Printing money (and the newer fancier ways to introduce liquidity/capital) work until people realize the money is worthless. Then you have massive stagflation that is nearly impossible to get out from under. The decision by the European and USA government to bail out the too big to fail institutions and do nothing substantial to address the problem leaves an enormous risk to the global economy unaddressed and hanging directly over our heads ready to fall at any time.

The massively too big to fail financial institutions that exist on massive leverage and massive government assistance are a new (last 15? years) danger make it more likely the currency losses value rapidly as the government uses its treasury to bail out their financial friends (this isn’t like normal payback of a few million or billion dollars these could easily cost countries like the USA trillions). How to evaluate this risk and create a portfolio to cope with the risks existing today is extremely challenging – I am not sure what the answer is.

Of the big currencies, when I evaluate the USA $ on its own I think it is a piece of junk and wouldn’t wan’t my financial future resting on it. When I look at the other large currencies (Yen, Yuan, Euro) I am not sure but I think the USD (and USA economy) may be the least bad.

In many ways I think some smaller countries are sounder but smaller countries can very quickly change – go from sitting pretty to very ugly financial situations. How they will wether a financial crisis where one of the big currencies losses trust (much much more than we have seen yet) I don’t know. Still I would ideally place a bit of my financial future scattered among various of these countries (Singapore, Australia, Malaysia, Thailand, Brazil [maybe]…).

Basically I don’t know where to find safety. I think large multinational companies that have extremely strong balance sheets and businesses that seem like they could survive financial chaos (a difficult judgement to make) may well make sense (Apple, Google, Amazon, Toyota, Intel{a bit of a stretch}, Berkshire Hathaway… companies with lots of cash, little debt, low fixed costs, good profit margins that should continue [even if sales go down and they make less they should make money – which many others won’t]). Some utilities would also probably work – even though they have large fixed costs normally. Basically companies that can survive very bad economic times – they might not get rich during them but shouldn’t really have any trouble surviving (they have much better balance sheets and prospects than many governments balance sheets it seems to me).

In many ways real estate in prime areas is good for this “type” of risk (currency devaluation and financial chaos) but the end game might be so chaotic it messes that up. Still I think prime real estate assets are a decent bet to whether the crisis better than other things. And if there isn’t any crisis should do well (so that is a nice bonus).

Basically I think the risks are real and potential damage is serious. Where to hide from the storm is a much tricker question to answer. When in that situation diversification is often wise. So diversification with a focus on investments that can survive very bad economic times for years is what I believe is wise.

Related: Investing in Stocks That Have Raised Dividends Consistently – Adding More Banker and Politician Bailouts in Not the Answer –
Failures in Regulating Financial Markets Leads to Predictable Consequences – Charlie Munger’s Thoughts on the Credit Crisis and Risk – The Misuse of Statistics and Mania in Financial Markets

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