If financial markets shut down, temporarily...

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psteinx
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If financial markets shut down, temporarily...

Post by psteinx » Wed Jul 25, 2018 6:35 pm

OK, so here's a scenario I was thinking about...

What if US (and probably most international) stock markets and related entities shut down, probably temporarily, for a period of weeks to months to even, say, 3 years?

Precipitating cause? Sudden war, violent attack (mass destruction) on Manhattan, massive computer hacking, financial panic, etc...

Long shot? Yeah, perhaps. But the NYSE apparently closed for several months at the onset of WW1, closed for a few days after 9/11, and I recall a brief trial balloon of some sort of temporary market shutdown in the throes of Sept-Oct, 2008. I consider this stuff pretty unlikely, but not utterly impossible.

In particular, I'm concerned about a situation where either DTC records and the like can't be reliably used for some period of time (hacking or physical destruction), or the government, for one (presumably dire) reason or another bars trading for a while.

===

Do I think this is actionable? Potentially, yeah.

Specifically, I was thinking about different forms of emergency liquidity. Assume that one has the bulk of one's assets in stocks, bonds, and funds holding the same. If one could no longer sell these, and perhaps dividends and interest from these no longer flowed through but were escrowed in some fashion, then one would want other assets which COULD be used for liquidity.

I'm not in zombie-apocalypse territory here. I *can* envision scenarios where the US economy basically keeps functioning (damaged, perhaps), but access to many investments is difficult or nigh impossible for a time. So one is not necessarily looking to flee the country nor retreat to a mountain hideout with guns 'n ammo, but rather, to get through a difficult stretch of time.

So, where could funds come from? I would think the banking system mostly sits separately from the pure investment world, and access to savings accounts and checking might still be possible. Of course, greenbacks (paper money) would be nice, and goldbugs would perhaps have their day as physical gold and the like (silver, etc.) would presumably be sellable for whatever liquidity was still in the system (or tradeable directly for life's necessities).

If in fact the general banking system was still intact, I'm guessing (not really researched), that products issued directly by the banks (savings, checking, CDs, possibly money market accounts) would be sturdier than, again, 3rd party investment products (perhaps including money market FUNDs) issued through banks?

To some extent, of course, I'm anticipating the unprecedented (and I don't think it's THAT likely, but still...) That said, similar events have occurred in the US, and probably moreso overseas. Any insight from overseas examples (especially of relatively recent vintage - last 2-3 decades) might be useful. But then, Yugoslavia, Syria, Argentina, Cyprus and Venezuela and the like aren't hubs for investment products the way the US is, and NYC/Manhattan in particular.

So, my thinking has me, in part, thinking of holding a bit more than we do now in local banks. Not a huge amount, certainly as a percentage of our portfolio, but somewhat more. The problem is that local (physical) banks seem to pay low interest rates, so there's a cost to this "insurance policy" of sorts...

runner3081
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Re: If financial markets shut down, temporarily...

Post by runner3081 » Wed Jul 25, 2018 6:50 pm

If this were to happen, getting money from investment accounts would probably be the least of my worries.

You may be better off with cash, food rations, guns and ammo.

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Re: If financial markets shut down, temporarily...

Post by livesoft » Wed Jul 25, 2018 6:52 pm

I lived through Hurricane Harvey and a few other hurricanes. I am certain that all my nearest neighbors would help each other out.
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psteinx
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Re: If financial markets shut down, temporarily...

Post by psteinx » Wed Jul 25, 2018 6:58 pm

I'm not talking about a hurricane.

I'm not talking about zombie apocalypse.

I'm talking about something specific, that I think is plausible, and that has some historical precedent, even in the USA.

A functioning US government. A functioning economy. But for one reason or another, the doors to conventional US investment markets are shut for a time.

A version of this happened, for months, just over a century ago*. A much shorter version (days) happened 17 years ago. IMO, there was a non-trivial chance that a version timed in months could have happened in the 2008-2009 time frame as well.

* Though there apparently was a curb market of unclear (to me) legality filling in the gap somewhat. I'm also not sure about bonds during this interval. And it kind of predates most funds of the sort that are common today.

Basically, I'm talking about differential liquidity - different types of accounts and financial assets being treated differently in a severe, but not TOO severe crisis. Just as the internet is built of many nodes, and has a degree of redundancy (the loss of one node shouldn't take down the network), I'm thinking of financial "nodes" and whether some additional, distinct nodes would be worth enough to justify their costs.

I view this as a kind of insurance, and am in the financial position to pay a certain premium for that insurance, but neither am I looking to be frivolous or excessively wasteful...

