Thoughts on increasing resilience to Peak Oil and Economic Contraction
Risk reduction. Any economic contraction will punish higher risk investments first and hardest. The flight from risk will spread to “blue chip” stocks and through all asset classes. The relative safety of Bonds may provide a safer haven for a short while but ongoing debt servicing pressure will push yields up and cause default on weaker issuers. Even AAA ratings are not likely to provide a safe-haven from a full blown deflationary collapse.
Debt reduction. Debt is more of a burden in a deflationary environment. The less debt you have the better. Start with the highest cost of capital first (likely credit cards).
Cash is king during a true deflationary period as investments and asset prices deflate relative to currency. Cash may also provide buying opportunities after an economic contraction as prices bottom out. However, Governments are likely to pursue policies of devaluing their currency by ‘printing’currency into existence (QE) in order to (i) reduce existing debt burdens, (ii) enhance global competitiveness and (iii) as a last ditch attempt to stave off deflation. This debasement will reduce purchasing power and may well lead to post deflationary (hyper) inflation.
A supply of cash on hand (at least 2 months worth) is a prudent strategy against a run on banks.
Precious Metals are widely considered a good hedge against debasement of currency and monetary inflation and will likely be less affected than other asset sectors during a deflationary crash. One can argue that precious metals (Gold and silver) are the only form of true money. True money is the universally accepted, ultimate extinguisher of all debt. Fiat currency is debt based and has always ultimately failed the test of time.
Short-term shorting (option to sell) of the market, especially of oil dependent stocks or the finance sector, may be a reasonable strategy for the more risk-inclined investor.
Location. Consider the implications of where you live if the price of gasoline doubled, quadrupled, or if it were to be rationed. Consider the essentials - distance to work, the local water supply, food groups and where they come from. It is likely that the world will move quickly from a global network to a localized set of markets.
Transport Choices. Mitigate the effects of high oil prices by accessing public transportation, reducing your vehicle miles driven, improving vehicle MPG and/or exploring alternatives to gasoline-powered vehicles.
Investment. Utilize the remaining period of ’cheap oil’ to make capital investments that pay long term dividends, e.g. significant insulation, vegetable gardens, green houses, solar panels, wood stoves, gray water systems, chicken coops etc….
Education. Read and research as to the likely scenarios and how best you can build resilience. BE PREPARED. See the recommended reading list as a starting point.
Support local farmers and businesses. As transport constraints move the world from global to local, early investment in the local infrastructure will pay long-term dividends.
Support leaders and politicians who pursue policies that acknowledge the need to move beyond the status quo.