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And then what? Preparing For a Worst Case Scenario...

 A lot of pundits have been making dire predictions about the future of the economy so maybe it's time we all start getting over the anger phase of this situation and start thinking about acceptance.  I present this article as a thought exercise, so that readers may start thinking about how to deal with these conditions.  Here are three conditions that could become realities given current economic circumstances. 

1. Consumers Revolt: Personal consumption shows modest numeric gains, but those gains fail to keep up with the CPI, indicating a long term downtrend in real rates of personal consumption.  Anger over imported goods and their effect on the economy leads many consumers to stay away from Big Box retail stores and to focus their spending - whenever possible - on used and reconditioned goods.  The timed repurchase agreements portion of M3 contracts significantly over the course of the next ten years as consumers shun McMansions and SUVs in favor of tiny cottages and gas-sipping econoboxes.  The service, hospitality and entertainment industries contract significantly while a more thrift-oriented culture decides to avoid going out to dinner or the movies, and to spend vacations getting caught up around the apartment. 

2. Real Estate never recovers: New home construction contracts significantly from current levels of 600,000 units per annum.  Many property owners are forced to convert large suburban homes into duplex rental properties to maintain solvency. Those communities that refuse to allow such modifications suffer record high rates of property vacancy and abandonment. Many properties that were thrown up during the real estate boom by less than reputable builders fall into states of disrepair and have to be condemned - resulting in waves of lawsuits all across the country, as well as popular calls for "Boy Scout Laws" (If you can't sell that property or find a tenant for it you have to return the land to it's original state, you cannot leave empty properties in this community) that paralyze the real estate development industry.  

3. Continuous Calls for Government Bailouts of Multi-National firms leads to taxpayer fatique: Taxpayers get disgusted with executives who earn multi-million dollars salaries and expect the government to bail them out of a tough spot. Supply-Side pro business lobbyists come to be regarded by the media as irrelevant coots.  Companies that expect hundreds of millions of dollars of interest free municipally backed loans to create a few dozen new jobs within a given community are rapidly shown the door.    

If all three of these conditions came to pass, how would you structure your portfolio to weather the storm?  Would you even stay in the market, or consider taking a portion of your funds out of the markets to back a local entrepreneur instead? What alternative investment strategies might you consider?  What changes regarding material expectations are you willing or able to make to help preserve your chances of some day being able to retire?  

Disclosure: No positions