(Edited somewhat after initial posting...)
Last edited by psteinx on Wed Jul 25, 2018 7:26 pm, edited 1 time in total.

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Index Fan
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Re: If financial markets shut down, temporarily...

Post by Index Fan » Wed Jul 25, 2018 7:08 pm

I think it is perfectly reasonable to have a plan that includes such black-swan events as the disruption of the financial system. Having some cash and PMs at home along with an amount of food, water purification, means of self-defense etc. for emergencies ranging from natural disasters to societal collapse goes beyond the topics typically dealt with on this site, but there are plenty of other resources out there to check out.

For instance, here's a book about a man whose family survived the 2001 Argentinian Financial Collapse. YMMV.

https://www.amazon.com/dp/9870563457
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Re: If financial markets shut down, temporarily...

Post by snarlyjack » Wed Jul 25, 2018 7:12 pm

psteinx,

(History Lesson)...If you were to look at old price charts
say 1928-1932. The people who could hang on & (buy) at
the bottom (after a crash) did very, very good.

I would be looking to buy the market, not buying guns,
ammo or can goods. The real question is: how can you
make money in a bad situation...(think 1940-1943) everyone
knew the USA would win the war, but who invested in a
down market (someone got rich)...

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Re: If financial markets shut down, temporarily...

Post by livesoft » Wed Jul 25, 2018 7:14 pm

psteinx wrote:
Wed Jul 25, 2018 6:58 pm
I'm not talking about a hurricane.
Yes, I got that. My neighbors would help each other out through the situation you described. Also family will be important at that time, too. I am pretty sure I can rely on family, but not everyone can.
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H-Town
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Re: If financial markets shut down, temporarily...

Post by H-Town » Wed Jul 25, 2018 7:19 pm

I don't really need that much cash to survive. It's all about knowledge, disaster planning, and a cool head. Oh, gun & ammo and goodwill with neighbors are very helpful as well. There's no need to rush to your local bank and withdraw all the green papers you stack in there. There's just no need for it.

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Re: If financial markets shut down, temporarily...

Post by bengal22 » Wed Jul 25, 2018 7:49 pm

How is this actionable?
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

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nisiprius
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Re: If financial markets shut down, temporarily...

Post by nisiprius » Wed Jul 25, 2018 8:14 pm

Tangentially, my wife and I happened to be in Curaçao for a year, where I was doing my graduate work, in 1971. I was living on a fellowship stipend of $2600/year, not a great deal even then.

One day, without warning, Nixon suspended gold convertibility of the dollar. I remember it well enough to remember that it was on a Friday.

As it happened, I had less than $10 worth of Netherlands Antilles guilders. I'd been meaning to get to the bank to exchange currency, but I'd let myself get short. It hadn't seemed important because I had about $100 in US dollars. Normally, because of the tourist trade, merchants accepted dollars readily, and didn't even stiff you too much on the exchange rate.

But when Nixon ended gold convertibility, money markets in Europe would not exchange dollars, and neither would the local banks or the local merchants.

My recollection is that it took the better part of a week before I could exchange dollars, and it was a really awkward situation. And I am still quite bitter about the total lack of help I got from the American consulate, which kept saying I was "indigent." I found that quite insulting. I said I wasn't the least bit indigent, I had plenty of dollars, and it wasn't my fault that my dollars were no good, and couldn't they exchange a few dollars or lend me a few guilders? They turned me down flat.

Anyway. Yes. I've been in a situation where my wealth was inaccessible for a week.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: If financial markets shut down, temporarily...

Post by Sheepdog » Wed Jul 25, 2018 8:18 pm

bengal22 wrote:
Wed Jul 25, 2018 7:49 pm
How is this actionable?
+1
It's not what you gather, but what you scatter which tells what kind of life you have lived---Helen Walton

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Re: If financial markets shut down, temporarily...

Post by Iridium » Wed Jul 25, 2018 8:23 pm

bengal22 wrote:
Wed Jul 25, 2018 7:49 pm
How is this actionable?
An investor could hypothetically take action to move their emergency fund from money market to bank account or even cash to avoid the risk of a market shut down. Whether they should is a completely different matter :D .

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knpstr
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Re: If financial markets shut down, temporarily...

Post by knpstr » Wed Jul 25, 2018 8:29 pm

psteinx wrote:
Wed Jul 25, 2018 6:35 pm
OK, so here's a scenario I was thinking about...

What if US (and probably most international) stock markets and related entities shut down, probably temporarily, for a period of weeks to months to even, say, 3 years?

