CDO PIK: Satisfaction Guaranteed or Double Your Trash Back

When I attended the U.S. Army Northern Warfare School back in 1980, I was amused to see that all of the trash dumpsters at Fort Greeley, Alaska were stenciled with “Satisfaction Guaranteed or Double Your Trash Back”. I was reminded of this slogan the other day when I was doing some reading about the unfolding derivatives fiasco. I’ll get back to the quip about trash near the end of this blog entry.

Let me start with some background: Just like in the traditional bond world, with Collateralized Debt Obligations (CDOs) it is always the holder of the highest rated (“senior”) paper that gets paid first. Each grade level, “class”, “slice” or “tranche” has its own risk level. Starting from the bottom, the lowest level tranche and then moderate risk “mezzanines” have to successively support the more senior tranches. The very lowest level tranches (called “junk” or even “toxic waste” in the bond world) are the riskiest. In a default situation, those investors holding paper in the lower level tranches will probably get nothing, or perhaps 5 cents on the dollar if they are lucky.

Now here is where it gets interesting: Some of the folks that have established the tranche ratings for CDOs for the past few years have played a little fast and loose with their terminology, effectively over-rating them. A lot of “B” rated CDO paper really should have been rated “BB”, or even “BBB”. Indirectly, this has made the investments even riskier, because lower rated tranches have higher margin (“leverage”) requirements. When an investment goes bad, the degree of risk is directly proportional to the amount leverage employed. Highly leveraged investments can “go south” in spectacular ways. It isn’t unusual in the CDO world for some tranches to\ use 25-to-1 or even 30-to-1 leverage.

A recent Financial Times article titled “Credit crisis to worsen as banks cut and run” noted that as public scrutiny has increased, the margin requirements for various CDOs tranches are suddenly getting more stringent. The article mentions:
“The Bear Stearns hedge funds were big holders of these instruments and the news two weeks ago that the funds were in serious trouble has led to much greater concern about the valuation of CDOs of ABS [asset-backed securities] held by other funds.
According to bankers and hedge funds involved in these and similar markets, this has led investment banks to begin reassessing their exposure to funds that are investing in ABS and CDOs of ABS with borrowed money.
Matt King, analyst at Citigroup, has estimated that funds invested in CDOs of ABS are likely to see some significant increases in the amount of margin they are required to post against their investments.
This “margin” in simple terms governs the amount of leverage, or borrowed money, they can use in their investments.
For example, Mr King expects that for the safest AAA-rated slices of these deals, margin requirements would rise from about 2-4 per cent now to nearer 8-10 per cent.
At the other end of the scale, the riskiest equity tranches would see margin rates increase from 50-100 per cent, which is to say banks will not lend to funds investing in these slices of risk.
“Over the near term, the biggest risk is probably that of forced selling driven by potential margin calls or investor redemptions,” Mr King says.
“We argue that this is likely to be a big problem only for a small number of people, but that its full effects may not yet have been seen.”

In reaction to this article, Yves Smith, co-editor of the Naked Capitalism blog noted on the revised margin requirements: “The question now becomes how quickly this development will work through the system and now many players will be affected. We’ve already seen Brookstreet forced onto the shoals by margin calls; the question is how many other hedge funds will follow. The secondary effect will be that hedge funds who have subprime exposure are facing redemptions (some like United Capital Markets have halted them). They were already faced with the prospect of having to sell fund assets in a weak market to pay exiting investors; reduced leverage will only make a bad situation worse (the implicit vote of no confidence by the dealer community will make it less likely that speculative buyers will step forward). The good side is, if we believe the report in a recent issue of Bloomberg Magazine, hedge funds are smaller participants in the subprime-related CDO market than thought earlier, owning 3% of the investment grade portions and 10% of the equity tranches.”

I have read that a lot of CDO derivatives contracts are written with a Payment in Kind (PIK) recourse clause. In the context of CDOs, a PIK clause guarantees that if an obligation cannot be paid in cash, then it can be settled with the transfer of additional CDO paper. When default rates spike (as they have done recently with sub-prime mortgages) and a CDO party stops paying current interest (for lack of cash), they can hand over additional debt obligations, as a payment in kind. But what if that paper is also worthless, or nearly worthless? (This is the “double your trash back” that I mentioned.) Worthless PIK settlements could very well happen in coming months, as the US coastal residential real estate market unravels. This could get very ugly in a hurry. Changing margin regulations may make some holders of CDOs forced sellers, setting in motion a downward spiral in CDOs. If the sub-prime CDO failures start to snowball, beware! The liquidation could turn into a reverse bidding or “race to the bottom” situation, as anxious investors try to recoup something, anything from their initial investment. If and when this happens, it could make the $3.6 Billion Long-Term Capital Management (LTCM) bailout and the more recent $4.6 Billion lost by Amaranth Advisors look like minor hiccups, by comparison.

