6 keys to investing for doomsday

These rules will help you prepare for the end of civilization as we know it in 2050 -- or whatever other worst-case scenario you can imagine.

In his 2008 best-seller, "Wealth, War & Wisdom," hedge fund manager Barton Biggs warns that investors must "assume the possibility of a breakdown of the civilized infrastructure."

And to prepare for a breakdown of civilization, "your safe haven must be self-sufficient and capable of growing some kind of food. . . . It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc." Bloomberg Markets suggested that by "etc." he meant guns, as Biggs added "a few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage."

That warning isn't from a hippie radical. Biggs was a respected Wall Street guru at Morgan Stanley for 30 years. As the company's chief global strategist, Institutional Investor magazine put him on its All-America Research Team 10 times. SmartMoney said: "Biggs is without question the premier prognosticator on the international scene and a mover of markets from Argentina to Hong Kong."

Biggs is advising America's wealthy elite. But what about Main Street Americans? Investors often ask me where to invest today, even Bogleheads and investors committed to the Lazy Portfolio strategy. They see the Goldman Conspiracy manipulating this rally. That worries many.

What do you believe? What value do you give to "the future"? First, answer these three questions:

What's your investment strategy if you know you might die on Dec. 21, 2012? Or possibly this year after getting a negative diagnosis from an oncologist? Or maybe not till 2050 when the United Nations says global population will be 50% higher (rising from 6 billion now to 9 billion), while demand for energy, oil, gas and coal doubles and the global supply of those commodities remains relatively constant?

Disaster films, terminal illnesses, 2050 and 'The End'

Behavioral economists have answers. But your gut's also good at predicting. So here's what you'll likely do:

• You'll go see the upcoming disaster film "2012" about the end of the Mayan calendar. After all, it's by the same director who "destroyed" the earth in "The Day After Tomorrow," "Independence Day" and "Godzilla." No new investment strategies, but a must-see film, a great catharsis and distraction.

• If you had a terminal illness, the future is here, now. There's no tomorrow. You're concerned about protecting loved ones and future generations with what you have, and enjoying time with them.

• But how to invest for the "end of civilization" coming around 2050? The next 40 years will be confusing: accelerating struggles between aging populations and disenchanted youths, soaring commodity prices, global warming, peak oil, food shortages, famine, blackouts, rationing, civil disorder, increasing crime, worldwide jihads, riots, anarchy and other dark scenarios of a tomorrow with "warfare defining human life."

Yes, that's how doomsayers label the worst-case scenario. It also must be what ultraconservative guru Biggs worries about in his darker moments.

So back to the question: What will Main Street investors do? Here again, even with the planet's survival threatened, they'll go watch "2012," be entertained, experience a catharsis, feel relieved and afterward have dinner and slip back into denial. And later, they'll vote against anything that offers solutions to future problems, especially if it raises taxes.

Why? Very simple: Our "brains aren't wired to fear the future," writes New York Times columnist Nicholas Kristof. We're wired to respond to crises, while pushing off the really big problems (health care, Social Security, etc.).

That's basic behavioral economics: Over tens of thousands of years, evolution has programmed our brains so that collectively we will behave in ways that are counterproductive, making an end-of-civilization scenario inevitable, a foregone conclusion, a self-fulfilling prophecy. Why? Because our brains are handicapped, we are literally incapable of acting soon enough to solve the problem.

6 simple rules

But there must be a very small percentage of you out there with a desire to make your remaining days on Earth as pleasant as possible for you and your loved ones. So here are Six New Rules Until the End of Civilization 2050. If they don't scare you, hopefully they'll amuse you. Or better yet, wake you up, maybe get you into action . . . before it's too late . . . before your grandkids are fighting over what little is left.

1. Greed is really good: Yes, if you are going to follow the same advice as the rich, you and your family always come first. Grab more than your share, many times what's fair. No remorse, because 2050 is coming sooner than you think. Create a protective wall of money and resources that will make whatever time's left as comfortable as possible.

