Avoid Financial Disasters With Trailing Stops

By Chuck LeBeau, SmartStops.net Director of Analytics  (originally published Jan. 2009)

In less than a year six widely held financial stocks (Fannie Mae (NYSE:FNM)’ Freddie Mac (NYSE:FRE), Lehman Brothers (LEH),

American International Group (NYSE:AIG), Washington Mutual (NYSE:WM) and Bear Stearns (BSC) have cost Buy and Hold investors more than $840 billion dollars.  That’s billions more than the controversial government bailout that has the entire country up in arms.  If we add in the losses in the rest of the market we are talking about recent losses measured in trillions of dollars.  (I’m certain that many of the Lehman and Bear Stearns account executives advised their clients that the best way to invest was to Buy and Hold.)

Think of all the retirement funds and college tuition money that has been needlessly lost in these few months.  It’s a very sad scenario for average investors who are not Wall Street tycoons.  However the saddest part is that the investors who lost all these billions and trillions of dollars could have avoided this disaster by simply using some logical form of trailing exit to protect their investments.

Buy and Hold is not only the riskiest possible strategy it doesn’t qualify to be called a strategy.  Buy and Hold is actually the absence of any intelligent exit strategy and is mostly adopted by default.   Buy and Hold is only recommended by unknowing pundits who are out of touch with the modern market place and are willing to advise their followers that taking unlimited risk and being in the market 100% of the time is a good idea.  Obviously that mistaken advice has proven to be very costly.

Investors should be concerned that there may be even more disaster stocks in the months ahead.  The investing climate has changed forever and Buy and Hold should no longer be the exit of choice for mainstream investors.  In the last few years many well known stocks that were once considered “blue chips” have declined 90% or more.  Volatility in the market is at an all time high and expanding.  Prudent investors must learn to protect their stocks with some intelligent form of exit strategy.  The days of being patient and comfortable with Buy and Hold are long gone.  The risks of Buy and Hold are now much too high and the returns over the last ten years have been less than zero.  Buy and Hold investors have been exposing their capital to unlimited risk for meager or negative returns.

One obvious exit strategy that can prevent catastrophic losses is the use of a trailing exit commonly known as a “stop loss order”.  In the past most investors have been reluctant to use trailing exits because they are afraid that after they exit the stock might recover and go back up.  The obvious solution to that problem is to simply have a plan to reinstate the position when the liquidated stock shows signs of recovery.  Selling a stock doesn’t have to mean that you have given up on its prospects for the future.  Selling is just a temporary measure necessary in today’s markets to protect your capital from the increasing probability of catastrophic losses.

If the stock you sold declines you may very well want to buy it back and you will now have the capital to buy more shares than if you held your original position.  One of the blessings in these highly volatile markets is that transaction costs are so low now that they are virtually inconsequential and measured in fractions of a cent per share.  An extra $10 or $20 in transaction costs is a small price to pay to protect hundreds of thousands of dollars from permanent loss.

Here are three suggestions on how to implement an effective trailing exit strategy

1)       Identify the direction of the current trend.  If the trend is Up you will want to set the trailing exit a safe distance away from prices so that you do not exit while the stock is trending up.  You want to let profits run.  If the trend is Down set the exit closer to prices to cut losses and preserve capital.

2)      Keep an eye on volatility and adjust the exits farther away if volatility increases and then move them closer if volatility decreases.  The exits need to be kept outside of normal up and down price action which changes with volatility.  Volatility is presently at record levels so give the upward trending stocks plenty of room.

3)      Before you exit, make sure you have a plan to reenter the stock if the uptrend resumes.  The trailing exit provides a very valuable yet inexpensive form of loss insurance.  The price of that insurance is that your exit may occasionally get you out at a point where the stock stops going down and turns up.  Rather than miss the uptrend and blame the protective exit for the lost opportunity, simply buy the shares back.  Worst case, you will have paid a small price for protection from a possibly catastrophic loss.  Your exit did its job.

This simple advice would have saved investors trillions of dollars over the last twelve months and I’m confident that it will save investors trillions of dollars in the future.  Buy and Hold is dead.  Most investors are not going to miss it; may it rest in peace.

View the original article here

Avoid Financial Disasters With Trailing Stops

By Chuck LeBeau, SmartStops.net Director of Analytics  (originally published Jan. 2009)

In less than a year six widely held financial stocks (Fannie Mae (NYSE:FNM)’ Freddie Mac (NYSE:FRE), Lehman Brothers (LEH),

American International Group (NYSE:AIG), Washington Mutual (NYSE:WM) and Bear Stearns (BSC) have cost Buy and Hold investors more than $840 billion dollars.  That’s billions more than the controversial government bailout that has the entire country up in arms.  If we add in the losses in the rest of the market we are talking about recent losses measured in trillions of dollars.  (I’m certain that many of the Lehman and Bear Stearns account executives advised their clients that the best way to invest was to Buy and Hold.)

