The End is Near?
On a long enough timeline, the survival rate for everything drops to zero. The extent to which things will change from the status quo is impossible to predict, but here, we’ve assembled a list of financial moves that you and I can make to protect our wealth, or even profit during a stock market or bond market crash and economic collapse. We won’t cover things like buying food or guns – we are talking about financial opportunities here.
Make Money in an Economic Collapse
1. Remain practical, calm, decisive and profit-minded
Any financial collapse will have winners and losers. The global economy is so interconnected that a crisis in one country will often extend beyond its borders, and can have second and third levels of consequences for individuals in other countries around the world. However, it’s possible that some countries may be less affected, or may even benefit from that crisis.
It’s important for individuals to consider where to plant a flag internationally, and to diversify some risk from a single, irresponsible and out of control government. It’s likely that the next economic crisis will be debt-fueled, and those who are nimble and who have had the foresight to plant flags internationally before the crash can benefit handsomely.
Now, specific ways in which you can protect yourself and even make a profit during an economic collapse.
2. Establish residency overseas
Moving to a new country now has never been easier. Flight prices are now very low, and global mobility has reached unprecedented levels as work becomes increasingly remote and part-time. However, it may be necessary to setup a new residency overseas before there is a crisis.
Metaphorically speaking, you will want to have an escape hatch to climb out of and a lifeboat to getaway on when your ship goes down. If you have already set up residency overseas, it will be much easier for you to pick up and go when the times get tough. If you start the process after something dire has happened, then you will be competing with a much larger group of people who are also rushing out of the same escape hatch at the same time. Just like it was during the sinking of the Titanic, there will not be enough lifeboats for everyone.
3. Get a second passport
Many countries typically grant citizenship to residents who have lived within their borders for a certain period of time. Ecuador, Panama, Uruguay and Paraguay are among several countries that allow foreigners to become citizens after a short period of residency.
We’ve researched extensively on every country in the world and how long it takes for one to get a passport through residency here. If you have money, but not the ability to move, you can apply and receive instant citizenship through citizenship-by-investment programs available in several select countries. Malta, Grenada, Dominica, Vanuatu, Bulgaria, St. Kitts and Nevis and Antigua are among the countries that offer such a program. We have a full list of available programs at Passports.IO.
4. Open as many offshore bank accounts as possible
If you’re not able to move and establish residency in another country, or if you don’t have the cash to gain citizenship through investment, or if you don’t have the option of getting another passport through jus sanguinis laws, the least you can do is open a foreign bank account. Often, you won’t need to leave home to open one, as it can be done via correspondence. However, opening a bank account is not as easy as it used to be. In fact, we recently have had many clients come to us because their bank account at HSBC Hong Kong or Citibank Hong Kong was unexpectedly closed, and they needed a new account in a hurry.
But opening a foreign bank account is by no means impossible, and our website, BankAccounts.IO, is a tool you can use to easily compare your available options.
5. Establish credit in more than one country
For this, you’ll need a second bank account and likely some form of residential ID, but If you can establish a credit history in more than one country, it can help with things like getting loans, buying on margin, and other various strategies for playing the natural arbitrage available from moving assets across borders.
Having capital available makes you more antifragile and able to maximize the strategy in many of these tips. It also opens up an opportunity for my next point…
6. Find a currency arbitrage situation to exploit
For instance, if you feel that the Japanese yen or the US dollar is overvalued, you might be able to get a loan in either country and pay it back as the loan.
If you are mobile, there are many different currency exploits available to you. Oftentimes, countries will implement capital controls when they are concerned about capital flight. In Argentina, the dollar trades on the black market at a premium compared to the official exchange rate. Bitcoin, which is easily transferred, trades at an even higher premium, which leads us to our next point…
7. Buy digital assets/cryptocurrency
If you can’t open a foreign bank account, or if you have difficulty sending money overseas because of your location, you could instead open a bitcoin account – instantly. You won’t need anyone’s permission to do this – in fact, no one can ever stop you from receiving bitcoin, regardless of whether you are in North Dakota or North Korea (although I hear the Internet isn’t great in North Korea, so if you’re there, you’re probably not reading this article).
