22

Planning to Weather the Storm

Mary decided to have a barbecue and set up the patio for dinner. She decided on porterhouse steaks, twice-baked potatoes, green beans, and a salad. Dessert would be her homemade Key lime pie. Jackie came over about seven o’clock to help her friend get set for dinner. Jerry and John had been playing golf and arrived home about seven thirty. Dave and Alice were a bit late due to a problem they’d had with their babysitter. They rang the doorbell about eight fifteen. The couples decided to have drinks before dinner and begin reviewing the plans Dave prepared after they finished dinner.

The meal was a great success and a perfect lead-in to the important discussion that followed. Dave had made copies of the three plans he had reviewed with Jerry, and they all agreed to take them home and get back to him when they had made their decisions for their own investments as well as for their family members. The meeting lasted about two hours, and Dave and Alice were the first to leave. Jerry and Jackie helped clean up and went home about eleven thirty.

Jerry and John decided to work together on their plans. They also agreed not to reveal the details of the predictions to their parents and in-laws. After all, most of their assets were already in more stable income-producing investments, and there was no reason to upset them about the impending crisis. They decided to suggest further movement of their assets to money market funds prior to the predicted market crash.

It was time to consider their own plans, and Jerry suggested they use parts of the three approaches Dave had described. They agreed and began making specific outlines. Jerry was a bit more aggressive than John and decided to convert his IRAs and 401(k) investments to money market funds. In some cases, it would mean just changing from one fund to another within the same fund manager. In other cases, he would use a self-directed IRA to convert the investments to money market accounts without affecting his taxes. For his after-tax investments, Jerry proposed to invest in gold and use the short-sale option to take advantage of the expected drop in the market as a result of the crisis. He decided to move 40 percent of his after-tax investments to gold and convert the remaining 60 percent to available funds in his brokerage accounts to meet the margin requirements of the short sales. He would seek Dave’s advice on the exact timing of the gold purchase as well as the stocks to be used for the short sales. Although most stocks would most likely experience some price drop, the trick was to select those that would experience the greatest percentage drop. That would require a detailed knowledge of the stocks and the market just prior to the crash.

John’s plan was the same for his before-tax investments, such as his IRAs, but he decided to split his after-tax investments in thirds. The first third would be converted to money market funds, the second third to gold, and the final third to short sales. He, too, would seek Dave’s advice on the timing and the stocks to be used for the short sales.

After they completed their outlines, Jerry suggested they call Dave to see if he was available for a videoconference. Jerry had installed this feature on his PC and thought it was an effective communication tool. John thought that was a good idea, and Jerry proceeded to call Dave. As it turned out, Dave was also considering his options and agreed to fire up his PC so they could have their videoconference.

It took a few minutes to get set up, and they began reviewing the two plans with Dave. He thought the plans were sound and agreed to act as their broker to implement their plans when the time was right. He told them he would begin sending them a list of potential short-sell stocks.

The summer passed quickly, and it wasn’t long before the cool nights signaled the onset of fall. It was peaceful both in world politics and on Wall Street. It was hard to believe that within six months the events in Jerry’s dream could take place. Dave conferred with Jerry and John, and as December arrived, he began sending possible short-sale stocks for them to consider.

In January there was a flurry of activity between the Palestinian Authority and Israel on a peace agreement. This process was viewed by some of the more radical elements in the Palestinian movement as a move to weaken the support for their demands for a separate state. This sparked a series of incidents between the Palestinians and the Israelis that ended with the death of several hundred people and massive demonstrations throughout the Middle East. The unrest was so serious that even countries like Egypt and Saudi Arabia condemned the violence. They were especially critical of the level of force used by the Israelis. News of this spread like wildfire, and the president and European leaders were frantic to restore order to avoid what could become an all-consuming conflict. Stock markets all over the world reacted negatively to the events, and Wall Street experienced broad-based drops that ranged from 25 percent in the DOW to over 40 percent in the NASDAQ.

Although they had been planning to weather the storm, these events still troubled the three men. Had they misread the timing? Could all their planning have been for nothing? In the end, the president was able to forge a cease-fire that stopped the killing on both sides and got the two sides to agree to resume peace talks. By the first week in February, the financial markets recovered and the averages returned to just below their precrisis levels. For Jerry, John, and Dave, this scare only made them more certain that the predictions in Jerry’s dream were about to unfold.