Think of all the retirement funds and college tuition money that has been needlessly lost in these few months.  It’s a very sad scenario for average investors who are not Wall Street tycoons.  However the saddest part is that the investors who lost all these billions and trillions of dollars could have avoided this disaster by simply using some logical form of trailing exit to protect their investments.

Buy and Hold is not only the riskiest possible strategy it doesn’t qualify to be called a strategy.  Buy and Hold is actually the absence of any intelligent exit strategy and is mostly adopted by default.   Buy and Hold is only recommended by unknowing pundits who are out of touch with the modern market place and are willing to advise their followers that taking unlimited risk and being in the market 100% of the time is a good idea.  Obviously that mistaken advice has proven to be very costly.

Investors should be concerned that there may be even more disaster stocks in the months ahead.  The investing climate has changed forever and Buy and Hold should no longer be the exit of choice for mainstream investors.  In the last few years many well known stocks that were once considered “blue chips” have declined 90% or more.  Volatility in the market is at an all time high and expanding.  Prudent investors must learn to protect their stocks with some intelligent form of exit strategy.  The days of being patient and comfortable with Buy and Hold are long gone.  The risks of Buy and Hold are now much too high and the returns over the last ten years have been less than zero.  Buy and Hold investors have been exposing their capital to unlimited risk for meager or negative returns.

One obvious exit strategy that can prevent catastrophic losses is the use of a trailing exit commonly known as a “stop loss order”.  In the past most investors have been reluctant to use trailing exits because they are afraid that after they exit the stock might recover and go back up.  The obvious solution to that problem is to simply have a plan to reinstate the position when the liquidated stock shows signs of recovery.  Selling a stock doesn’t have to mean that you have given up on its prospects for the future.  Selling is just a temporary measure necessary in today’s markets to protect your capital from the increasing probability of catastrophic losses.

If the stock you sold declines you may very well want to buy it back and you will now have the capital to buy more shares than if you held your original position.  One of the blessings in these highly volatile markets is that transaction costs are so low now that they are virtually inconsequential and measured in fractions of a cent per share.  An extra $10 or $20 in transaction costs is a small price to pay to protect hundreds of thousands of dollars from permanent loss.

Here are three suggestions on how to implement an effective trailing exit strategy

1)       Identify the direction of the current trend.  If the trend is Up you will want to set the trailing exit a safe distance away from prices so that you do not exit while the stock is trending up.  You want to let profits run.  If the trend is Down set the exit closer to prices to cut losses and preserve capital.

2)      Keep an eye on volatility and adjust the exits farther away if volatility increases and then move them closer if volatility decreases.  The exits need to be kept outside of normal up and down price action which changes with volatility.  Volatility is presently at record levels so give the upward trending stocks plenty of room.

3)      Before you exit, make sure you have a plan to reenter the stock if the uptrend resumes.  The trailing exit provides a very valuable yet inexpensive form of loss insurance.  The price of that insurance is that your exit may occasionally get you out at a point where the stock stops going down and turns up.  Rather than miss the uptrend and blame the protective exit for the lost opportunity, simply buy the shares back.  Worst case, you will have paid a small price for protection from a possibly catastrophic loss.  Your exit did its job.

This simple advice would have saved investors trillions of dollars over the last twelve months and I’m confident that it will save investors trillions of dollars in the future.  Buy and Hold is dead.  Most investors are not going to miss it; may it rest in peace.

View the original article here

Avoid Financial Disasters With Trailing Stops

By Chuck LeBeau, SmartStops.net Director of Analytics  (originally published Jan. 2009)

In less than a year six widely held financial stocks (Fannie Mae (NYSE:FNM)’ Freddie Mac (NYSE:FRE), Lehman Brothers (LEH),

American International Group (NYSE:AIG), Washington Mutual (NYSE:WM) and Bear Stearns (BSC) have cost Buy and Hold investors more than $840 billion dollars.  That’s billions more than the controversial government bailout that has the entire country up in arms.  If we add in the losses in the rest of the market we are talking about recent losses measured in trillions of dollars.  (I’m certain that many of the Lehman and Bear Stearns account executives advised their clients that the best way to invest was to Buy and Hold.)

Think of all the retirement funds and college tuition money that has been needlessly lost in these few months.  It’s a very sad scenario for average investors who are not Wall Street tycoons.  However the saddest part is that the investors who lost all these billions and trillions of dollars could have avoided this disaster by simply using some logical form of trailing exit to protect their investments.

Buy and Hold is not only the riskiest possible strategy it doesn’t qualify to be called a strategy.  Buy and Hold is actually the absence of any intelligent exit strategy and is mostly adopted by default.   Buy and Hold is only recommended by unknowing pundits who are out of touch with the modern market place and are willing to advise their followers that taking unlimited risk and being in the market 100% of the time is a good idea.  Obviously that mistaken advice has proven to be very costly.

