SHELTER WHERE? This Time, Shouting “Sell” Will Not Be Enough

By Wayne Jett © August 8, 2016

     The signal to begin the Great Crash of October, 1929, was a floor vote by the U. S. Senate approving a sharply higher tariff rate on a milk by-product used in paper-making. A cascade of sell orders ensued immediately, driving down corporate share prices, destroying companies and ruining investors. Once the crash began, an investor’s objective was clear: sell shares for cash as quickly as possible.

     In 2016, an investor retreat is not so simple. “Cash” is no safe haven now, as it was in 1929, when the U. S. dollar’s value was measured in gold. Then, a paper dollar could be exchanged for gold in the promised amount at any time. Not so for Americans since 1933. Now a financial crash is likely to be centered on “cash” (the U. S. dollar) as the problem – not the solution – to investment risk.

     As a practical matter, this means adjusting your investment risk is now a two-step process, at least in most cases. A few investors may be able to exchange one investment directly for another, safer asset. But most must sell an existing asset for dollars, then buy a preferable asset with the funds. This means, at the very least, you need to act earlier to adjust your risks before the panic or crash begins. You ought to get to your preferred shelter before the deluge comes.

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