Beyond bitcoin, there are numerous other cryptocurrencies that are also worth exploring. DASH – digital cash – is one that we are particularly bullish on. You can compare cryptocurrencies, exchanges and wallets at our free tool: Cryptochi.com.
8. Hold cash
We are currently entering an unprecedented market situation, where government bonds and bank deposits are yielding a negative interest. This means that you will actually lose money by investing in government bonds or keeping your money in the bank. Governments, anticipating that this may cause people to hoard money, have been enacting a war on cash.
These are turbulent times, and we don’t know for sure what the outcome will be, but for now, cash is king, and if you are able to hold on to a substantial amount of US dollars or some other currency, you could find yourself able to trade that cash at a premium – or at least, not have it easily confiscated by a bank or government – as cash is largely anonymous.
But while holding on to cash can be part of a larger financial plan, you should also own at least a bit of gold and silver.
9. Buy physical precious metals
Gold and silver are a universal store of value, and they usually perform much better than equities in times of economic turbulence. In the event of an outright collapse, it’s possible that humanity would revert to a resource-based economy to buy, sell and trade. If you are holding on to gold, you would have “struck the gold mine.”
It’s recommended to own physical gold and not paper gold, which is an ETF (exchange-traded fund) or an electronic representation of gold. Since you are buying gold to store and protect your wealth in the event of an economic collapse, you should get the physical asset, which can never be taken from you, except by force.
The gold market is somewhat manipulated, but it is relatively liquid, fungible and divisible. Gold has all the core attributes of money, and for thousands of years previously, it was money. If human society regresses somehow, you’d want plenty of this stuff.
10. Invest in a company that plays the downside of a systemic collapse
Certain companies and business models do well in an economic collapse or downturn. Such companies vary widely, and we can’t be sure what exactly will be the extent of the damage. However, I think it’s clear that farmland, water, basic materials, minerals and supplies do well in an economic downturn. People still need to eat, they just likely won’t go out to a fancy restaurant.
11. Focus on incentives when investing/starting a company
Industries that thrive during a downturn may not be what you’d expect. There is evidence that proves that the absolute best time to start a company is during the downcycle of an economy. For instance, Airbnb and Uber were both started during the aftermath of an economic crisis, which probably provided people an incentive to rent out their spare rooms or drive a car on weekends to make extra money. These billion-dollar companies were built in the course of just a few years, and both were started in the most dire of times.
12. Go short on a future and set up a stop-loss if you feel a particular commodity or asset will underperform in a futures market
This one is interesting, as some markets have recently introduced “price banding,” making it impossible or more difficult.
13. Buy physical land overseas
Physical gold is sometimes referred to as an “unproductive asset.” Land, however, is not, as you can buy arable land overseas and start a productive farm on it. This provides perhaps the best insurance policy against threats to the global food supply chain, and as a bonus, if something bad should happen, it is land that you can migrate to.
14. Look at Ethereum
The global financial system as a whole has serious problems. Many banks around the world are experiencing extreme difficulties in carrying out normal operations. Banks in Hong Kong are dumping customers, banks in the Caribbean can’t find correspondent banks to work with, and fintech companies are unbundling services and taking customers at customer vertical, which used to be a supplementary or even core banking service.
Ethereum is a decentralized platform for building financial applications that automatically execute by paying with “ether,” the native currency of the application. Started with a $19 million crowdfund, the currency has been valued at over $1 billion in total market capitalization, and as of today, it trades at half of that amount.
If there were to be a financial system effective enough to replace the current one, it would be one that is able to replace the middlemen, act as a currency and represent assets accurately – and it would likely be decentralized and anonymous. This may be just a conjecture, but it’s possible that Ethereum could in the future replace the current financial system. At least, it has the right intangibles and programmatic capabilities. It is worth holding some ether now, though I think the price is a bit high and overvalued currently. But we are talking about the future, and about how to make money in a downcycle in the future. These are financial instruments that hedge funds, professional investors and pension funds can’t put money on right now. It’s a niche within a niche that not many people currently know about. Now is the time to get in.
There is another way to make a play on Ethereum, beyond just holding the native currency. You could also build DAPPs (decentralized applications), which would be more of an active business than a passive investment. Essentially, a DAPP’s code is public, and people are able to use the “smart contract” that you published to automatically set off a chain of events, without any middleman or centralized, trusted authority. DAPPs are thus being built to replace things like bookies, escrow, bankers, and all types of financial services. There are many different DAPPs out there, a list of which can be found here. As for what type of application you should make, that’s up to you!