Investors should be concerned that there may be even more disaster stocks in the months ahead.  The investing climate has changed forever and Buy and Hold should no longer be the exit of choice for mainstream investors.  In the last few years many well known stocks that were once considered “blue chips” have declined 90% or more.  Volatility in the market is at an all time high and expanding.  Prudent investors must learn to protect their stocks with some intelligent form of exit strategy.  The days of being patient and comfortable with Buy and Hold are long gone.  The risks of Buy and Hold are now much too high and the returns over the last ten years have been less than zero.  Buy and Hold investors have been exposing their capital to unlimited risk for meager or negative returns.

One obvious exit strategy that can prevent catastrophic losses is the use of a trailing exit commonly known as a “stop loss order”.  In the past most investors have been reluctant to use trailing exits because they are afraid that after they exit the stock might recover and go back up.  The obvious solution to that problem is to simply have a plan to reinstate the position when the liquidated stock shows signs of recovery.  Selling a stock doesn’t have to mean that you have given up on its prospects for the future.  Selling is just a temporary measure necessary in today’s markets to protect your capital from the increasing probability of catastrophic losses.

If the stock you sold declines you may very well want to buy it back and you will now have the capital to buy more shares than if you held your original position.  One of the blessings in these highly volatile markets is that transaction costs are so low now that they are virtually inconsequential and measured in fractions of a cent per share.  An extra $10 or $20 in transaction costs is a small price to pay to protect hundreds of thousands of dollars from permanent loss.

Here are three suggestions on how to implement an effective trailing exit strategy

1)       Identify the direction of the current trend.  If the trend is Up you will want to set the trailing exit a safe distance away from prices so that you do not exit while the stock is trending up.  You want to let profits run.  If the trend is Down set the exit closer to prices to cut losses and preserve capital.

2)      Keep an eye on volatility and adjust the exits farther away if volatility increases and then move them closer if volatility decreases.  The exits need to be kept outside of normal up and down price action which changes with volatility.  Volatility is presently at record levels so give the upward trending stocks plenty of room.

3)      Before you exit, make sure you have a plan to reenter the stock if the uptrend resumes.  The trailing exit provides a very valuable yet inexpensive form of loss insurance.  The price of that insurance is that your exit may occasionally get you out at a point where the stock stops going down and turns up.  Rather than miss the uptrend and blame the protective exit for the lost opportunity, simply buy the shares back.  Worst case, you will have paid a small price for protection from a possibly catastrophic loss.  Your exit did its job.

This simple advice would have saved investors trillions of dollars over the last twelve months and I’m confident that it will save investors trillions of dollars in the future.  Buy and Hold is dead.  Most investors are not going to miss it; may it rest in peace.

View the original article here

Summary of Today’s disasters

What a day. March 25, 2001.

US military bailing on Libya, NATO to take command.Syria, Yemen, Jordan and half the mid-east going into revolution.Oh…and that Japanese Nuclear plant has a core leak ( as I reported 1 week ago)Radiation showing up in water and food supply. Will show in North America as well.Canada’s Government falls to a neo-leftist non-confidence vote.Low housing starts and Portugal economy going down the drain.Tags: disaster, economy, Libya, March 25, NATO, war
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View the original article here

Shaken: 10 Economic Disasters Which Threaten To Rip World Financial Markets To Shreds

2011 has already been the most memorable year in ages and we haven't even reached April yet.  Revolutions have swept the Middle East, an unprecedented earthquake and tsunami have hit Japan, civil war has erupted in Libya, the price of oil has been soaring and the entire globe is teetering on the brink of economic collapse.  It seems like almost everything that can be shaken is being shaken.  Unfortunately, it does not appear that things are going to settle down any time soon.  The Japanese economy has been dealt a critical blow, the European sovereign debt crisis could flare up again at any moment and the U.S. economy could potentially plunge into another recession by the end of the year.  The global economy and world financial markets were really struggling to recover even when things were relatively stable.  If all of this global instability gets even worse it could literally rip world financial markets apart.

Yes, things really are that bad.  The mainstream media has been really busy downplaying the economic impact of the disaster in Japan and the chaos in the Middle East, but the truth is that these events have huge implications for the global economy.  Today our world is more interconnected than ever, so economic pain in one area of the planet is going to have a significant effect on other areas of the globe.

The following are 10 economic disasters which could potentially rip world financial markets to shreds....

#1 War In Libya

Do you think that the "international community" would be intervening in Libya if they did not have a lot of oil?  If you actually believe that, you might want to review the last few decades of African history.  Millions upon millions of Africans have been slaughtered by incredibly repressive regimes and the "international community" did next to nothing about it.

But Libya is different.

Libya is the largest producer of oil in Africa.

Apparently the revolution in Libya was not going the way it was supposed to, so the U.S. and Europe are stepping in.

Moammar Gadhafi is vowing that this will be a "long war", but the truth is that his forces don't stand a chance against NATO.

Initially we were told that NATO would just be setting up a "no fly zone", but there have already been reports of Libyan tank columns being assaulted and there has even been an air strike on Moammar Gadhafi's personal compound in Tripoli.