2. Invest in Goldman Sachs and its Wall Street co-conspirators: Seriously, these guys are the poster boys for the word "greed." The Goldman Gang, Goldman Conspiracy, whatever you call them, these guys just took control of Washington and the Treasury; their rapid recovery is proof that "greed is great." Do what they do. Amass as much capital and goods as possible, ignoring the rest of us, then cruise to the finish line.

3. Frugality, stockpiling, hoarding: Thomas J. Stanley's "The Millionaire Next Door" says it's very simple: "Frugal Frugal Frugal! . . . Millionaires live well below their means . . . Being frugal is the cornerstone of wealth-building." That way you can stash away lots more for later when the going gets rough, when others attack to get what you've stockpiled.

4. Return to your roots: Remember Biggs' advice about subsistence farming. Survival instincts and personal ingenuity will be your best investment. Your family could be without electricity, water, gasoline in the final days, so keep "well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson."

5. Global warfare, plus ammo and guns: Five years ago Fortune did report on the Pentagon's "weather nightmare." Yes, the military warned of "the mother of all national security issues" as "the planet's carrying capacity shrinks (and) an ancient pattern re-emerges: the eruption of desperate all-out wars over food, water, and energy supplies." So invest in the defense industries America needs as the rest of the world reacts more to our greed.

6. Accept death: Back in 1973, my first year at Morgan Stanley, I read Ernest Becker's brilliant Pulitzer Prize winner, "The Denial of Death." Today his message is even more powerful: Yes, we will all die, tomorrow. But to enjoy the days left, you must accept death today -- even as behavioral economists warn that our brains are our own worst enemies, as well as the planet's, for we are on a self-destructive path of no return.

Parable at the Pearly Gates

Too macabre for you? So you don't miss the satire, here is a final message, in the spirit of Milton Berle's classic movie, "Always Leave Them Laughing." It's from USA Today, told by that great comedian Carol Leifer:

"Mother Teresa died and went to heaven. God greeted her at the Pearly Gates. 'Be thou hungry, Mother Teresa?' asked God. 'I could eat,' Mother Teresa replied. So God opened a can of tuna and reached for a chunk of rye bread, and they began to share it. While eating this humble meal, Mother Teresa looked down into hell and saw the inhabitants devouring huge steaks, lobsters and pastries. Curious but deeply trusting, she remained quiet.

"The next day God again invited her to join him for a meal. Again, it was tuna and rye bread. Once again, Mother Teresa could see the denizens of hell enjoying lamb, turkey and delicious desserts. Still she said nothing.

"The following day, mealtime arrived and another can of tuna was opened. She couldn't contain herself any longer. Meekly, she said, 'God, I am grateful to be in heaven with you. But here in heaven all I get to eat is tuna and a piece of rye bread, and in the Other Place, they eat like emperors and kings! I just don't understand it.' God sighed. 'Let's be honest, Teresa,' he said. 'For just two people, it doesn't pay to cook.'"

So, cheer up. Maybe the "end of civilization" won't be all that bad, even for Wall Street, if you take Barton Biggs' advice and stock up on something other than tuna and crackers.

50 hot stocks to buy in August

StockScouter, MSN Money's stock-picking tool, identifies companies that can sustain the momentum that made July the best month in years for the major indexes.

The small screen is becoming a big deal for DreamWorks Animation (DWA, news, msgs), the company spun off from Steven Spielberg's privately held DreamWorks Studios in 2004 in a public stock offering.

Nickelodeon's new animated series "The Penguins of Madagascar" is based on DreamWorks' "Madagascar" movies; the hit TV series should start generating licensing revenue for the studio in January.

"This is a property that has the potential of a 10-year life span to it," DreamWorks Chief Executive Jeffrey Katzenberg told shareholders and analysts in a July 28 conference call.

DreamWorks Animation also has four holiday-themed specials in the works that will air on NBC -- two this fall and two in 2010 -- as well as two series in development at Nickelodeon.

The Glendale, Calif., studio expects revenue this quarter from pay-TV airings of the 2008 sequel "Madagascar: Escape 2 Africa."

