Prepare for the next crisis like this…

By Kim Iskyan

Global stock markets keep heading higher and higher… credit markets are increasingly overextended… and geopolitics are more harrowing than ever.

Meanwhile, the MSCI All Country World Index (which reflects the performance of global stock markets) was up 26 percent in 2017.

That's great news… but sooner or later, mean reversion says the good times have to end and we'll see another crisis.

Mean reversion, as I've talked about before, means that markets (along with pretty much anything else in life) tend over time to reverse extreme movements - and gravitate back to average.

It's like a rubber band… stretch it and when you let go it returns to its original shape. So after a period of rising prices, securities tend to deliver average or poor returns. Likewise, market prices that decline too far, too fast, tend to rebound. That's mean reversion, and it works over short and long periods.

Markets around the world are "stretched" and could snap back to their "original shape" at any moment.

That means now is the time to prepare for whatever might happen… whether it's a market correction, a crisis, a currency collapse, or something far worse.

So here are six easy things you can do right now to prepare yourself for a crisis… whether it's next week or later in 2018 or next year. These are simple steps you should take, now.

1. Have a stash of (local) cash

No matter what - unless things turn really ugly - cash will get you what you need if your debit or credit cards don't work. But if your cash is in a bank that's gone bust, or if the ATMs stop working, money in the bank won't do you any good. Keep enough cash in a home safe to get you by for a few weeks - or a few months, preferably. Given negative interest rates in much of the world, you might be better off earning zero interest under your own roof than negative interest with your bank.

2. Keep some U.S. dollars

Despite the best efforts of the U.S. Federal Reserve, the U.S. dollar is still the default global currency. Almost anywhere in the developing world (and in much of the rest of it), a US$20 bill can fix a lot of problems very quickly (and a Ben Franklin (US$100) can fix the rest of them). If your local currency is for some reason unavailable (see: many crises in emerging markets all around the world), or worthless (see: Venezuela, today) - having greenbacks can be a lifesaver.

3. Diversify where you bank

Diversification of your "personal equity" and of your portfolio is important. But diversifying where you bank is just as important. Keep some money in a "too big to fail" bank - which is safe… until it's allowed to fail. Also keep some money in a conservative local lender where they know you by name.

Remember: Just because your bank is covered by a national banking insurance entity doesn't mean you'll get any money when you need it. So you'd do well to have an account in a different country.

4. Download now what you might need tomorrow

Don't assume that personal data and records that are online today - starting with bank or brokerage statements, for example - will be there when you need them tomorrow. Maybe it's a generational thing… but I trust "the cloud" to save my important stuff only if my important stuff is also saved on a hard drive tucked away somewhere safe. And those important documents that are on someone else's website are available to you only as long as 1. That website is still up and running, and 2. The owner of the website gives you access to it.

So… periodically download personal records and store them someplace safe (in the cloud… and/or elsewhere).

5. Follow your stop-loss levels

If you own shares, you need to have in mind a stop-loss for every stock you own. Just as important, if a stock you hold hits your stop-loss level (the lowest price at which you're willing to sell to limit your losses if a stock falls), sell. You can't make money by investing if you don't have money to invest.

A stock that's down 50 percent has to double before you get back to breakeven. How often have you invested in a stock that's doubled? Probably not often enough to count on it. It's much better to have a stop loss level that's (say) 25 percent below where you bought the stock (and raise the actual stop-loss level as the share price rises) than to be out of the game.

6. Hold gold

History has proven time and again that gold is one of the best ways to hedge your portfolio - that is, to protect it when stock markets everywhere fall. That's because gold and stock markets are negatively correlated assets.

People have used gold as a currency or medium of exchange for thousands of years. Meanwhile, other forms of money - livestock, shells, enormous stones and tulips - have come and gone.

Gold has withstood history and maintained its inherent value. It's durable, easy to transport, looks the same everywhere, is relatively easy to weigh and grade… it's the perfect store of value. In short, gold is insurance against a financial crisis.

So even if you don't know what the next crisis is going to be, you can do your best to be ready for it.

 

Kim Iskyan
Kim Iskyan is the publisher of Stansberry Churchouse Research, an independent investment research company based in Singapore and Hong Kong that delivers investment insight on Asia and around the world. Kim has nearly 25 years of experience as a stock analyst, hedge fund manager, political risk consultant, and financial commentator in more than half a dozen emerging and frontier markets. He's been quoted in the Economist, The New York Times, the Wall Street Journal, Barron's, and Bloomberg, and has appeared on Fox Business News, China Central Television, and Bloomberg TV, and has written commentary for the Wall Street Journal, Slate.com, Salon, TheStreet.com, breakingviews.com, and other publications. For more of his insights, Click here to sign up to receive the Asia Wealth Investment Daily in your inbox every day, for free.

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