Precipitating cause? Sudden war, violent attack (mass destruction) on Manhattan, massive computer hacking, financial panic, etc...

Long shot? Yeah, perhaps. But the NYSE apparently closed for several months at the onset of WW1, closed for a few days after 9/11, and I recall a brief trial balloon of some sort of temporary market shutdown in the throes of Sept-Oct, 2008. I consider this stuff pretty unlikely, but not utterly impossible.

In particular, I'm concerned about a situation where either DTC records and the like can't be reliably used for some period of time (hacking or physical destruction), or the government, for one (presumably dire) reason or another bars trading for a while.

===

Do I think this is actionable? Potentially, yeah.

Specifically, I was thinking about different forms of emergency liquidity. Assume that one has the bulk of one's assets in stocks, bonds, and funds holding the same. If one could no longer sell these, and perhaps dividends and interest from these no longer flowed through but were escrowed in some fashion, then one would want other assets which COULD be used for liquidity.

I'm not in zombie-apocalypse territory here. I *can* envision scenarios where the US economy basically keeps functioning (damaged, perhaps), but access to many investments is difficult or nigh impossible for a time. So one is not necessarily looking to flee the country nor retreat to a mountain hideout with guns 'n ammo, but rather, to get through a difficult stretch of time.

So, where could funds come from? I would think the banking system mostly sits separately from the pure investment world, and access to savings accounts and checking might still be possible. Of course, greenbacks (paper money) would be nice, and goldbugs would perhaps have their day as physical gold and the like (silver, etc.) would presumably be sellable for whatever liquidity was still in the system (or tradeable directly for life's necessities).

If in fact the general banking system was still intact, I'm guessing (not really researched), that products issued directly by the banks (savings, checking, CDs, possibly money market accounts) would be sturdier than, again, 3rd party investment products (perhaps including money market FUNDs) issued through banks?

To some extent, of course, I'm anticipating the unprecedented (and I don't think it's THAT likely, but still...) That said, similar events have occurred in the US, and probably moreso overseas. Any insight from overseas examples (especially of relatively recent vintage - last 2-3 decades) might be useful. But then, Yugoslavia, Syria, Argentina, Cyprus and Venezuela and the like aren't hubs for investment products the way the US is, and NYC/Manhattan in particular.

So, my thinking has me, in part, thinking of holding a bit more than we do now in local banks. Not a huge amount, certainly as a percentage of our portfolio, but somewhat more. The problem is that local (physical) banks seem to pay low interest rates, so there's a cost to this "insurance policy" of sorts...
It's a risk.

Hold some rental real estate to keep paying you :twisted: you understand my joke here.

In my opinion one shouldn't keep all of their "needed liquidity" in one place. There is a legitimate reason to hold a bit of cash at home, even more importantly and useful would be food/water/gas etc which would decrease your monetary needs.

You're correct in observing the "cost" to hold cash. But insurance usually bears a premium.

I can't recall the name of it now, but people say we're overdue for a huge solar flare that would wipe out all electronics (and the data stored on them).
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Re: If financial markets shut down, temporarily...

Post by knpstr » Wed Jul 25, 2018 8:33 pm

nisiprius wrote:
Wed Jul 25, 2018 8:14 pm
My recollection is that it took the better part of a week before I could exchange dollars, and it was a really awkward situation. And I am still quite bitter about the total lack of help I got from the American consulate, which kept saying I was "indigent." I found that quite insulting. I said I wasn't the least bit indigent, I had plenty of dollars, and it wasn't my fault that my dollars were no good, and couldn't they exchange a few dollars or lend me a few guilders? They turned me down flat.
In down times you find out who your real friends are.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: If financial markets shut down, temporarily...

Post by delamer » Wed Jul 25, 2018 8:35 pm

A functioning US government. A functioning economy. But for one reason or another, the doors to conventional US investment markets are shut for a time.
I am not convinced that we’d have a functioning economy if the markets were shut down for more than a couple days.

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Re: If financial markets shut down, temporarily...

Post by AlohaJoe » Wed Jul 25, 2018 9:02 pm

psteinx wrote:
Wed Jul 25, 2018 6:35 pm
perhaps dividends and interest from these no longer flowed through but were escrowed in some fashion
What? This has never happened.

You might want to do a bit more research on markets during WW1 before making plans based on what you think happened.