TV networks have been forced by the weak economy to charge DreamWorks and other advertisers less for commercial time. "We're obviously going to be a very big advertiser with three releases next year," Katzenberg said during the conference call.

"Shrek 4," featuring the voices of Mike Myers, Paul McCartney, Justin Timberlake, Amy Poehler and others, is scheduled for release in May. Also due next year are the superhero spoof "MasterMind" and "How to Train Your Dragon," the studio's second offering in digital 3-D.

Although 3-D screens are rolling out more slowly than anticipated, there's reason to be "cautiously sanguine" about the technology's impact on the studio's bottom line, wrote analyst Tuna Amobi of Standard & Poor's Equity Research in a July 29 research note. "We see a renegotiated video game licensing pact with Activision taking root, and note continued strong traction of new business initiatives (TV specials, Broadway musicals)," said Amobi, who reiterated his "buy" rating on the stock and raised his 12-month price target to $35 from $32.

DreamWorks Animation appears on a monthly list of stocks created with MSN Money's StockScouter tool, which since 2001 has helped investors assess individual stocks' likelihood of outperforming the broad market.

Investment research firm Gradient Analytics uses StockScouter to create daily and monthly stock lists. MSN Money columnist Jon Markman collaborated with the company to devise strategies for putting the tool to work.

One of Markman's strategies involves investing an equal amount of money in each of the stocks in the computer-generated portfolio at the start of the month, selling them at the end of the month, then beginning the process again the next month. An investor who followed Markman's strategy since it was launched would have realized a gain of 178% through June 30, according to Gradient Analytics, and had an annual average return of 15%. Over the same period, the Standard & Poor's 500 Index ($INX) was down 24%.

The chart near the bottom of this page represents the benchmark StockScouter portfolio for August.

An IPO on hold?

EBay (EBAY, news, msgs) is on the August list. As the online auctioneer slogs ahead with a makeover designed to deliver a more effective electronic marketplace, some of the company's ancillary businesses are providing impressive growth.

Revenue rose 11% at online-payments unit PayPal in the three months through June 30, and the number of registered accounts grew by 20%.

Skype's revenue grew 25% in the second quarter; the service is now used by more than 480 million people worldwide to make telephone calls over the Internet. Skype, which started the year with 405 million users, is the largest provider of international calls, said research company TeleGeography.

CEO John Donahoe plans to take Skype public in the first half of 2010, a move that could, by some estimates, generate $2 billion that the San Jose, Calif., company could use to solidify its transition from quirky auction site for sellers and buyers of antiques and secondhand goods to an increasingly global marketplace weighted toward bulk sales of fixed-price merchandise.

But a legal dispute with Skype's founders jeopardizes the IPO plans.

EBay bought Skype for $2.6 billion in 2005, though the rights to some of its so-called peer-to-peer technology stayed with the founders, Niklas Zennstrom and Janus Friis, the entrepreneurs who created the file-sharing software Kazaa.

EBay is building new software to run Skype, but the company acknowledged in a regulatory filing that the software will be expensive and might not work.

Catch change in real time

Cost cuts by corporations trying to ride out the recession have slowed the once-torrid growth of Infosys Technologies (INFY, news, msgs) and other Indian software-and-outsourcing companies. But as the crisis wanes, corporations are likely to renew efforts to become smarter, smaller, faster and more nimble, and that would play into the strengths of Infosys.

"This global crisis is going to fundamentally change companies," Infosys co-founder Nandan Nilekani said in a recent interview with the Globe and Mail newspaper in Toronto. "They will have to reinvent themselves hugely; their supply chains, what they sell, how they sell -- all that is going to change and that is going to drive the business transformation of the kind that we do."

Infosys is India's second-biggest provider of IT services by revenues, after Tata Consultancy Services. It divides projects into components, which it executes simultaneously at clients' sites and its development centers in India and around the world.

The humdrum work of grinding out efficiencies will help the economy begin to grow again, said Nilekani, who expects Infosys to be a force in the wireless computing trend that lets retailers and others gather the data they need to catch things changing in real time.