15. Move money/yourself to an emerging market?
This move is a contrarian one because emerging markets typically underperform when there is loss of overall confidence in global markets. But moving to an emerging market can bring about several benefits during an economic downturn. Firstly, from a personal perspective, it can be much less expensive living in a developing economy. Secondly, if the crisis happens to be a debt crisis and the country in which you reside didn’t accumulate much debt – you might find yourself starting in a country with a ‘fresh slate’ – and as they say “A rising tide lifts all the boats”. Finally, if you have multiple options in multiple jurisdictions – then you have the right (and not the obligation) to decide where to continue your life.
16. Have at least one offshore brokerage account to move quickly on deals
Having a bank account allow you to move money quickly between countries in your own name, but an offshore brokerage account allows you to perform some of the other tactics listed in this article.
Also, the rate of taxation, depending on where your brokerage account is located and which markets you trade on, can be entirely different.
17. Buy value, but don’t try to time the market
Timing the market is something that is almost impossible. People often use the term “catching a falling knife” to refer to trying to time when to buy a stock. However, if a stock is undervalued, then it is a good time to buy. How do you know if a stock is undervalued? There are a confluence of factors to consider, but one of the simplest way is to look at stocks that are valued at less than book value.
Warren Buffett’s mentor Benjamin Graham is the quintessential value investor, and he suggests buying equities when they are undervalued based on certain criteria and simple tests. Some of his more popular methodologies include:
a. Check the Current Ratio (current assets divided by current liabilities) to find companies with ratios over 1.50. Such companies have cash and other current assets and are more likely to weather declines in the economy.
b. Invest in companies with price-to-earnings (P/E) ratios of 9.0 or less per share. Companies with a low P/E ratio are usually not high growth companies, but do have solid fundamentals and real (not projected) revenues.
c. Finding companies with price-to-book-value (P/BV) ratios less than 1.20. P/BV ratios are calculated by dividing the current price by the most recent book value per share for a company. Book value provides a good indication of the underlying value of a company.
In times of financial collapse where people are pulling money out of markets, might just be the best time to invest. It’s better to buy at the bottom, but what if you want to profit from the actual collapse instead of simply place investments which hopefully appreciate when the markets rise again…
18. Invest in LEAPS
Long-term expiry anticipatory puts (LEAPS) – basically long puts – are one way to make money off the downside of a particular equity. Puts are options (but not obligations) to sell a particular asset for certain price sometime in the future. This means if an asset declines in price – you could buy at the market price and then execute the put option (making money in the process as you would only exercise the put option if you were in the money (ITM) for obvious reasons).
When you aren’t sure of the timing, you can buy a long expiry, so it can happen anytime within the next six months, for instance. This gives you a longer time to hit a price point and execute the contract when you are in the money. If you need a brokerage account to do this as a retail investor, I recommend Charles Schwab, which has a very robust brokerage platform that can also be combined with a Wyoming LLC at a relatively minimal cost.
19. Plant a digital security flag
If you don’t have a lot money, the cheapest flag you can plant overseas is a digital asset flag to protect yourself online. You can set up a VPN or an encrypted email account relatively easily. We have compiled a list of all major VPN services at Flag6.IO which you can browse prices and privacy components for virtual private networks.
Virtual private networks are servers in different countries which essentially re-route your internet traffic making you ‘appear’ to be connecting from another country. You are basically putting your computer flag and accessing the internet from another country. For people in China, and other countries where internet access is controlled by the government, this is essential tool in order to access the full breadth of online services.
Look for early warning signs, and move quickly. Japan, for instance, could be the canary in a coal mine for a collapse in bond markets and sovereign debt. Chances are that there will be a domino effect in the global economy that causes the next economic downturn. Again, the question is not if, but when this will happen. Markets, by their very nature, are cyclical but it’s almost impossible to get the timing exactly right. Better to be forewarned and perpared than to be “caught with your pants down”.
If you’d like to get a crash course in Flag Theory (for free) as well as a personalized consultation (again at no cost) click here.