When the NYSE shut down from July 1914 to December 1914....people just traded on New Street, which was a small road behind the NYSE. This alternate trading began the day after the NYSE shut down. New Street provided so much liquidity that the NYSE itself felt compelled to break the ban and offer trading at the NYSE Clearing House: by August trading had been authorised at prices "no less than the closing prices of Thursday, July 30, 1914". Because of this mandatory price floor, some trades were hard to come by. New Street didn't have a price floor.

Price quotes from the New Street were carried in the Morning Telegraph. (The NYSE board told the New York Times and Wall Street Journal that if they carried New Street quotes the NYSE would boycott them forever.)

No data remains on the size of order flow but a contemporary (unsourced) New York Times article on New Street claimed it carried 20% of the daily volume of the NYSE. That number might be right but it should also be taken with a grain of salt because the New York Times was under pressure from both the NYSE and the federal government to disparage New Street and make it look illegitimate and ineffective. However, more sophisticated financial analytics clearly show that New Street trading provided economically relevant liquidity.

The author of one paper on New Street concludes:
This episode in financial history shows that liquidity can survive a crisis even without extensive preparation.
But feel free to carry on with your extensive preparation....

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Re: If financial markets shut down, temporarily...

Post by psteinx » Wed Jul 25, 2018 9:04 pm

Re: Actionability...

I thought I addressed it in my OP. But if I wasn't clear, I'm hypothesizing that different types of financial resources and accounts might have different levels of liquidity in such a situation - some might be fully liquid, or nearly so. But I'm speculating - was wondering if others had similar thoughts and/or structured their accounts and investments, to some extent to "insure" against such a thing.

And of course there's paper money, gold and the like. But that's been discussed on this forum already, probably many times.

The inability to sell shares of stock, or shares of a stock index fund, for 4 months (or somewhat longer), wouldn't necessarily cripple the overall economy, IMO. But it might be pretty disruptive for certain folks, including, perhaps, me.

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Re: If financial markets shut down, temporarily...

Post by psteinx » Wed Jul 25, 2018 9:11 pm

AlohaJoe - I was skimming probably the same (academic) paper you are referencing - it's part of my thought process on this.

Back in 1914, most folks had paper share certificates (though not always in their own custody of course). How are you going to get a solid "curb" market going when ownership information primarily resides with DTC?

As for any "extensive preparation" on my part - err, whatever. I'm bringing up a topic of conversation. Perhaps I will not act (other accuse this of being not actionable - you seem to suggest I'm being hyper-active - the opposite). But perhaps it's as simple as adding some funds at locally accessible financial institutions (banks/credit unions) whose balance sheets, records, etc. are likely to be less intertwined with DTC/Wall Street, and who the government might feel more of an obligation to flood with liquidity in certain crises. The cost of this might be accepting somewhat lower returns for said money. An "insurance policy" (that might also be helpful in a few scenarios rather different from the ones I suggested in the OP), at a cost of a moderate return loss.

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Re: If financial markets shut down, temporarily...

Post by alex_686 » Wed Jul 25, 2018 9:42 pm

psteinx wrote:
Wed Jul 25, 2018 6:35 pm
So, my thinking has me, in part, thinking of holding a bit more than we do now in local banks. Not a huge amount, certainly as a percentage of our portfolio, but somewhat more. The problem is that local (physical) banks seem to pay low interest rates, so there's a cost to this "insurance policy" of sorts...
The problem is that your local bank is probably heavily dependent on DTC and the financial markets. A good chunk of liquidity comes from assets held at DTC, such as treasuries, repos, and the like. If those fail they will have liquidity issues. Last time I checked my local bank can suspend my demand accounts for a long time - I can't remember if it is 30 or 90 days.

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Re: If financial markets shut down, temporarily...

Post by alex_686 » Wed Jul 25, 2018 9:47 pm

psteinx wrote:
Wed Jul 25, 2018 9:11 pm
Back in 1914, most folks had paper share certificates (though not always in their own custody of course). How are you going to get a solid "curb" market going when ownership information primarily resides with DTC?
Ownership information is with the transfer agent, not with DTC. I am assuming we are talking about physical shares here. I have actually done some actual work on this issue. You staple the first receipt onto the physical certificate, then you staple the second receipt of sale onto the first one. You make sure the client fills out everything correctly. You shift from a T+2 settlement date to a T+14. The are provisions that in a crisis allows you to extend things to a T+180 - or at least there were in the 1990s. Not sure about today.

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Re: If financial markets shut down, temporarily...

