The 9/11 Investment Strategy: Preparing for the Unexpected

“It’s easier to prepare than to predict.” — Hank Brock

I gave my first talk about the 9/11 terrorist attacks yesterday at the New York City chapter of the American Association of Individual Investors (AAII). I moved to New York only a week before the 9/11 attacks in 2001 to become the new president of the Foundation for Economic Education (FEE) and witnessed firsthand the collapse of the Twin Towers. My first job as FEE president was to decide whether we still would have our annual “Liberty Dinner” a month later, with Paul Gigot, editor of the Wall Street Journal, as our keynote speaker. I decided to go ahead with it, and we ended up with a packed audience of 200 people at the Harvard Club.

At last night’s AAII meeting, I decided to talk about how to create an investment portfolio that prepares you for unpredictable “black swan” events and other unexpected disasters.

In the week following the 9/11 attacks in 2001, the Dow declined 14%, but long-term Treasury bonds rose 10% and gold skyrocketed 33% to $287 an ounce.

In the 2008, financial crisis, stocks fell more than 30% and commodities collapsed by 40%. But Treasuries rose 34% and gold climbed 5%.

How can you protect your portfolio from terrorist attacks, wars, natural disasters, economic depressions and monetary crises?

I told the audience that it’s easier said than done. Sometimes the best strategy is simply to minimize your losses. As Dick Russell often says, “In a bear market, he who wins is he who loses the least.”

Four Ways to Hedge against the Unknown

Here are some suggestions. Consider:

1. Buying long-term put option LEAPs on the S&P 500. This is called “long tail” hedging in the business, and one used by Mark Spitznagel in his Universa hedge fund. (His hedge fund more than doubled in 2008 with this strategy.) He writes about this strategy in his new book “The Dao of Capital: Austrian Economics in a Distorted World,” highly recommended.

2. Investing in the Permanent Portfolio Fund (symbol PRPFX), which invests 25% in stocks, 25% in Treasuries, 25% in gold and silver and 25% in cash/Treasury Bills. This form of “non-correlated” investing actually rose in 2001 and 2002.

3. Adding to two most popular “safe-haven” investments during a panic are: U.S. Treasuries — consider buying the iShares Barclays 7-10 Year Treasuries (IEF); and gold as the ultimate money haven: SPDR GOLD (GLD).

4. Buying gold and silver coins from reputable dealers. Gold and silver investments are the ultimate hedge against inflation and crisis. But beware you don’t overpay. For a list of my five favorite coin dealers, email me at CustomerService@MarkSkousen.com.

Finally, I told the audience that the rally on Wall Street is fueled largely by the artificial easy-money policies of the Federal Reserve (money supply is growing at a 10% rate right now) and that once the Fed stops inflating, watch out below.

In fact, I’m holding a one-day “Crash the Party” seminar on Oct. 19 (the anniversary of the 1987 crash — and my birthday) at Westin LAX with top financial gurus, and I hope you will join us to discuss the markets. See the announcement in Upcoming Appearance below.

You Blew It! Doctors Get Rich off Dying Patients

“A fifth of American deaths take place in intensive care, where 10 days of futile flailing can cost as much as $323,000.” — Katy Butler, author, “Knocking on Heaven’s Door: The Path to a Better Way of Death”

Katy Butler has written a scathing expose of American doctors who get paid millions every year to keep people alive in the final months of their lives with no chance of a good quality of life.

Some highlights:

–29 million Americans (mainly wives and daughters) “become unpaid, politically powerless and culturally invisible family caregivers — 9 percent of the United States population — who help take care of someone over 74.”

–Medicare and other government medical programs strongly encourage doctors to postpone death with surgery and drugs to keep seniors alive in hospitals even though there’s little or no chance of enjoying quality of life.

Sadly, our medical technology has advanced so much that we can keep the ill alive for months now without any quality of life, while fattening the wallets of the doctors and “care” givers — leaving patients and heirs poverty stricken.

As a New York Times reviewer wrote, “Knocking on Heaven’s Door” is a thoroughly researched and compelling mix of personal narrative and hard-nosed reporting that captures just how flawed care at the end of life has become. My hope is that this book might goad the public into pressuring their elected representatives to further transform health care from its present crisis-driven, reimbursement-driven model to one that truly cares for the patient and the family. And since life is, after all, a fatal illness and none of us are spared, there is an urgent need for us in America to reclaim death from medicine and, whenever possible, enable the ritual of dying at home with family present (and aided by all medicine can offer) so that we are allowed to take our leave from earth with dignity.

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

Upcoming Appearance

Come “Crash the Party,” Saturday, Oct. 19, Westin LAX: Martin Truax, a long-time friend and senior vice president at Raymond James & Associates, is organizing a one-day “Crash the Party” seminar on Saturday, October 19, 2013, at the Westin Los Angeles Airport Hotel in recognition of the 1987 crash and my birthday. This event is ideal, since travelers simply can fly into LAX and take the Westin shuttle to the hotel (only $109 a night). He has invited several top financial experts who will assess the chances of another crash or bear market, given the artificial nature of this Fed-driven market. In addition to Martin Truax and me, they include Wellington Letter editor Bert Dohmen, Washington insider Floyd Brown, money manager Adrian Day, #1 real estate guru Jack Reed, coin expert Van Simmons and Everbank President Frank Trotter. We’ve also just confirmed Jeff Phillips, venture capitalist and investment banker extraordinaire, who has made many of us (including me) extremely wealthy with his pre-IPO stock picks. He’s going to give us two recommendations at our one-day seminar. The price for this event is only $99 per person, with $50 for additional guests. Come crash the party! Details at www.lainvestmentconference.org. To register, call Steve at 678/333-5361, or email lainvestconference@att.net.