So since when did a "no fly zone" include an attempt to kill a foreign head of state?

Let there be no mistake - the moment that the first Tomahawk cruise missiles were launched the United States declared war on Libya.

Already the Arab League, India, China and Russia have all objected to how this operation is being carried out and they are alarmed about the reports of civilian casualties.

Tensions around the globe are rising once again, and that is not a good thing for the world economy.

On a side note, does anyone recall anyone in the Obama administration even stopping for a moment to consider whether or not they should consult the U.S. Congress before starting another war?

The U.S. Constitution specifically requires the approval of the Congress before we go to war.

But very few people seem to care too much about what the U.S. Constitution says these days.

In any event, the flow of oil out of Libya is likely to be reduced for an extended period of time now, and that is not going to be good for a deeply struggling global economy.

#2 Revolutions In The Middle East

Protests just seem to keep spreading to more countries in the Middle East.  On Friday, five Syrian protesters were killed by government forces in the city of Daraa.  Subsequently, over the weekend thousands of protesters reportedly stormed government buildings in that city and set them on fire.

Things in the region just seem to get wilder and wilder.

Even in countries where the revolutions are supposed to be "over" there is still a lot of chaos.

Have you seen what has been going on in Egypt lately?

The truth is that all of North Africa and nearly the entire Middle East is aflame with revolutionary fervor.

About the only place where revolution has not broken out is in Saudi Arabia.  Of course it probably helps that the United States and Europe don't really want a revolution in Saudi Arabia and the Saudis have a brutally effective secret police force.

In any event, as long as the chaos in the Middle East continues the price of oil is likely to remain very high, and that is not good news for the world economy.

#3 The Japanese Earthquake And Tsunami

Japan is the third largest economy in the world.  When a major disaster happens in that nation it has global implications.

The tsunami that just hit Japan was absolutely unprecedented.  Vast stretches of Japan have been more thoroughly destroyed than if they had been bombed by a foreign military power.  It really was a nation changing event.

The Japanese economy is going to be crippled for an extended period of time.  But it is not just Japan's economy that has been deeply affected by this tragedy.

According to the Wall Street Journal, the recent disaster in Japan has caused supply chain disruptions all over the globe....

A shortage of Japanese-built electronic parts will force GM to close a plant in Zaragoza, Spain, on Monday and cancel shifts at a factory in Eisenach, Germany, on Monday and Tuesday, the company said Friday.

Not only that, GM has also suspended all "nonessential" spending globally as it evaluates the impact of this crisis.

The truth is that there are a whole host of industries that rely on parts from Japan.  Supply chains all over the world are going to have to be changed as a result of this crisis.  There are going to be some shortages of certain classes of products.

Japan is a nation that imports and exports tremendous quantities of goods.  At least for a while both imports and exports will be significantly down, and that is not good news for a world economy that was already having a really hard time recovering from the recent economic downturn.

#4 The Japan Nuclear Crisis

Even if the worst case scenario does not play out, the reality is that the crisis at the Fukushima Dai-ichi nuclear plant is going to have a long lasting impact on the global economy.

Already, nuclear power projects all over the world are being rethought.  The nuclear power industry was really starting to gain some momentum in many areas of the globe, but now that has totally changed.

But of much greater concern is the potential effect that all of this radiation will have on the Japanese people.  Radiation from the disaster at the Fukushima Dai-ichi nuclear plant is now showing up in food and tap water in Japan as an article on the website of USA Today recently described....

The government halted shipments of spinach from one area and raw milk from another near the nuclear plant after tests found iodine exceeded safety limits. But the contamination spread to spinach in three other prefectures and to more vegetables — canola and chrysanthemum greens. Tokyo's tap water, where iodine turned up Friday, now has cesium.

Hopefully the authorities in Japan will be able to get this situation under control before Tokyo is affected too much.  The truth is that Tokyo is one of the most economically important cities on the planet.

But right now there is a lot of uncertainty surrounding Tokyo.  For example, one very large German real estate fund says that their holdings in Tokyo are now "impossible to value" and they have suspended all customer withdrawals from the fund.

Once again, let us hope that a worst case scenario does not happen.  But if we do get to the point where most of the population had to be evacuated from Tokyo for an extended period of time it would be absolutely devastating for the global economy.

#5 The Price Of Oil

Most people believe that the U.S. dollar is the currency of the world, but really it is oil.  Without oil, the global economy that we have constructed simply could not function.

That is why it was so alarming when the price of oil went above $100 a barrel earlier this year for the first time since 2008.  Virtually everyone agrees that if the price of oil stays high for an extended period of time it will have a highly negative impact on the world economy.

In particular, the U.S. economy is highly, highly dependent on cheap oil.  This country is really spread out and we transport goods and services over vast distances.  That is why the following facts are so alarming....

*The average price of a gallon of gasoline in the United States is now 75 cents higher than it was a year ago.

*In San Francisco, California, the average price of a gallon of gasoline is now $3.97.