As the economy improves, Infosys intends to wean itself from its reliance on relatively simple IT outsourcing jobs and compete for more sophisticated long-term management projects. It's retraining employees and recruiting more experienced personnel that will allow it to grab a bigger share of the $800 billion global IT business.

The Bangalore, India, company is willing to trade more predictable income for the high margins that the offshore operators and their investors have grown accustomed to.

Gas to go

Dividend investors have buoyed shares of Oneok Partners (OKS, news, msgs), a partnership that owns natural gas pipelines and processing plants in the midcontinent and Rocky Mountain regions.

The stock, which has a dividend yield of 8.6%, has lagged the broader market as the recession has suppressed demand for natural gas, used to generate about a quarter of the nation's electricity and heat more than half of American homes. A glut of gas has driven the price below $4 per million British thermal units, from more than $13 per million Btu last year.

Still, Chesapeake Energy (CHK, news, msgs), the nation's biggest independent producer, and others have kept on producing. As a result, storage levels are rising to the point where facilities and pipelines may soon be too full to handle new supplies, forcing producers to temporarily turn off some wells.

Producers and distributors are betting demand will soon catch up to supplies, as electricity use grows and new natural-gas-powered buses and trucks roll onto the nation's roadways.

An innovative mix

StockScouter depends on advanced mathematics, software and an innovative mix of measurements and historical testing to forecast the short- and long-term outlook for all U.S. companies that have traded on the three major exchanges for at least the past six months. The analytical tools are applied to score stocks on fundamental, valuation, technical and ownership components.

This score is combined with each company's StockScouter rating to come up with the list in the above chart. Only stocks with a final closing price above $3 are eligible for the list.

How mortgage shopping could change

For legislative efforts to succeed in simplifying the process, promoting fairness and cutting down on the mountains of paperwork, 'transparency is the name of the game.'

Few borrowers read every line of the avalanche of paperwork that comes with a mortgage, and even the most well-intentioned consumer might have difficulty understanding all costs associated with their loan -- and how it compares with what other lenders are offering.

Now, well-intentioned lawmakers are looking to make the mortgage process easier to understand and fairer overall, through regulations that could come to fruition via the proposed Consumer Financial Protection Agency.

If the reforms materialize, "the days of fine print, amorphous language and an avalanche of papers . . . will come to an end," said John Taylor, president and CEO of the National Community Reinvestment Coalition, an association of community-based institutions that promotes access to banking services to create affordable housing and job development. "Transparency is the name of the game."

The goals of the reforms:

• Requiring transparency. Consumers would receive a simple, integrated federal mortgage disclosure that is "reasonable, clearly written and concise," and be adequately presented with the risks and benefits of a mortgage product.

• Promoting simplicity. Borrowers would first be offered "plain vanilla" mortgages with terms that are straightforward. They can obtain more complex mortgages, but those vanilla loans will be presented as a first choice.

• Demanding fairness. Mortgage brokers would be required to determine whether the mortgage they're selling to a borrower is affordable, and prepayment penalties would be banned or restricted. Hidden fees that compensate a broker for selling higher-cost loans would be banned.

Loan originators and the sponsors of securitizations could also be required to retain 5% of the credit risk of a mortgage, requiring them to have "skin in the game," or a stake in the outcome of the loan originated, said Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development.

That requirement -- along with all of the reforms, really -- could cost consumers more for their mortgage, perhaps adding as much as a half a percentage point to their mortgage rates, said Cameron Findlay, chief economist for LendingTree.com. In addition, lenders who can't afford to make the procedural changes might be forced out of business, which could effectively decrease competition, he added.

"It's going to create a situation where banks and brokers alike are going to make sure that their costs are covered for any adjustment to their process," Findlay said.

But, Findlay said, any extra costs would be worth it to restore faith in the system and protection for consumers. Also, it's a drop in the bucket compared with what it's costing to clean up the havoc created in the mortgage market and the entire economy when mortgage money was easy to get.

"How can it possibly cost consumers more than what it has already cost this nation?" Taylor said.