Post by AlohaJoe » Wed Jul 25, 2018 9:51 pm

alex_686 wrote:
Wed Jul 25, 2018 9:42 pm
psteinx wrote:
Wed Jul 25, 2018 6:35 pm
So, my thinking has me, in part, thinking of holding a bit more than we do now in local banks. Not a huge amount, certainly as a percentage of our portfolio, but somewhat more. The problem is that local (physical) banks seem to pay low interest rates, so there's a cost to this "insurance policy" of sorts...
The problem is that your local bank is probably heavily dependent on DTC and the financial markets. A good chunk of liquidity comes from assets held at DTC, such as treasuries, repos, and the like. If those fail they will have liquidity issues. Last time I checked my local bank can suspend my demand accounts for a long time - I can't remember if it is 30 or 90 days.
During 9/11 check clearing was imperiled because they couldn't fly checks around the country to clear them due to flights being grounded. The Fed bailed out the banks by giving them a 5x increase in margin for a few weeks (I think the Fed may have actually told them it was unlimited if they needed more). I think it is pretty hard to predict what will & won't cause problems and how they will/won't get resolved.

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Re: If financial markets shut down, temporarily...

Post by AlohaJoe » Wed Jul 25, 2018 10:04 pm

psteinx wrote:
Wed Jul 25, 2018 9:11 pm
An "insurance policy" (that might also be helpful in a few scenarios rather different from the ones I suggested in the OP), at a cost of a moderate return loss.
The problem, as always, is what scenarios you are trying to buy insurance for and how likely those scenarios are. During WW1 markets were shutdown for, what, five months? During which people still received dividends & interest (and Social Security and pension and rent from tenants and whatever other sources of income they have). I suppose you could see that and go "I should keep five months of cash in a local bank account" and others would go "uh, I would just not take a vacation and postpone the replacing the kitchen cabinets and otherwise my cashflow would be totally fine".

But 5 months is hardly the only example of a market being shutdown. The Berlin Stock Exchange was closed for 3 years. So do you need to keep three years of cash in a local bank account?

Or is the lesson, "world governments over-reacted at the beginning of WW1, they quickly realised their mistake (well, quickly for governments, meaning it took three or four months) and it is an experience that hasn't been repeated, since it didn't happen with WW2"?

It is always hard to know what lessons to learn from the past. Often we just look to the past for confirmation of whatever we always believe. I believe in the strength of markets, so I see the episodes of temporary market closure when governments and markets were immature (remember we're talking about a time 2 decades before the SEC existed) as "the exception that proves the rule". But I guess others can look at the Rorschach blob and see something else.

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Re: If financial markets shut down, temporarily...

Post by alex_686 » Wed Jul 25, 2018 10:31 pm

AlohaJoe wrote:
Wed Jul 25, 2018 9:51 pm
During 9/11 check clearing was imperiled because they couldn't fly checks around the country to clear them due to flights being grounded. The Fed bailed out the banks by giving them a 5x increase in margin for a few weeks (I think the Fed may have actually told them it was unlimited if they needed more). I think it is pretty hard to predict what will & won't cause problems and how they will/won't get resolved.
I am not going to contest that point. However the Fed treated big and small banks alike. To go back to the OP's original point, I don't see an advantage with small local banks or credit unions if markets shut down.

At this point I am reviewing a particular bank in my head. 8 employees, 4 of those being partners. The secretary used to stop by the Fed Reserve to pick up their daily batch of checks - it was on her commute. The disaster recovery plan was to meet in the president's garage. Maybe this type of bank would be more robust?

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Re: If financial markets shut down, temporarily...

Post by alex_686 » Wed Jul 25, 2018 10:33 pm

AlohaJoe wrote:
Wed Jul 25, 2018 10:04 pm
During WW1 markets were shutdown for, what, five months? During which people still received dividends & interest (and Social Security and pension and rent from tenants and whatever other sources of income they have).
I don't think any Social Security were sent out. After all S.S. was only signed into law in 1935.... :happy

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Re: If financial markets shut down, temporarily...

Post by tibbitts » Wed Jul 25, 2018 10:50 pm

snarlyjack wrote:
Wed Jul 25, 2018 7:12 pm
psteinx,

(History Lesson)...If you were to look at old price charts
say 1928-1932. The people who could hang on & (buy) at
the bottom (after a crash) did very, very good.

I would be looking to buy the market, not buying guns,
ammo or can goods. The real question is: how can you
make money in a bad situation...(think 1940-1943) everyone
knew the USA would win the war, but who invested in a
down market (someone got rich)...
You're missing the point; you can't "buy the market" when the market is entirely shut down.