*According to the Oil Price Information Service, U.S. drivers spent an average of $347 on gasoline during the month of February, which was 30 percent more than a year earlier.

*According to the U.S. Energy Department, the average U.S. household will spend approximately $700 more on gasoline in 2011 than it did during 2010.

#6 Food Inflation

Many people believe that the rapidly rising price of food has been a major factor in sparking the revolutions that we have seen in Africa and the Middle East.  When people cannot feed themselves or their families they tend to lose it.

According to the United Nations, the global price of food hit a new all-time high earlier this year, and the UN is expecting the price of food to continue to go up throughout the rest of this year.  Food supplies were already tight around the globe and this is certainly not going to help things.

The price of food has also been going up rapidly inside the United States.  Last month the price of food in the United States rose at the fastest rate in 36 years.

American families are really starting to feel their budgets stretched.  According to the U.S. Labor Department, the cost of living in the United States hit a brand new all-time record high in the month of February.

What this means is that U.S. families are going to have less discretionary income to spend at the stores and that is bad news for the world economy.

#7 The European Sovereign Debt Crisis

Several European governments have had their debt downgraded in the past several months.  Portugal, Spain, Greece and Ireland are all in big time trouble.  Several other European nations are not far behind them.

Right now Germany seems content to bail the "weak sisters" in Europe out, but if that changes at some point it is going to be an absolute nightmare for world financial markets.

#8 The Dying U.S. Dollar

Right now there is a lot of anxiety about the U.S. dollar.  Prior to the tsunami, Japan was one of the primary purchasers of U.S. government debt.  In fact, Japan was the second-largest foreign buyer of U.S. Treasuries last year.

But now as Japan rebuilds from this nightmare it is not going to have capital to invest overseas.  Someone else is going to have to step in and buy up all of the debt that the Japanese were buying.

Not only that, but big bond funds such as PIMCO have announced that they are stepping away from U.S. Treasuries at least for now.

So if Japan is not buying U.S. Treasuries and bond funds such as PIMCO are not buying U.S. Treasuries, then who is going to be buying them?

The U.S. government needs to borrow trillions of dollars this year alone to roll over existing debt and to finance new debt.  All of that borrowing has got to come from somewhere.

#9 A New Oil Spill In The Gulf Of Mexico?

As if everything above was not enough, there are reports of a possible major new oil spill in the Gulf of Mexico.  The U.S. Coast Guard is on the scene and is investigating.  The following is what a new report in the Wall Street Journal says about it....

The Coast Guard said in a news release that it received a report of a three-mile-long rainbow sheen off the Louisiana coast just before 9:30 a.m. local time on Saturday. Two subsequent sightings were relayed to the Coast Guard, the last of which reported a sheen that extended from about 6 miles south of Grand Isle, La. to 100 miles offshore.

#10 The Derivatives Bubble

Most Americans do not even understand what derivatives are, but the truth is that they are one of the biggest threats to our financial system.  Some experts estimate that the worldwide derivatives bubble is somewhere in the neighborhood of a quadrillion dollars.  This bubble could burst at any time.  Right now we are watching the greatest financial casino in the history of the globe spin around and around and around and everyone is hoping that at some point it doesn't stop.  Today, most money on Wall Street is not made by investing in good business ideas.  Rather, most money on Wall Street is now made by making shrewd bets.  Unfortunately, at some point the casino is going to come crashing down and the game will be over.

Most people simply do not realize how fragile the global economy is at this point.

The financial crash of 2008 was a devastating blow.  The next wave of the economic crisis could be even worse.

So what will the rest of 2011 bring?

Well, nobody knows for sure, but a lot of experts are not optimistic.

David Rosenberg, the chief economist at Gluskin Sheff and Associates, is warning that the second half of the year could be very rough for the global economy....

"A sharp slowing in global GDP in the second half of the year cannot be ruled out."

Let us hope that the world economy can hold together and that we can get through the rest of 2011 okay.  The last thing we need is a repeat of 2008.  The world could use some peace and some time to recover.

But unfortunately, we live in a world that is becoming increasingly unstable.  With the way that the world has been lately, perhaps we should all just start to expect the unexpected.

But world financial markets do not respond well to instability and unpredictability.  In fact, investors tend to start fleeing to safety at the first signs of danger these days.

Most Americans simply have no idea how vulnerable the world financial system is at this point.  Nothing really got "fixed" after 2008.  If anything, global financial markets are even more fragile than they were back then.

So what do all of you think about the state of the global economy?  Please feel free to leave a comment with your opinion below....

View the original article here

What Can The Japanese Tsunami Teach Us About Prepping For Disasters And Emergencies?

