Investor's Diversified Portfolio
The Need for Contingency Planning
For my part, whatever anguish of spirit it might cost, I am
willing to know the whole truth; to know the
worst, and to provide for it
- Patrick Henry (1736-1799)
The Normalcy Bias & Situational Awareness
These immortal words were spoken by a young Patrick Henry in his famous “Give me Liberty” speech at St. John’s Church in Richmond, Virginia on March 23, 1775 leading up to the American War of Independence. As later recorded in the Declaration of Independence on July 4th, 1776, the Colonies had patiently suffered “a long train of abuses and usurpations” from the British Crown with the “design to reduce them under absolute Despotism.” Among these abuses were the Currency Acts of 1751 and 1764, which limited payment of Colonial legal tender to Britain and the Stamp Act of 1765, which required all printed materials to have a “revenue stamp” to help quarter British troops in the Colonies. The first Continental Congress met in the fall of 1774 with 56 American delegates who later became signers of the Declaration. Just like today, a political and economic crisis was unavoidable in the early Colonies and yet most people did not want to come to grips with this reality and provide for it. Why is this?
Behavior psychologists in the modern cognitive sciences have identified a phenomenon known as the “normalcy bias” that affects an individual’s ability to effectively respond to a serious crisis or threat to life. In short, empirical studies demonstrate that most people want things “to be normal” and they resist any factual information that might suggest otherwise. Anecdotal evidence reveals that our brains are equipped with a survival mechanism that can place us in grave danger when we are faced with a traumatic situation because we simply want everything to be okay. It is an irrational mental condition that can be historically studied and evaluated; and these include the sinking of the Titanic in 1912, the Crash of 1929, the Jews remaining in Nazi Germany, the Pearl Harbor attack in 1941, the Apollo 13 crisis in 1970, the Space Shuttle disaster in 1986, the 9/11 attacks in 2001, Hurricane Katrina in 2005, the current financial crisis that began in 2008 and natural disasters like snow, tornadoes, hurricanes, earthquakes, fires and floods. The normalcy bias has also been known as the “incredulity response” or “analysis paralysis” and even the “ostrich effect” that forces people to stick their collective heads in the proverbial sand. In other words, people have a tendency to push away bad news and prefer to remain in a state of denial. “We are apt to close our eyes against a painful truth,” said Patrick Henry.
So what can be done about the normalcy bias? Studies show that in most crisis situations there is an 80/10/10 dynamic in which 80% of the people are complacent and usually either die or suffer great loss; 10% who act foolishly and perish; and 10% that can survive any crisis because they have a clear “threat assessment” and they are prepared in advance. According to behavioral researchers these are the individuals who have “situational awareness” that is almost like a sixth sense. Some like to refer to this as good old “street smarts” that help people survive in dangerous situations. These are the people who instinctively anticipate the need for insurance, computer backups, protected passwords, spare keys, battery cables, flashlights, extra ammo and so on. The only way to survive the normalcy bias is to adopt this same mindset of situational awareness. In other words, just like the Boy Scout motto, we all need to “be prepared” for tough times ahead because lives may depend on our actions and our ability to effectively respond.
So why don’t most people come to grips with reality or anticipate critical situations? As stated above most people are locked into a normalcy bias that distorts their cognitive ability to think rationally. A good example is that most people are trusting in the conventional wisdom of their bankers, brokers, advisors, friends and family who may be well-meaning, but they are among the 80-90% who also suffer from a normalcy bias. If you have come to this website and you have read this far you know exactly what we are talking about! These are the people who think that an economic recovery is around the corner, real estate will always come back, hold stocks for the long term, America is too big to fail and the US will never default on its sovereign debt and so on. This kind of thinking is very similar to the classic Kubler-Ross five-step model that reveals how people deal with the prospect of death, and its related trauma, as follows:
Denial (this can’t be happening to me or neural cognitive dissonance).
Anger (at politicians, circumstances or anything else but themselves).
Bargaining (perhaps if we can do some small things it won’t be so bad).
Depression (an awareness that normal circumstances have changed).
Acceptance (a new situational awareness and the ability to move on).
These are the five steps that people need to process today, and they need to do this sooner than later as we drift towards a fiscal/financial reckoning day. The 6-minute video at the bottom of this page is a realistic depiction of events that could happen during a US dollar crisis and financial meltdown. Created in 2012, this video is still very relevant as it vividly portrays the launch of QE4 at the Fed, panic on Wall Street, Chinese announcement to dump US assets, a sudden spike in precious metals and grocery store shelves being emptied. The Fed responds with more loose monetary policy in a bid to buy up stocks and bonds as Congress holds an emergency session while cities break out in civil unrest and the imposition of martial law. The story ends with gold and silver hitting historic highs as warehouses like Comex and the LBMA in London run out of physical metals, with massive delivery defaults, and OPEC drops their US dollar peg accepting only gold and other major currencies. In this sort of crisis scenario people need situational awareness and a prior commitment for contingency planning when this day eventually arrives. As Warren Buffet says, “It wasn’t raining when Noah built the ark.” The Bible says, “My people are destroyed for lack of knowledge” (Hos. 4:6). Again we read, “A prudent man sees evil and hides himself, the naïve proceed and pay the penalty” (Pro. 27:12). It is time to wake up, and no matter what “anguish of spirit it might cost” we need to be prepared for the worst.
