From: bakken@cs.arizona.edu (Dave Bakken)
Newsgroups: misc.invest
Subject: Re: Investing for a default (was Re: Social Security is a Tax?)
Keywords: n
Date: 16 Oct 92 19:14:25 GMT
Distribution: usa
Organization: U of Arizona CS Dept, Tucson


In article <23931@optima.cs.arizona.edu> bakken@cs.arizona.edu (Dave Bakken) writes:

In email I have been discussing this, and Norbert has given me
permission to include it into a followup, in the hopes
of generating more discussion.

>From nfs@Princeton.EDU Fri Oct 16 10:29:05 1992
>In article <23931@optima.cs.arizona.edu> you write:
>>So if I had a wad to invest and hoped to do OK if things
>>cruised along normally but try to cover my tail if the
>>crap hits the fan here in the states, I would probably do:
>>
>>	20%-30% non-collector gold coins (Krugerand, etc.)
>>	30%-40% German and Japanese government bonds or CDs from good bank
>>	30%-50% CD here from highly-rated banks
>>
>>Comments?  This is not an academic question for many...

>Your analysis is pretty good.  The only item I question is the
>CD from a highly rated bank.  What do you really know about the
>finances of a bank?

Good point.  With interest rates so low, it might not make too much
sense to hold CDs over dollars bills.  The thought was diversifying
among strongly-rated banks, with the hope that the government guarantee
would be kept in case of a failure.

One problem with keeping cash (whether American or foreign) is
I think that cash in safety deposit boxes is not insured against
bank robbery (could someone confirm or deny this?).  I'm not sure
how easy it would be to get to your box if the bank failed, too.

>I should add that I personally don't have the investment mix you
>described.  I approve of the German/Japanese bond investment, but I
>wish it were possible to do this a little more directly than through
>U.S. mutual funds.  I would not hold CDs from any German or Japanese
>bank; my comments as to what any person can know about any bank holds
>double for what we could possibly know about foreign bank balance
>sheets.  I also hold considerable cash (real cash, not an entry on a
>bank's ledger) and gold coins.  With the financial system as fragile
>as it is today, I have little trust in intermediaries.  I am very
>short the stock market.

I agree with this.  It almost might be worth buying Dmarks and Yen
and sticking in a safe deposit box.  But bonds from the German or
Japanese government should actually do well if we have deflation here
and a devaluing of a dollar, assuming that they don't default, too.

I must say, though, it is not clear how imminent the party will end.
These rumors of bank failures and other ominous things that are
supposed to happen after the election may well be false.  Still, I
don't see how we can go more than a few years without the party
ending in a boom.  (Actually, we will be able to meet our interest
payments for years past this, but when people see the writing on
the wall and lose faith in the ability of the government to pay
back in a reasonable way, the party will be over very quickly.)
I'm quite willing to trade a few years of more-optimal investment 
income, etc. for more safety and liquidity. 

Comments?  Again, this is far from an academic question to many.
--
Dave Bakken                               Internet: bakken@cs.arizona.edu
Dept. of Computer Science; U of Arizona   Voice:    +1 602 621 4098      
Tucson, AZ 85721; USA                     FAX:      +1 602 621 4246
The fact that you're paranoid doesn't prove they're *not* out to get you.
Newsgroups: misc.invest