The Japanese tsunami is a crystal clear example of just how unpredictable disasters and emergencies can be.  Nobody ever dreamed that a tsunami in Japan could wash cars, homes and people up to 6 miles inland.  But that is exactly what happened.  So while it is great to make elaborate preparations for potential disasters and emergencies, it is also absolutely essential to have backup plans.  After all, what good is all of that emergency food that you have stored up going to do if a massive tsunami comes along and rips your house off the foundation and deposits it into the sea?  Not that all of us shouldn't be busy prepping.  Of course we should be.  All over Japan right now the supermarkets are being stripped bare.  Don't you think that many of those people are wishing that they had stored up some food?  It is those that prepare that have the best chance of surviving disasters and emergencies.  No plan is foolproof, but having a plan is much better than not having a plan.

For example, there are lots of people in Japan right now that are wishing that they would have stored up at least a bit of fresh water to drink.  There are homes in Japan that are still completely surrounded by saltwater from the tsunami, and if those homes do not have running water at this point then the people inside are going to get thirsty really quick.

Of course bottled water flew off store shelves all over Japan in the aftermath of the tsunami.  Now it is becoming very difficult to find.

But there are thousands and thousands of homes in Japan that do not have running water right now.

So what are they supposed to do?

Thankfully there are a lot of aid agencies that are working really hard to help the Japanese out.  Hopefully everyone that needs water and food will be able to get them.

Have you seen video of the empty supermarkets in Japan?

That can happen someday in America too.

In the United States, even a minor snowstorm can cause a run on the supermarkets in many areas.  If a major league disaster or emergency ever hit the food in the stores would be gone really quickly.

So do you have food stored up for you and your family?

Another huge lesson that we can learn from the Japanese tsunami is that a disaster in one area of the world can have a ripple affect across the globe.

For example, it has now become incredibly difficult to find supplies of potassium iodide anywhere in the United States.

In fact, in many areas even finding iodine or kelp has become problematic.

So what are the people that don't have these things going to do if nuclear radiation becomes a problem?

They are just going to have to suffer.

That is the way it is with disasters and emergencies.  If you have not prepared ahead of time there is a good chance that you are simply going to be out of luck.

You see, millions of Americans have not become preppers just because they didn't have anything better to do.

We live in a world that is becoming increasingly unstable.  Our financial system is crumbling.  Our society is crumbling.  The earth itself is crumbling.

Those that are not doing anything to prepare are rather foolish.

Many of those that laugh at preppers are the same people that have health insurance, car insurance, home insurance, boat insurance, motorcycle insurance, disability insurance, travel insurance and business insurance.

But they won't lift a finger to get some "food insurance" for themselves and their families because that is what "preppers" and "conspiracy theorists" do.

Well, a whole lot of people in Japan wish that they had been "preppers" just about now.

Not that preppers always come out on top either.  As the tsunami is Japan, demonstrated, if a major disaster hits right where you live your home may not make it.

The truth is that all of us always need to be ready to "bug out" at any time.

If you got word that your town was about to face a major league emergency, where would you go?

That is something to think about.

It is also a good reason why we should all be encouraging our family and friends in other areas of the country to be storing up food and supplies.  You never know when you might have to depend on them for help.

The truth is that none of us should ever be too proud to ask for help.  Many survivalists sit back and brag about all of the guns and beans they have stored up, but if their house was swept away by a disaster what would they be forced to do?

They would be forced to turn to someone else for help.

The reality is that we all need a little assistance from time to time.  Don't be too proud to give some help and don't be too proud to ask for some help.

So what are some things that all of us can be doing right now to start preparing for disasters and emergencies?

Well, in a previous article I listed a few things that can be done by most people....

#1 Become Less Dependent On Your Job

#2 Get Out Of Debt

#3 Reduce Expenses

#4 Purchase Land

#5 Learn To Grow Food

#6 Find A Reliable Source Of Water

#7 Explore Alternative Energy Sources

#8 Store Supplies

#9 Protect Your Assets With Gold And Silver

#10 Learn Self-Defense

#11 Keep Yourself Fit

#12 Make Friends

That last point is very important.  It is key to have a network of friends and family around the country that you could depend upon in a pinch.

For example, whoever would have imagined that nuclear radiation from Japan could potentially be a threat to those living along the west coast of the United States?

Hopefully what the government is telling us is true.  Hopefully the amount of radiation that makes it over the Pacific will not be enough to seriously harm any of us, but it just shows that someday a crisis may arise that could require people to flee to another area.

So if someday a crisis like that arises, where would you and your family go?

When it comes to preparing for the worst, flexibility is the key.

And preparing for the worst does not have to be complicated.  When you go to the store, pick up a couple extra items that you see on sale and store them away.  Learn to grow a garden.  Read blogs about prepping.  Talk with your family and friends about what they would do in an emergency.

One of the keys is for all of us to learn from each other.  None of us has all the answers.

The world can be a very cold, cruel place.  Millions of people in Japan are finding that out right about now.

Someday you and your family could be caught right in the middle of a major crisis.  When that happens, will you have plenty of food, water and supplies stored up or will you be scrambling to survive?

As the Japanese tsunami has shown, disaster can strike anywhere and at any time.  The United States is certainly not immune.

Someday it will be our turn.

Will you be ready?




