Personal Financial Planning for Pandemic

[sharon sanders]

What I write here is hypothetical.<o =""></o>
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If there was a severe recession or depression today, it would be accompanied with pockets of inflation. There would be in essence, an inflationary depression.<o =""></o>
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In this case the safest investment would be cash. It is a liquid asset and will cover cash flow needs. There is a huge opportunity cost to not having liquidity in a volitile economic situation. If the Federal Reserve starts to "drop cash out of helicopters" you could readily invest in an asset that may hold it's value better, like a repair shop. But, if you don't have that liquidity you may be stuck with the investment choices you have made for the duration of the pandemic and recovery phases. What if the markets are closed? When will they reopen, and what will your stock be worth at that unknown time?<o =""></o>
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For those persons who have retirement accounts that can not be accessed, the safest investment would be 2 year treasury notes. Now, the risk is that if the Federal Reserve starts printing money like it is water, the money you invested in the bond will be worth less than when you put it in. But it is guaranteed by the<st1 =""></st1> government and you will get the face value of the bond. The credit risk is low on this kind of asset.<o =""></o>
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Next are corporate bonds. These are getting riskier. How will a particular company do in a pandemic? Guess?<o =""></o>
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Equities are the most risky investment category (besides commodites which I am not discussing). An individual stock could lose all its value.<o =""></o>
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You must consider your source of income. If you are self employed then you need to assess your cash flow situation. If you are a govenment employee (which implies a stable income) then you can be a little riskier in your investment choices.<o =""></o>

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I spoke to a very experienced broker today and asked him what he was recommending as a bird flu portfolio ......
he laughed.<o =""></o>
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[Mellie]

Re: Financial Planning for Pandemic

Interesting comments to add to my research. The goofy faces get the hypothetical message across quite well. [I can think of a couple of announcements made by supposedly reputable organizations (not financial) that would have felt closer to the truth to me if they'd had a few goofy faces attached.]

Many thanks, Florida1.

Mellie

[sharon sanders]

Two Disturbing Trends in Families Finances

The first trend is depicted by the release of a report called Recent Changes in U.S. Family Finances: Evidence from the 2001-2004 Survey of Consumer Finances by the Federal Reserve and shows that mean income growth for U.S. families was -2.5% while productivity increased at an historical high rate. http://federalreserve.gov/pubs/bulle...ancesurvey.pdf

Also see the chart below matched to the data in the report:
<TABLE height=1011 cellSpacing=0 cellPadding=0 border=0><TBODY><TR><TD vAlign=top width=426 height=544>Productivity, as measured by output per hour, increased 4.1 percent in the nonfarm business sector in 2004, reflecting increases of 5.3 percent in output and 1.1 percent in hours.

[Chart data—TXT]

During 2003, output per hour increased 4.4 percent in nonfarm business, as output rose 3.8 percent and hours of all persons fell 0.6 percent. Nonfarm productivity also had increased 4.4 percent in 2002.

When the productivity increases for 2002, 2003, and 2004 are combined, productivity for the 2001-2004 period rose at an average rate of 4.3 percent in nonfarm businesses. The last comparable three-year rise occurred over the 1948-1951 period, when productivity increased at a 4.2-percent annual rate, incorporating gains of 3.3 percent in 1949, 6.6 percent in 1950, and 2.7 percent in 1951.
These data are a product of the BLS Productivity and Costs program. Data are subject to revision. Additional information is available in "Productivity and Costs, Preliminary Fourth Quarter and Annual Averages for 2004" (PDF) (TXT), news release USDL 05-177.

When the growth of income does not rise in tandem with the rise in productivity then a "wage gap" is created. That is to say that consumers are not earning in income the increased productivity that is resulting from their efforts. This effectively stunts the consumer's ability to spend the U.S. out of a recession or depression.

The 2nd disturbing trend in the report referenced above is that the increase in net worth, while incomes have remained stagnant or decreasing, is due to increased homeownership and the recent increased appreciation rate of homes. In this same time period (2001-2004) there was an increase in delinquencies in home loans.

The result of these trends is that the family will not be able to withstand any significant downturn in the economy which a pandemic most certainly will bring because a) they have not been paid for the productivity that they have created and b) any decrease in home values will diminish their net worth and further weaken their financial strength.






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[Binkerbear]

Re: Financial Planning for Pandemic

F1: I want to be clear here: If there is a deflation, then yes cash will be king of the roost. But you keep throwing in the word "inflationary". If Helicopter Ben throws newly printed currency from the sky (increases the money supply), then gold is king. I bet the Germans in the Wiemar Republic years wished that they had held gold. Instead, they carted all their cash in wheelbarrows to the store just for a loaf of bread. I do think that deflation will be likely in the initial stages but then watch out after that.