I wasn't around in 1940-1943, but the U.S. wasn't in a war in 1940 or most of 1941, and I'm not so sure that shortly thereafter "everybody" knew the U.S. would win.

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Re: If financial markets shut down, temporarily...

Post by psteinx » Wed Jul 25, 2018 11:04 pm

My concern here is not profiting from some temporary dip in the market, but rather, to avoid undue hardship from temporary disruptions to liquidity, account/market access, etc.

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Re: If financial markets shut down, temporarily...

Post by EddyB » Wed Jul 25, 2018 11:14 pm

delamer wrote:
Wed Jul 25, 2018 8:35 pm
A functioning US government. A functioning economy. But for one reason or another, the doors to conventional US investment markets are shut for a time.
I am not convinced that we’d have a functioning economy if the markets were shut down for more than a couple days.
But it might be worth it if it finally gets us a functioning government.

(Just a joke.)

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Re: If financial markets shut down, temporarily...

Post by AlohaJoe » Wed Jul 25, 2018 11:55 pm

alex_686 wrote:
Wed Jul 25, 2018 10:33 pm
AlohaJoe wrote:
Wed Jul 25, 2018 10:04 pm
During WW1 markets were shutdown for, what, five months? During which people still received dividends & interest (and Social Security and pension and rent from tenants and whatever other sources of income they have).
I don't think any Social Security were sent out. After all S.S. was only signed into law in 1935.... :happy
Ha true. I think when I wrote that I had in mind something like "the markets were closed for 5 months back then; if it happened again today you would still receive...." (in other words, for most people they would still have access to something like 75+% of their normal retirement income)

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Re: If financial markets shut down, temporarily...

Post by jbranx » Thu Jul 26, 2018 2:33 am

There are a number of scenarios that could cause extended outages. An attack on electric power grids would be one, given the recent warning that hackers have penetrated utility computers. A nuclear plant accident at Indian Point nuclear plant just north of NYC on the Hudson might be another. A New Madrid type earthquake like the one in 1812 somewhere on the east coast would be devastating.

The Sandy hurricane flooded downtown NYC, closing 55 Water St. for months, the building that houses DTC and S&P Global. S&P kept its index business running from employee's homes. All the exchanges have backups and redundant power systems, but a hack of key financial infrastructure like the Fed's mechanisms could wreck havoc.

The internet connectivity provides lots of opportunities to operate from different locations and the ability to route traffic past disabled points. It also provides one of the most vulnerable points of attack.

Never a bad idea to have a stash of money and some well-crafted planning in case of unlikely events. I lived and worked in downtown Manhattan on 9/11. I'm far more open to the worst happening and thinking what my backup plans are than I once was for sure.

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Re: If financial markets shut down, temporarily...

Post by Valuethinker » Thu Jul 26, 2018 3:07 am

tibbitts wrote:
Wed Jul 25, 2018 10:50 pm
snarlyjack wrote:
Wed Jul 25, 2018 7:12 pm
psteinx,

(History Lesson)...If you were to look at old price charts
say 1928-1932. The people who could hang on & (buy) at
the bottom (after a crash) did very, very good.

I would be looking to buy the market, not buying guns,
ammo or can goods. The real question is: how can you
make money in a bad situation...(think 1940-1943) everyone
knew the USA would win the war, but who invested in a
down market (someone got rich)...
You're missing the point; you can't "buy the market" when the market is entirely shut down.

I wasn't around in 1940-1943, but the U.S. wasn't in a war in 1940 or most of 1941, and I'm not so sure that shortly thereafter "everybody" knew the U.S. would win.
The Morgan Stanley strategist, Barton Biggs, wrote a book about this. It turns out the market is not a bad predictor of military events.

The one I know of is the Battle of Britain August-September 1940. Turns out the London Stock Exchange bottomed more or less the first formal day of the Battle.

Of course correlation is not causation. Predictive political markets have a mixed record.

I believe NYSE kept trading. The early days of WW2 for the USA were characterized by a series of defeats (Wake Island, Guam, Philippines, Indonesia) as well as a submarine war off the East Coast. Admiral Ernest King had a pathological dislike of the British and the Royal Navy, and so British advice re the use of convoys (hard learned in the disastrous days of 1939 and early 1940) was ignored. American ships sailed without convoys, and there were no blackout restrictions along the coast, so U Boats found their targets perfectly illuminated. The U Boat captains called it their second "Happy Time".

{however the stubbornness of Filipino-American resistance on the Bataan Peninsula was also a sign of future American determination (as was Wake Island's garrison's heroic resistance). Whilst the British Army was forced into a humiliating surrender at Singapore against an army smaller in size, the Japanese mopping up of the Philippines was seriously delayed).