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Disasters… Both Natural and Unnatural

03/14/11 Pittsburgh, Pennsylvania – Looking at history, there are often major international economic declines after big natural disasters. The example I like is how the San Francisco earthquake of 1906 led to the bankruptcy of many insurance carriers and to an outflow of cash from London and New York money centers. This led directly to the Panic of 1907 – and eventually to the creation of the US Federal Reserve. So in a sense, you could say that a natural disaster produced an unnatural disaster.

Getting back to the present, the earthquake-induced drop in oil prices is just a short-term blip. Oil prices are on the way up because many nations are increasing not just demand, but oil stockpiles – due to uncertainty of supply from the Middle East.

In the Philippines, for example, the government recently required that refiners keep a 90-day oil supply, versus, the former 30-day supply. Other countries and large oil-using firms are doing similar things, in terms of building stockpiles.

So which news trumps the other news? Will generally rising oil demand keep pricing strong? Or will unexpected events continue to keep a lid on that oil demand, and thus hold down prices?

Bottom line is that this earthquake oil-selloff is likely a short-term phenomenon. There’s strong upward momentum built into oil prices due to fundamental supply issues, not the least of which relate back to political unrest in the Middle East. We could see a quick rebound in oil price strength due to concerns over supply.

Looking further ahead, China only has enough oil in its strategic reserves to cover one month’s consumption, according to Wang Qingyun, head of the State Bureau of Material Reserves. Mr. Wang says China is working towards building a 90-day reserve, but the energy bureaucrats are still working on selecting the storage locations and constructing facilities.

Oil availability and pricing is certainly a matter of growing concern for China, whose daily oil imports, as a fraction of total consumption, now exceed that of the US. China now imports about 63% of its daily oil consumption – double the percentage of ten years ago.

As China’s consumption grows, the prospect of “permanently high” oil prices also grows. And that will mean investment dollars will continue pouring into the oil exploration industry.

For example, in the past five years we’ve seen (net) about 100 new jack-up and deep-water drill ships float away from the shipyards of the world. These vessels reflect over $40 billion of new capital expenditure. Then there’s the multiplier effect of new-build vessels on the vendors, equipment builders, steel mills and all the way back to the iron mines.

Meanwhile, a hiring craze is on at Halliburton (NYSE:HAL), which has just announced that it will hire about 5,000 new geologists and engineers, worldwide. Heck, even I – your humble editor – routinely field calls from headhunters, seeking geological talent.

It all sounds like positive investment news for the oil industry. But there are other things to consider as well. What’s the payback for all of this investment and hiring? Are we seeing an “energy return” for all the new capital outlay?

Let’s compare some recent numbers. Between 1995 and 2004, the global oil industry spent $2.4 trillion on various capital expenditures. This $2.4 trillion helped increase crude oil production by 12.3 million barrels per day, to about 85 million barrels of output per day by 2005 (and hold that thought). This is just the raw, historical data set.

Coincidentally, between 2005 and 2010, the world oil industry spent another $2.4 trillion on capital expenditure. Yet for the same amount of money – $2.4 trillion – global crude oil production actually fell by about half of one percent.

What does this mean?

There are many implications, of course, but one key point is that the world’s overall daily oil supply is not growing. For all the stories you see about “new” supply coming online from deep-water fields, from onshore discoveries, from enhanced oil recovery, from oil sands, from gas liquids out of tight gas deposits, etc., these are only replacing other oil supplies that are vanishing in the form of depletion.

It’s fair to say that oil output is flat, worldwide, and prices are not really being set or moderated by efficiency, conservation or even by adding capacity.

No, the key control over oil prices in the past couple of years has been the recession. The recession has set the price of oil. And had it not been for the recession, the world might be consuming upwards of 93 million barrels of oil per day…and might be paying much higher prices than $100 a barrel.

Looking ahead, wherever things go with the world economy, we’re in an environment that’s supply-constrained. We’re not going to find any “new” Saudi Arabias or Russias – although it’s good to know the story of what’s happening off shore Brazil.

Peak Oil is here, except right now we’re experiencing it solely as an issue of affordability ($100-plus oil), versus lack of day-to-day supply.

Eventually – well, maybe – the world economy will begin to move out of recession. And maybe we’ll even have a period of time without international crises (Middle East comes to mind) or large-scale natural disasters. Then we’ll see what true supply constraint looks like – and prices will rocket upwards.

How does one deal with all of this? Well, begin by investing in companies that hold real assets in the form of oil and natural gas, as well as uranium and other resources of value – gold, silver, etc. That, and the energy-technology players of the oil service sector – the usual suspects of Schlumberger (NYSE:SLB), Baker Hughes (NYSE:BHI) and Halliburton.

Stay tuned and we’ll figure it out together.

