The label “prepper” carries some baggage. Even after all this country has seen in recent years, some still consider those stocking up on food, ammo, bullion, and other emergency essentials as a little bit nuts.
Despite some close brushes with disaster, including the 2008 financial crisis and the more recent supply chain disruptions associated with COVID-19, it somehow seems hard to believe the nation’s critical systems are at risk.
Normalcy bias is a luxury people can no longer afford. Anyone operating as if the next twenty years are sure to look pretty much like the last twenty probably isn’t paying attention.
The collapse of the Francis Scott Key Bridge in Baltimore is the latest warning. We are dependent on fragile, complex, interconnected systems. The nation’s transportation system is only one of them. Other examples include the financial system and the electric grid.
It does not require a deliberate attack to disrupt these systems. Incompetence, corruption, and negligence can yield the same result. So can random accidents.
The reason the container ship struck one of the primary bridge supports might have been any of those things. There’s also the possibility it was deliberate, and that other attacks on key infrastructure may be in the offing.
Even if the incident proves to be an isolated event, its ramifications will be widespread. The loss of the critical bridge and the short-term shutdown of the Port of Baltimore are going to disrupt supply chains.
For investors, preparation means thinking about whether you are “all-in” on conventional securities, or if you have some hedges in place. It means thinking about what true hedges are.
The phony diversification many financial advisors like to talk about probably won’t cut it. An investor isn’t going to be properly hedged by moving 20% of his portfolio out of consumer cyclicals and into utility stocks.
If a critical system goes down, one of the next things to collapse could be the financial markets. Stocks, bonds, and other assets that depend on confidence can fall nearly as fast as the Francis Scott Key Bridge.
Investors are wise to acquire some assets that aren’t dependent on confidence, or well-functioning systems, to hold their value. This means buying non-conventional assets beyond stocks, bonds, and money market funds.
Physical bullion is one of the assets to consider. Certain kinds of real estate, such as farmland, are another. Bitcoin may be worth a look, though it isn’t going to hold up if the failed system turns out to include the internet.
To be clear, the paper price of precious metals can also be dragged down during a panic in the financial markets. However, it is important to understand that scarce physical bullion is different from a metal derivative, such as a futures contract.
Confidence in cash – the Federal Reserve note dollar – isn’t what it used to be.
The full faith and credit of our insolvent, and corrupt, federal government also doesn’t amount to much these days. Many investors won’t want to hold cash or buy Treasuries, two of the most popular and traditional safe-havens.
Investors who are wary of rising credit risk and inflation risk are going to look at physical metal.
The early days of the Covid panic provide a pretty good model for how modern markets are likely to respond to major turmoil. Investors temporarily dumped gold and silver futures, driving paper prices down. But demand for bullion spiked and premiums surged, offsetting much of the decline in prices.
Now is not the time to follow the herd.
Stocks have been strangely impervious to bad news. It is apparently going to take an extreme event for most investors to snap awake, switch the autopilot off, and seek genuine safe-havens.
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