how things go, it can go lower or higher.
     
    A market goes up if there is demand and limited supply, but both demand and supply can be artificially modified using government or private sector power.
     
    In times of economic strife, crime and instability goes up. Thus people’s demand for things like guns and personal protection agencies (bodyguards) also go up.

  2. SADIE says

    Long term or short term? Stock growth or dividends or both?
     
    Long term, I think pharmaceuticals and insurance. People get sick, no matter how bad/good the economy is.  Beginning January 1, 2011 every day thereafter 10,000 people will turn 65 for the next 19 years.  Johnson and Johnson is working on a blood test to detect cancers. It’s a long term project only at the ‘announcement’ stage in recent news and it will be 10 years ‘if/when’ it becomes a viable testing mechanism.
     
     

  3. says

    In general, the only way to make money from knowing that something bad is going to happen is to see it before other people do. If it is common knowledge that a company is in trouble, the stock price will have already been run down to reflect that. Similarly, muni bonds in troubled states already have some likelihood of default priced in, though it will always be a matter of opinion and analysis whether too much or too little such likelihood is priced in.
     
    One category of investments I find interesting is Master Limited Partnerships, especially for gas pipelines. These trade like stocks but are taxed as partnerships; hence they generate a bit of extra complexity at tax time. Long-haul pipelines generally get their money based on quantity of product shipped rather than as a % of the price of the gas, oil, or whatever.
     
    Sadie–I just sold my J&J. I am very unimpressed with this company’s continuous stream of problems in manufacturing, which I think are in part due to bad organizational decisions.
    Interesting discussion of J&J from the manufacturing experts at this blog…there was also a pretty damning Fortune article about them a while back.

  4. jj says

    Hard to know what’s going to emerge a winner from the muni bond situations in places like IL, CA, and NY.  This is unexplored territory, a state has never gone boink before.  They’ve threatened it, they’ve – perhaps, depending on accounting tricks – come close, but the actuality will be something entirely different.  Ditto US bonds, which, though currently worth no more than any other piece of toilet paper nonetheless carry the “full faith and credit” of the United States with them.  What happens when the full faith turns out to have been misplaced and there is no credit, well… this is something new.  Like I said, unexplored territory and lacking in guideposts.
     
    The best advice I can offer is keep an eye on Goldman Sachs, watch what they’re buying.  They will not be allowed to fail because they are far too deeply embedded in government, far too many of them operate the fiscal levers of the government, and far too many of them pull the strings from back-stage.  Whatever happens, they will not lose.

  5. suek says

    I remember an old cartoon in the Reader’s Digest….LONG long time ago.  In the years when computers were still very very large.  It was a progressive type cartoon…starting with one character feeding a piece of paper into the huge machine (as in about 8 ft high and taking up a whole wall) as he says to his co-worker something to the effect of “the machine will be able to tell us how to make money in the stock market”…  Cartoon progresses from room to room (using doorways and blinking lights on the monster computer to show the size and length of the computer), and finally spits out a small piece of paper.  The one man says…”Well?  what does it say?”
     
    “Buy low and sell high”…!!
     
    Still tickles my sense of humor.
     
    Sort of like the old belling the cat story.  The solution is often very simple…but equally often, not so easy.  The devil’s in the details and all that…
     
    And just like “stupid” and “ignorant” should never be confused, so also “simple” and “easy”.  Often used interchangeably, but _very_ different!

  6. SADIE says

    David Foster
     
    I wasn’t suggesting J & J other than as an example as a growing market for current and future seniors.
    We’re in uncharted waters, the ‘pros’ are as clueless as the individual investor.
     
    “one always reads about someone who walks away counting the piles of cash in his hands”
     
    Ah, but that ‘one’ had stacks of cash at the outset. The ‘follow the money’ trail could be an interesting trip. All the lobbyists/politicians who are in and out of any administration, certainly seem to be ‘doing quite well’. I wonder if any one has tracked where they go, once they leave office or where they have been before then got into office.
     

  7. expat says

    This has nothing to do with the current situation or the stock market, but I can still remember something from reading Middletown in Transition in college. Muncie, Indiana, came through the depression pretty well because it was the home of the Ball Glass Co, manufacturer of canning jars.

  8. suek says

    >>Muncie, Indiana, came through the depression pretty well because it was the home of the Ball Glass Co, manufacturer of canning jars.>>
     
    I suspect that one’s due for a repeat performance.  By the way, there used to be two major canning jar brands…Kerr and Ball.  Today they’re both owned by the same company.  The name fails me – but the only time I think such consolidation is a good thing is if it saves one of the companies from going under.  I dislike consolidation, generally speaking.
     