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Re: If financial markets shut down, temporarily...

Post by HongKonger » Thu Jul 26, 2018 3:36 am

There would be a run on banks, surely. Look at Greece a few years ago when ATM withdrawals were severely limited.
Where I live, very few people have credit cards and cash is de rigeur for 95% of transactions so myself and everyone I know I know keeps a month or two of expenses at home in case either you or a friend needs it instantly. Plus we all have back ups for fuel, energy, food, water. Not covering your ass by staying reliant on systems out of your control just seems like madness in todays world.

selters
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Re: If financial markets shut down, temporarily...

Post by selters » Thu Jul 26, 2018 5:34 am

runner3081 wrote:
Wed Jul 25, 2018 6:50 pm
If this were to happen, getting money from investment accounts would probably be the least of my worries.

You may be better off with cash, food rations, guns and ammo.
We’re not talking nuclear winter here. We’re talking about scenarios that have actually happened in other generally peaceful and civilized countries in the last few decades. Serious enough to close down exchanges for a few days, weeks, months.

JoeRetire
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Re: If financial markets shut down, temporarily...

Post by JoeRetire » Thu Jul 26, 2018 6:37 am

psteinx wrote:
Wed Jul 25, 2018 6:35 pm
What if US (and probably most international) stock markets and related entities shut down, probably temporarily, for a period of weeks to months to even, say, 3 years?

Precipitating cause? Sudden war, violent attack (mass destruction) on Manhattan, massive computer hacking, financial panic, etc...

So, my thinking has me, in part, thinking of holding a bit more than we do now in local banks. Not a huge amount, certainly as a percentage of our portfolio, but somewhat more. The problem is that local (physical) banks seem to pay low interest rates, so there's a cost to this "insurance policy" of sorts...
You seem to believe that local (physical) banks would be unaffected by this precipitating cause that shuts down the stock market and related entities for up to 3 years. To me, this is even less likely than a zombie apocalypse. Banks are intertwingled entities more than you seem to think.

If this scenario really worries you, you might consider purchasing 3 years of survival rations and related gear. Don't forget the guns and ammo, and have goods to barter. Depending on your local Bob's Savings and Loan is unlikely to be viable.

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JoMoney
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Re: If financial markets shut down, temporarily...

Post by JoMoney » Thu Jul 26, 2018 6:53 am

I think it's a valid concern. I like having a small amount of cash on hand, and a good amount in the bank... Beyond that, the type of prep I would be looking to is keeping pantry stocked, bottled water, and some camping gear ;)

I can remember a time when my money worries were about how I was going to get by a few weeks until my next paycheck. It's funny how now that I have enough money where that won't likely ever be a problem the worry shifts to something else.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: If financial markets shut down, temporarily...

Post by knpstr » Thu Jul 26, 2018 6:58 am

alex_686 wrote:
Wed Jul 25, 2018 10:33 pm
AlohaJoe wrote:
Wed Jul 25, 2018 10:04 pm
During WW1 markets were shutdown for, what, five months? During which people still received dividends & interest (and Social Security and pension and rent from tenants and whatever other sources of income they have).
I don't think any Social Security were sent out. After all S.S. was only signed into law in 1935.... :happy
Just to make a note in addition to this: WWII the NYSE never shutdown... except for a 2 day celebration upon troops returning.

9/11's 4 day shutdown was the longest since 1933.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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JoMoney
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Re: If financial markets shut down, temporarily...

Post by JoMoney » Thu Jul 26, 2018 7:11 am

If/when my Internet is down, the financial markets might as well be temporarily shut down.

A Carrington Event would certainly be concerning. I could imagine that hindering communications and the financial markets. The Solar storm of 2012 barely missed us, and even more interesting is the event wasn't publicized until two years after it happened
https://www.cbsnews.com/news/solar-supe ... h-in-2012/
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

runner3081
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Re: If financial markets shut down, temporarily...

Post by runner3081 » Thu Jul 26, 2018 9:10 am

selters wrote:
Thu Jul 26, 2018 5:34 am
runner3081 wrote:
Wed Jul 25, 2018 6:50 pm
If this were to happen, getting money from investment accounts would probably be the least of my worries.

You may be better off with cash, food rations, guns and ammo.
We’re not talking nuclear winter here. We’re talking about scenarios that have actually happened in other generally peaceful and civilized countries in the last few decades. Serious enough to close down exchanges for a few days, weeks, months.
...and my answer would still not change. I fully understand the question.

runner3081
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Re: If financial markets shut down, temporarily...

