Be Prepared...but not Too Prepared

Since entering the finance industry, I have heard just about every possible warning sign of what lies ahead for Americans and how to prepare for it.  Selling “fear” is a multi-billion dollar industry: insurance brokers, doctors, politicians, religious zealots, financial advisors, are among the people who have direct or indirect compensation related to scaring you into taking some kind of action.  


Think about it:

“You will lose your job and your house if you don’t throw that other guy out of office by voting for me.”

– handsome white-toothed smiling politician

 “You must have life insurance and disability insurance and property and casualty insurance and flood insurance and renters insurance and hurricane insurance and earthquake insurance and auto insurance and travel insurance and…”

-nebishy insurance broker

“If you don’t pray 15 times a day and give all your money to the (insert religion) you are going to hell.”

-some guy on the subway


I think you get the point.  In the context of the financial crisis, which is going on its 4^th year, I have found myself suggesting ways for people to prepare for an “event” that may or may not happen one day.  Generally I tell people they should own some physical gold or silver (somewhere between 1 and 20% of their investable assets depending on their level of bearishness) and go out and buy a gun.  Both seem reasonable enough as they will not break your bank.  They are just my versions of “insurance policies” which I hope to never use, but exercise our rights as Americans to bear arms and invest in real currency.    

If you listen to the interwebs you will hear suggestions of how to prepare, above and beyond the reach of the average American:  farmland (I suggested this too but now I look at prices and it is way less affordable today), pvc and vacuum sealed organic seeds (I own these and it makes me laugh), 100 gallon drums of water, solar panels, bullet warehouses, foreign passports and bank accounts, bomb shelters, fuel storage, 6 months non-perishable food, off-site hard drive storage, escape routes, blah blah blah.  I realize now that it is impossible to live a happy life while simultaneously consuming yourself by preparing for every possible outcome.  The truth is no one really knows how and when this will all shake out if it ever does.  The powers that be are called that for a reason and they control this mess…for now.

We would go broke and spend all of our waking time preparing for every possible future event given the millions of possible outcomes.  So rather than prepare for them all, we should just prepare for a few of them by taking actions that are reasonably priced and take a reasonable amount of time.  Everything else falls under the get educated category -  heed the fact that there is some probability that anything can happen. 

My business partner says that when he thinks about all the things he needs to do to protect his family, he gets on Amazon.com and starts clicking away at dry food and supplies and suddenly his cart is full of hundreds of items.  Then he realizes he could never be fully prepared and he needs to get back to what would really help them today…like earning a living to put food on the table and buying some diapers.   

This may sound like a 180 from my previous notions but it isn’t.  There is absolutely risk out there but being surrounded by quants all day I realize there is a difference between perceived probability and actual probability.  If we cannot even predict every fathomable outcome how could we possibly be expected to prepare for them?  I am finding that I would rather live happily than live in fear.  

I guess you could sum it up by saying “stay educated but keep on keepin’ on.” If some terrorist wants to blow up my local diner I don’t know that I can hedge this risk out of my life completely, so I am not going to let the thought of it ruin my day.  

The Neighborhood Watch is Back



Crowded gun show in Michigan this past weekend (courtesy of Chad Hines)


I am starting to wonder what the end game for gun ownership in America looks like.  More frequently we hear "gold" and "guns" uttered in the same breath.  In fact, last year when talking to my accountant about owning gold and silver his first question was: "How many bullets to do own?"  I did not own a gun at that time so my response was "zero." With a smirk his follow up remark was: "Your gold is worth nothing if you can't protect it."  So is there more value in owning the gold or owning the guns?  Some take the conversation a step further by saying that organic seeds (not your round-up ready seed varieties from Monsanto) would be most valuable because if the world blows up, people will need self-sustaining food sources in order to exist past what little they can store in their basements.  Again, this thought brings me back to my accountant's comment: "Your (INSERT ANYTHING HERE) is worth nothing if you can't protect it."

Gun ownership is controversial in its own right and is something I never paid much mind toward.  Why should anyone NEED a gun?  We pay taxes so that our local governments can staff an operational police department armed with enough weapons to protect the community.  Right?  Well, what happens when those local governments run into financial difficulty and can no longer support the boys in blue to the extent they were able to in the past?  We get situations like in Ashtabula County (Ashta-who??) where a judge told citizens to "arm yourselves" (LINK).   Earlier this year in Colorado Springs, the police department was forced to downsize and raise cash by selling off their helicopters (LINK).  I cannot imagine that engenders much of a sense of security in that community.  We are seeing more and more evidence that Americans are taking their safety into their own hands.  Suddenly, the Neighborhood Watch Program is not for the old retiree who likes to ride his or her bike around the block at dusk.

Over the weekend there were two articles I came across about weapons.  One was on the cover of the FT about a law in Kennesaw, Georgia that makes gun ownership compulsory (i did a double-take when I first read that but found that the law is not enforced so only 50% of the town's inhabitants are gun owners...50% is still a big number) (LINK). The other was in the Daily News, which stated permits for the right to carry concealed weapons (CCW) are on the rise among celebrities in NYC (LINK). I do not know many celebrities but I do know at least three people who have gotten their CCW permit in the past couple years (one was in NY and 2 were in Michigan). 

What should we takeaway from this?  There may be some kind of self fulfilling prophecy here.  People assume they are less safe (national violent crime and homicide rates have actually fallen over the past 5 years according to the FBI) because the country is on hard economic times and traditional means of protections appear to be less reliable.    I can see how the inclination is to go out and get armed.  You think your safety may be at risk (though on the whole, crime is little changed)...your neighbors are doing it...your friends and colleagues are thinking of doing it...so now you feel like you may want to consider it.  Maybe it is the general level of fear going up, or maybe it is just a simple herd mentality, or maybe it is about keeping the playing field level?  I suppose I wouldn't want to be the only Olympic sprinter NOT juicing and getting away with it if everyone else was.  People assume they are unsafe and go out to get armed - does that make all of the unarmed people unsafe?

What is the end game here?  Are citizens capable of policing themselves?  Will this new found need for protection be turned into local military offensives and militias, should the "mob" decide they have a better plan for how to be governed?  Who knows?  I know this much:  I own firearms the same way I own term life insurance and teeny puts on the S&P 500.  I am hoping I never actually need any of them.