     

  9. says

    If you believe that the future is deflationary (at least one person argued while you were gone that it will be, although I think inflation is more likely), look for areas most likely to fail and short sell them.

  10. says

    DQ; I believe that deflation is soon to be here – that is something that is truly scary to me. (being unemployed for over 2 years now HAS made me a pessismist – so, I’ll admit I am a bit biased here).

    The muni market, which traditionally was a “safe” investment, is not good, really NOT GOOD.  If munis start defaulting then all hell will break lose as so many pension plans invest heavily in munis.  We will see a lot of pensions vanish – everyone in the entire middle class will be affected by this.

    With deflation, incomes will also shrink; and not shrink in the sense that inflation has lessened one’s buying power – actual incomes will go down – so many folks I know have already experienced this. Some due to cut work hours (for hourly workers) or furloughs to cut a day’s worth of pay; while a few have had their income decreased (albeit, the company says that it is only “temporary”) in exchanged for not being laid off.  Granted some of this is not, by strict definition, deflationary – it is still along those lines and at least, in my mind, the beginings of deflation.

    While the housing market imploding was bad, truly bad; pensioners without pensions will be worse. Workers earning less money will also be worse. It is one thing to lose your house and move into a cheap rental, it is another to lose your income (while still working!) and not be able to afford that cheap rental.

    Book;  How to make money in this market?  I’m not sure and I think you are right that there are always those who do manage to make money somehow.  As for those who do make money, while others are losing their shirts, I have often wondered if their methods were truly honest.

    As for myself, I am more concerned with losing what little I have rather than trying to “make money” - Have we reached the point where the safest place for our money is stuffed into our mattresses?

  11. snopercod says

    suek and expat: Don’t forget Mason! I still use the canning jars I bought in the mid 70s – the last time the future of America looked as bleak as it does now. The jars turned out to be good investments since they’re selling for almost a dollar each at the moment. Also, don’t forget to buy lids. I just bought a lifetime supply (case of 432) of wide-mouth lids from Goodman’s for $77 plus $13 shipping. Best price I could find anywhere.

  12. suek says

    And you think 432 is a lifetime supply???  I don’t _think_ so!!  Not that I disagree with your action – I’ve considered the same…jars without properly sealing lids aren’t much use!  Just I suspect that several cases might be a good investment.  Maybe even better than jars.  More compact, unbreakable – and just as vital as the jars will be.
     
    Yes…I’d forgotten about Mason jars – and how could I…that’s even a name like Kleenex, designating the entire product line!  You don’t ask about a Ball jar, or a Kerr jar…you ask about a Mason jar!
     
    Hmmmm.  Think I’ll do some online searching and see what I can find…!
     
     

  13. snopercod says

    “And you think 432 is a lifetime supply???” Hey, I’m old, OK? (wink)  Actually I use mostly regular lids and I have literally thousands of those.
     
    The part number for the case of wide mouth lids at Goodman’s is BL-42000-36PK

  14. Jose says

    “gold and silver….a right wing wacko investment idea.”

    Google “Soros gold”, and see that George Soros recently doubled his holdings in gold, while publicly proclaiming a gold bubble.

    Not to mention his mining operation in eastern Europe…

    As far as making money when everyone is loosing it, several people did during the housing bubble.  Their main difficulty was raising capital, as no one would believe in what they were doing.  I don’t understand their process but it is detailed in The Big Short by Michael Lewis.

    http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393338827/ref=sr_1_1?s=books&ie=UTF8&qid=1294764960&sr=1-1

  15. SADIE says

    suek and snopercod, the two of you have inadvertently found a creative way to ask someone their age – how many Mason jars and lids do you own? LOL
     
     
     
     
    If you’re feeling as insecure as I am about the economy – don’t read the link.
    BUT … If you’re curious as to how a ‘term paper’ becomes a “unconventional” working document to address the economic ills – read on.
     
     
    The $600 billion dollar man
    snip
    Mr. Frost and his team work out of a small, beige corner office with arched windows that used to be a library. There, at about 10:15 most workday mornings, one of them pushes a button on a computer. Across Wall Street, three musical notes — an F, an E and a D —
    snip
    In 2004, he wrote a paper with Ben S. Bernanke, the future chairman of the Federal Reserve, and another economist about unconventional measures for stimulating the economy in extraordinary times — just like large-scale purchases of Treasuries. “We didn’t know then that the Fed would be putting it to the test,” he said.
     
    http://www.cnbc.com/id/41019109

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