Post by runner3081 » Thu Jul 26, 2018 9:12 am

Iridium wrote:
Wed Jul 25, 2018 8:23 pm
bengal22 wrote:
Wed Jul 25, 2018 7:49 pm
How is this actionable?
An investor could hypothetically take action to move their emergency fund from money market to bank account or even cash to avoid the risk of a market shut down. Whether they should is a completely different matter :D .
Instead of market timing, we will go call this disaster timing.

Angst
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Re: If financial markets shut down, temporarily...

Post by Angst » Thu Jul 26, 2018 9:52 am

Diversification:

- Treasury Direct. Hold something there. Like Vanguard, etc., TD can transfer to your local bank, however, when "the markets" are frozen, "the Treasury" might be open, or might open before anything else does.
- Do not direct deposit your entire paycheck at Vanguard: Have some portion going to a local bank.
- Go local: Bank, credit union
- Not just 1 credit card: MC/Visa, Discover, AmEx, gas chain
- Not just Vanguard: Hold a 2nd account at Fidelity, Schwab, etc.
- Standard disaster survival items: particularly dry foodstuffs and water, cash

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Re: If financial markets shut down, temporarily...

Post by jminv » Thu Jul 26, 2018 10:53 am

If the markets were shut down for a prolonged period of time such as during 1914, not just a circuit breaker period, there would be a run on the banks. Because there would be a run on the banks and the influence of finance in our system, the status of the dollar as the world's reserve currency which is beneficial to the usa, the interlationship between the markets and business, the prevelance of retirees with 401k plans who rely on them for monthly income, etc etc it would be extremely unlikely that this would ever occur.

If it did occur, you would have off market prices through various sources where you would accept a fraction of the pre-closure value of your securities in exchange for cash etc or allow you to borrow against the portfolio but at a portfolio value that was greatly reduced. This happened in 1914. Investors just bypassed the official exchanges and traded throughout the period. The NYSE even provided clearing services. If it happened again, something would emerge again.

The 1914 closure had more to do with preventing an outflow of capital and gold given the countries involved were on the gold standard. Free flows of financial capital but fixed exchange rates are not good when there's a panic. That's why authorities in a country with a fixed exchange rate system clamp down on the capital flows aspect when there's a panic.

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Re: If financial markets shut down, temporarily...

Post by Valuethinker » Thu Jul 26, 2018 11:09 am

JoMoney wrote:
Thu Jul 26, 2018 7:11 am
If/when my Internet is down, the financial markets might as well be temporarily shut down.

A Carrington Event would certainly be concerning. I could imagine that hindering communications and the financial markets. The Solar storm of 2012 barely missed us, and even more interesting is the event wasn't publicized until two years after it happened
https://www.cbsnews.com/news/solar-supe ... h-in-2012/
It's a huge risk.

Nuclear command systems are on hair trigger. At a time of international tensions it would be easy for one or more powers to misinterpret the loss of satellites, radar and communications as Electro Magnetic Pulse or a prelude to an attack, rather than as a natural phenomenon.

AFAIK this just wasn't the case during previous severe solar events. And the hotline only runs between 2 countries but there are at least 7 nuclear powers now.

btenny
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Re: If financial markets shut down, temporarily...

Post by btenny » Thu Jul 26, 2018 1:58 pm

I have two separate bank checking accounts at two separate brick and mortar banks with local stores near me. I try to keep over $10k in each account at all times. I do this to protect against many different shutdown or bank or investment error situations. I think one of these will occur in my life time.

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Re: If financial markets shut down, temporarily...

Post by linenfort » Thu Jul 26, 2018 2:50 pm

nisiprius wrote:
Wed Jul 25, 2018 8:14 pm
Tangentially, my wife and I happened to be in Curaçao for a year... in 1971.
...
One day, without warning, Nixon suspended gold convertibility of the dollar. I remember it well enough to remember that it was on a Friday.
As it happened, I had less than $10 worth of Netherlands Antilles guilders.
...
My recollection is that it took the better part of a week before I could exchange dollars, and it was a really awkward situation.
...I had plenty of dollars, ... and couldn't they exchange a few dollars or lend me a few guilders? They turned me down flat.

Anyway. Yes. I've been in a situation where my wealth was inaccessible for a week.
Very interesting story!
How is this actionable?
I'm afraid the non-actionable posts are my favorites these days, because I know what actions to take.
bogleheads, don't knock state lotteries. They helped defund the mafia.

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