How to profit in a depression?

Discussion in 'Economics' started by proptrader11, Jul 21, 2010.

  1. Traders, I am interested to know how you would profit in a sharp economic downturn in the economy resulting in a major recession or possibly a depression. If right now you knew for a fact the DOW was going to collapse how would you profit from it? What do you buy that would provide you with the greatest return?
  2. Retief


    See this presentation by Paul Achleitner of Alliance: and in particular this chart:

    <img src="">

    The first outcome is something like the great depression in the 1930s. Under that scenario, investments in equities and real estate generally did not perform well.

    The second outcome is something like Japan started experiencing in the 1990's through now. It's still a deflationary environment, but not as severe as the conditions in the 1930s.

    The next outcome is if all the government stimulus actually works according to Keynesian economics theories. Ordinary inflation resumes, but does not get out of control. This is the rosiest scenario and most investment strategies should fare well in this outcome, except for long-dated bonds at low interest rates and precious metals.

    If you think it's going to be like the 1930's again, one of the best assets is cash because it keeps getting more valuable while almost everything else keeps getting cheaper.

    The last scenario is something like Argentina experienced starting in 2001, i.e., hyper-inflation.
  3. Nice chart. Infrastructure looks to be the highest probability play no matter what scenario plays out.
  4. Thanks Retief that's a nice chart. I am in the deflation camp so cash looks good.