[sharon sanders]

Re: Financial Planning for Pandemic

<TABLE cellSpacing=2 cellPadding=4 width="100%" border=0><TBODY><TR><TD vAlign=top align=left width=500>The financial effects of a bird flu triggered pandemic</TD></TR><TR><TD vAlign=top height=238><TABLE cellSpacing=2 cellPadding=5 border=0><TBODY><TR><TD class=basictext vAlign=top width=200 rowSpan=2>The World Health Organisation predicts that another flu pandemic is just a matter of time. A particular worry is a pandemic based on a variant of the H5N1 bird flu virus that has become endemic in poultry across Asia. Recent outbreaks of bird flu have occurred in Turkey, Europe, Africa and India. So far at least 83 people have died from the H5N1 virus as people have become infected from contact with diseased chickens. There is no evidence yet that the H5N1 virus has passed from human to human. But the 1918 Spanish flu pandemic ? the worst the planet has seen ? infected between 10 to 40 per cent of the population and around 3 per cent of those died. The 1918 Spanish flu was caused by a H1N1 bird flu virus that mutated so it could spread easily among people. If the H5N1 virus mutated to repeat anything like the 1918 pandemic severe consequences would follow for the world?s population and economies.</TD><TD class=basictext vAlign=top width=205>





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</TD></TR></TBODY></TABLE>http://economicscenarios.com/

This is their partial analysis. For $5000/yr you can get the subscription to their service. I decline. However, I think that their graph shows the type of economic situation that might occur in a pandemic in the U.S. The graph looks to me to represent a moderate pandemic. As I have said overall consumption (demand) will decrease. It also shows the steep recovery period. This is where fortunes will be made. Phase 3.

[sharon sanders]

World Oil Market &amp; Oil Price Chronologies

A link for background on oil prices 1970 - 2004 matched against world events. Interesting read. Ok - I am a nerd.

http://www.eia.doe.gov/emeu/cabs/chron.html

[sharon sanders]

Re: Financial Planning for Pandemic

No, it will not take wheelbarrels of cash to buy loaf of bread lie in Germany for the following reasons, briefly:
1) Germany was subjected to pay the world huge war reparations as a result of losing the war,
2) the German economy and government were in a shambles,
3) No investment in Germany was being made by outside investors.

This will not be the case with the U.S. dollar in a pandemic. The U.S. and a few other highly industrialized countries will weather the storm of the pandemic better. International wealth will flow onto those countries and demand for those currencies will increase. This will keep the dollar worth about what it is worth at the beginning of the pandemic, even if Bernanke decides to increase the money supply. It is not possible to predict exactly what the dollar will be worth, but it is not a Germany situation.

[Binkerbear]

Re: Financial Planning for Pandemic

F1: You present educated, reasoned, and very convincing arguments that everyone here should probably heed. As usual though, I am more convinced by GR's predictions even though you certainly have all the odds in your favor. There is no doubt GR predicts a very extreme situation, something like we have never seen before. I think the major difference is this: Although you and GR both see a repeat of the awful Depression years, GR thinks that we no longer have the kind of society that can remain cohesive where we can stubbornly work our way thru it. That is why I'm in agreement with GR. I see our social fabric breaking down even without a pandemic and the pandemic may just finally tip the scale. Couple that with the whole bleak world situation (oil, terrorism, Iran, China, climate change) and who knows what could happen. In this worst case, there would be panic, anarchy, and no law enforcement. I certainly hope this isn't the case, but it does remain a possibility that should be considered. Another real possibility would be that our nation comes together like in WW2 and we fight and work our way out of this. I'll probably be wrong but I lean toward the "breakdown" scenario.

[Rasputin]

Re: Financial Planning for Pandemic

There is no doubt GR predicts a very extreme situation, something like we have never seen before. I think the major difference is this: Although you and GR both see a repeat of the awful Depression years, GR thinks that we no longer have the kind of society that can remain cohesive where we can stubbornly work our way thru it. I lean toward the "breakdown" scenario.

The Balkanization of the USA is a very real possibility.

It's been written about in several books.

We are definitely no longer a cohesive society and will fracture
along "tribal" lines.

[sharon sanders]

Re: Financial Planning for Pandemic

Steps to take to financially plan for a pandemic:

Assess your employment situation. The most important asset in the pandemic will be your income. For most people this will be your job. Businesses in demand will be in the following areas: communications, health care, education, repair, bicycles, mopeds, delivery, agriculture, fisheries, cattle, pawn shops, auction houses, legal services (some), and security services. Think about other skills that you have that can be used if your primary job is not needed. All kinds of repair services will flourish.

Protect the assets you have. The safest investments in the United States are U.S. treasuries and financial instruments that are FDIC insured. Diversify your banks. Pick regionally strong ones. Keep your business planning short term. Avoid debt. Sign only a short term office lease. Conserve on cash. Tighten credit terms you may be offering customers. Divest yourself of unprofitable or marginal enterprises. Reduce cost.

Assemble enough cash for 90 days of living expenses, at least. This cash should be easily accessible.

Do not pay off your home, car, or credit cards. You may need all the cash you have. Lenders will accept payment arrangements in an emergency situation.

http://www.flutrackers.com/forum/forumdisplay.php?f=505

[Laidback Al]

Re: Financial Planning for Pandemic

The sad truth is that the world of commerce will be very different after a severe pandemic. Many business will not survive no matter how low they keep their credit balance. Different needs, wants, and services will arise. Good planning for business practices should include scenarios where the customer base is decimated or unable or unwilling to buy your products and services.

I think that any businesses that vie for a share of discretionary income today will not fare very well during or after a pandemic.