When it comes to contingency planning we like to refer to the Four Gs; which are God, guns, gold and groceries. Having quality freeze dried food storage is a vital consideration for you and your family during any crisis scenario. The “Freeze Dry Guy” is a former US Army Paratrooper that became the first family-owned dealer/distributor of #10 size cans of Mountain House Freeze Dried foods in the US. His company provides a full line of freeze dried products ranging from two-day emergency food supplies to complete multi-month bucket units for an entire year. Main course entrees are packaged with six cans to a case for long shelf life in addition to vegetables, breakfast items, deserts and gluten-free products. Their company also features first aid/trauma kits, books, helpful videos on Berkeywater.com, solar kits, stoves, etc. and they accept all major credit cards. You can find out more by clicking below for a complete catalog.
Emergency Essentials is a company devoted to helping people prepare for natural disasters like hurricanes, earthquakes, tornadoes, floods, fires and winter storms. In addition, their products help families cope with life’s challenges like illness, accidents, job loss and times of financial hardship. They offer emergency/auto kits, bug-out bags, tents, sleeping bags, tools, items for lighting, heating, power, sanitation, navigation and more. They also have food products ranging from MREs to dehydrated and freeze dried meals available in pouches, pails, buckets and bulk packaging along with grain mills and water supplies like barrels, tanks, filters and accessories. Every household needs to evaluate their own personal needs in a crisis or emergency situation, and this includes these items along with toiletries, medicines, clothing, footwear, communication batteries, lamps, canned goods, condiments, barter items and so on. A good resource for preparedness is www.survivalblog.com, which is a daily web log for prepared individuals.
As already mentioned on this website, preparedness and financial diversification must include a core position in precious metals as a foundation for an investment triangle, and this requires a contrarian strategy that runs counter to the wisdom (ignorance) of the investment-retirement complex and financial planning models. In his book The Survivor’s Club, Ben Sherwood emphasizes the need for people to resist the normalcy bias and particularly as it relates to financial matters and need to protect loved ones.
The normalcy bias has severe consequences. When people don’t face the facts of an imminent disaster such as a financial crisis, or act to protect their loved ones or their assets from danger that might be developing around them, the negative effect that the disaster has on them is much greater. People who face the situation early and start taking measures to alleviate the impact that the disaster has on their loved ones and their assets are more likely to survive the disaster and even benefit from it.
The best way to hedge your financial assets is not only in gold, but mostly in silver for reasons discussed elsewhere on this site that also includes converting your IRA to a Precious Metals IRA. Silver bullion not only has greater upside potential, but is a more practical asset for trading and bartering in an underground economy or during difficult times.
When it comes to personal defense and protecting your family in a crisis you need to exercise your unalienable 2nd Amendment right “to keep and bear arms” as laid down by our Founding Fathers in the US Constitution. This means that you need to get yourself armed and trained in the use of firearms. As Larry Pratt, founder of Gun Owners of America says, when the government fears your guns you need to fear that government. Guns have only two enemies; rust and politicians. This is where we are today, and it was the same in the early Colonies. In less than a month after Patrick Henry’s famous speech, the British marched on Barrett’s Farm in Concord, MA on April 19, 1775 to seize arms, gunpowder and two bronze cannons. This battle led to “the shot heard around the world” and the beginning of the American Revolutionary War. This was a call to arms and Patrick Henry concluded his speech with these words, “Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!”
Finally, in these uncertain times we need to trust in Lord for His providential care and always be in prayer. We need to be “prudent” as the Bible says and take deliberate steps to break out of the normalcy bias and adopt our own situational awareness that requires some practical contingency planning. “But realize this, in the last days, difficult times will come” (2 Tim. 3:1-5). Jesus said that “night is coming when no man can work” (Jn. 9:4). These difficult days are upon us and the need has never been greater for financial diversification, personal preparedness and a keen awareness of the times that we are living in. It is recommended that you watch Chuck’s comprehensive CTM interview on our home page, and you can also email this page to a friend by entering their information on the left sidebar. God bless you in your own preparations and let us be mindful that “God is our refuge and strength, a very present help in trouble. Therefore we will not fear, though the earth should change and the mountains slip into the sea” (Ps. 46:1-2).
Contingency Planning & The Four Gs
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