Regards,

Byron King,
for The Daily Reckoning

Byron received his Juris Doctor from the University of Pittsburgh School of Law, was a cum laude graduate of Harvard University, served on the staff of the Chief of Naval Operations and as a field historian with the Navy. Our resident energy and oil expert, Byron is the editor of Outstanding Investments and Energy and Scarcity Investor. Byron has made frequent appearances in mainstream media such as The Washington Post, MSN Money, Marketwatch.com, Fox Business News, CNBC's Squawk Box, Larry Kudlow, Glenn Beck and PBS Newshour. He also had a feature article written in the Financial Times, and has appeared on both CNN and Marketplace radio broadcasts. Byron has also been quoted in various international publications such as The Guardian and De Volkskrant, and has been a guest on Canada's CBC television broadcast.

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8.9 Quake Hits Japan, Signals Increase In Disasters

8:10 am Mt: A massive 8.9 Earthquake has struck the east coast of Japan, near the city of Honshu. Reports are still coming in of the damage. Early eye witness accounts report a 33 foot Tsunami has already killed hundreds of people near Honshu as bodies are already being washed up on the shore of this city.

This Monster earthquake in Japan is 3,000 more powerful than the devastating earthquake that hit San Francisco in 1989.

The U.S. Geological Survey is reporting that this 8.9 Earthquake has torn a hole in the earth’s crust 150 miles long by 50 miles wide.

The west coast of the United States is waiting for the Tsunami to hit. Estimated times and locations for the Tsunami to strike are as follows:

Seattle: 11:44 amSan Francisco: 11:16 amSanta Monica: 11:39 amNew Port Beach: 11:45 am

A 5.1 foot Tsunami has already struck Alaska.

This is the largest Earthquake in Japan’s history and the 5th massive quake recorded since data has been gathered, beginning in 1900.

Chile: 9.5 in 1960Alaska: 9.2 in 1964Sumatra: 9.1 in 2004Russia: 9.0 in 1952Japan: 8.9 in 2011

Hawaii has already reported that the Tsunami has hit their western coastal communities:

Kauai: 3 feetOahu: 3 feetMaui: 6 feet

The 6-foot Tsunami at Maui is larger than expected and could signal a larger wave hitting the west coast of Washington, Oregon and California.

We will be updating the reports as they come in but this recent massive quake in Japan is certain to signal an exponential increase in Natural disasters around the world. As earthquakes with subsequent tsunamis have dramatically increased since 2000, is there a correlation between this increase and the expected return of Jesus?

Update 11:30 am Mt:

For the first time in history, the United States has made an emergency shipment of coolant to a nuclear facility in a foreign nation. It is stunning when you consider that the Fukushima nuclear facility near the epicenter of Honshu on the east coast of Japan, came critically near a dangerous level that could lead to a meltdown of the reactor core and spew radiation all over the Pacific. Japan is reporting that pressure is rising in the reactor and is near a critical level. The reactor has not been contained and is real danger of progressing to a level that will cause a spillage of radioactive material.

The Japanese government is currently in the process of evacuating more than 3,000 residents from the area surrounding the nuclear power plant.

Update 11:45 am MT:

The Japanese government is reporting that they are venting radioactive vapor from the reactor to release pressure into the atmosphere,  at this momnent.

News has just come in that a 8 foot Tsunami has struck Crescent City California, destroying all of the docks and as many as 35 boats on the coast of this vulnerable coastal town. Some late reports are that many homes inland have also been destroyed.

Update 12:30 pm Mt:

A new 7.9 Earthquake has struck the central part of Japan, near Tokyo.

Government sources are also reporting that there are more than 100,000 people so far, who are not accounted for. There is every indication that the death toll in Japan could go above 100,000. Video has been streaming in of cars, boats and houses being swept inland by the 30 plus foot Tsunami.

A late report from the coast of California at Crescent City is that at least 4 residents were swept into the sea by the Tsunami that hit there within the past hour. One of those persons is already confirmed dead.

While Japan suffers the worst natural disaster in her history, the east coast of the United States near New Jersey, Connecticut, and New York are experiencing massive flooding with many home underwater.

The earth is in travail and experiencing an unprecedented number of natural disasters…

Jesus said that when we begin to see a marked increase in natural disasters that produce this type of damage, that we should be watching for His return:

Matthew 24:7 For nation will rise against nation, and kingdom against kingdom. And there will be famines, pestilences, and earthquakes in various places.

Matthew 24:30 Then the sign of the Son of Man will appear in heaven, and then all the tribes of the earth will mourn, and they will see the Son of Man coming on the clouds of heaven with power and great glory.

Jesus said these things in the context of the approach of the Rapture, the beginning of the seven year tribulation and His physical return to the earth, with His church at the end of the seven year tribulation.

Jesus scolded the Pharisees for not recognizing the signs of the times that they had missed in not identifying the arrival of Jesus and the promised Messiah.

Luke 12:56 Hypocrites! You can discern the face of the sky and of the earth, but how is it you do not discern this time?

To realize that these kinds of massive natural disasters with ensuing Tsunamis that bring death and destruction, are signs and indications of Jesus’ soon return.

AP Video of the 8.9 Japanese Quake:

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