Clear disclosure 'worth it'

Even if lenders ultimately are forced to make fewer loans as a result of new regulation, the consumer protections are still worth it, said John Sullivan, president of the National Association of Exclusive Buyer Agents.

"I would rather people have more difficulty getting the loan than getting a loan they can't afford to pay in three years," he said.

At their heart, the reforms intend to force clear disclosure in the mortgage market so consumers can compare mortgage products on an apples-to-apples basis -- with easy-to-discern costs so that lender-to-lender comparisons are more straightforward. The goal is for people to always pick a mortgage based on what is actually being offered, not how it is worded or what is presented -- like they'd buy any consumer good, based on the product inside and not the packaging in which it's wrapped, Taylor said.

"Do you offer the best widget or don't you? It shouldn't be the best slogan or the best box," Taylor said.

All of these reforms are still a way off: First, the CFPA must be created. And some in the mortgage industry spy flaws in the proposals, and they'll fight to make their case.

"Traditionally, the lending world has been able to water down positive reform efforts on the regulation side, so the result is not as good as it could have been," said Howard Banker, executive director for the Fair Mortgage Collaborative, a nonprofit organization that identifies and certifies lenders that adhere to standards of fairness. If points are debated for too long a time, "momentum is lost and what you end up with is a shadow of a proposed idea," he said.

If the proposals do, however, emerge from this process and go into effect, below are some changes a mortgage shopper might expect.

1. You could have less paper to wade through

Anyone who has gotten a mortgage knows just how much paperwork is involved. Forms today are "too many and too complicated" and could be clearer, said Marc Savitt, immediate past president of the National Association of Mortgage Brokers.

Alex Pollock, in testimony to the House Financial Services Committee in June, said the one good idea that has emerged from the reform proposals has been the proposed requirement of clear and simple disclosures. Pollack is a resident fellow at the American Enterprise Institute for Public Policy Research.

"In congressional testimony in the spring of 2007, I proposed a one-page mortgage form so borrowers could easily focus on what they really need to know. The one-page-form idea was included in bills in both the House and Senate, but not enacted, unfortunately. It remains my opinion that something like it would be a huge improvement in the way the American mortgage system works," he said.

With better disclosures, borrowers can be better able to "underwrite themselves," he said, making sure they understand the debt commitments they are making.

2. Your first option might always be 'plain vanilla'

What would a "plain vanilla" mortgage be? Most likely a 30-year fixed-rate mortgage and possibly other basic loans, such as a five-year adjustable-rate mortgage, said Richard Thaler, a professor of economics and behavioral science at the University of Chicago Booth School of Business.

That doesn't mean you couldn't get a more complex product, just that you have to see more basic options first. To obtain a mortgage with more complicated terms, "people would have to opt into them and be warned that they would be doing something unusual," he said of the more complex mortgage products.

Thaler is co-author of the book "Nudge," which examines scenarios that "steer people in the direction that is likely to be helpful and warn them about things that are likely to be dangerous." A "plain vanilla" mortgage encourages borrowers to opt for a certain basic mortgage type without banning other choices, he said.

This system could help prevent consumers from agreeing to complex terms they don't understand, when they might otherwise have chosen a simple, basic product. Case in point: Sullivan recently was involved in a transaction with sellers who didn't realize they had an interest-only loan until five years later when they wanted to sell the property; without paying principal on a loan, they didn't build equity.

3. You could be spared certain fees

Prepayment penalties, or costs you're charged if you want to pay off a mortgage early, could be banned or restricted by the proposed agency. At worst, consumers get trapped in mortgage terms that aren't right for their situation because they can't refinance unless they pay the penalty fee.

Because it's not easy to spot to begin with, one fee -- the yield spread premium -- could become extinct without consumers even noticing. Donovan called them "unfair practices," used by lenders to encourage brokers to sell riskier and higher-priced loans.

From the industry perspective, Savitt said the premiums are a way consumers can finance origination costs over time. He said costs built into the interest rate -- both from brokers and lenders -- should remain permissible, but that "it's important that everything be disclosed on both sides," meaning both brokers and lenders should disclose all fees embedded into the rate.