Those of you that have read SurvivalBlog since its early days will remember that I’ve issued warnings about the derivatives market in general and the credit derivatives market in particular, since late 2005. My advice hasn’t changed much. It remains: Be aware. Be prepared. Diversify. Minimize your exposure to both the real estate bubble and the credit derivatives market–directly or indirectly.

Letter Re: Supporting SurvivalBlog

Mr Rawles:
I was shocked to see that only 1% of readers have gotten a [voluntary] 10 Cent Challenge subscription. I signed up after the second week that I began reading.your blog. There is no other site on the Internet that has the same amount of in-depth info on preparedness. Nothing even comes close. I am blown away by how much knowledge is piled up in your archives. I could spend two or three hours a day searching through news sites, financial advisory websites, backpacking websites, EMT websites, gun websites, food storage websites, and so forth, and still not glean what is contained in SurvivalBlog. Ten cents a day is tiny pittance compared to what I get out of it.

Because of you and SurvivalBlog, my family is now much, much, much better prepared than it was a year ago. SurvivalBlog has tons of useful info. Anyone that can’t see that is either a fool or an idiot. I figure that SurvivalBlog has saved me hundreds [of dollars] by giving wise advice that has kept me from making some expensive mistakes in prepping. What I learned from your blog allowed my to package my own storage food (in [food grade plastic] pails) instead of buying over-priced [commercially] canned food for storage. SurvivalBlog also steered me away from radio gear that had short range and pitiful security. ([Instead,] I bought MURS band [transceivers].) The blog also directed me to some outstanding firearms training that cost very little. (The [RWVA] Appleseed range days and “clinics”.) The blog convinced me to re-prioritize my life and cut out fast food. (Which did good things for both my budget and my waistline. I’m now down two full belt notches and about ready for my third notch.) The blog also motivated me to sell off some of my guns in odd calibers (like I had a 280 Remington, a .35 Remington, and a .41 AE [Action Express]) and get standard calibers. Now that ammunition has zoomed way up in price, I have a lot more options on where to buy and what to buy. Now I have all.308 [Winchester], .30-06, .30-30, 7.62mm (AK), .223 Rem., 12 ga., .45 Auto, .357 Mag., 9mm, .22LR and .22 Mag. guns. Like another guy that wrote a few months back, SurvivalBlog also set me straight on generators. (Now I plan to get a low RPM diesel, not gas!) So I figure that in the long run SurvivalBlog will save me thousands. Ten cents a day, by comparison, is a real bargain. So here’s my personal challenge to anyone that reads this: What is SurvivalBlog really worth to you? If SurvivalBlog were to disappear, would you miss it? If you value it, then support it! – Phillip G.

Odds ‘n Sods:

Remember that there are now just three days remaining for the $500 Interceptor Body Armor (IBA) vest special from BulletProofME.com. July 12th is the deadline. Anyone who has shopped for body armor knows what a great deal $500 is for a new Interceptor vest. Don’t miss out on this deal.

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Reader Andy L. mentioned an article about the ultimate in privacy for retreats: Your own island in the Bahamas.

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MP noticed this editorial in a Seattle, Washington newspaper: Disaster’s coming: Get ready. MP’s comment: “Sure, 10 days is still a bit weak but it’s a step in the right direction over the laughable three day idea [that is promoted in the region, mirroring the guidance from most Federal agencies.]”

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Readers Michael A. and RBS both sent this piece from The Financial Times: Nestlé chief fears food price inflation.The article begins: “Food prices are set for a period of “significant and long-lasting” inflation because of demand from China and India and the use of crops for biofuels, according to the head of Nestlé.”

Letter Re: Asian Avian Flu is Still a Major Threat

Jim,
I am a regular reader with 40+ yrs of prepping and a 10 Cent Challenge subscriber. My current career is as a Hospital Staff Respiratory Therapist.
We recently had a seminar on the coming Avian Flu Pandemic that scared the heck out of me. The timeline for human to human vector is 3 to 5 years, if it follows the current rate of mutation. It will probably come out of Thailand, and with air travel, will quickly spread around the world, with entry to the US through the major international airports. With luck and area quarantines, they may be able to limit the spread.
When it hits, they expect a desertion rate of at least 30% of all services: Health Care workers, Police and Fire, even National Guard.
CDC, FEMA and individual hospitals are stocking up on supplies in anticipation of a mortality rate of 10% to 20% of infected cases. Hospitals may become armed camps to control the panic. Basic hospital services will become limited and rationed, no elective surgery, etc.
Hand washing, use of a particle mask and eye shields will be your best defense.

And that’s the good news

The world and even the USA is not prepared for such an event. It may take 3 to 6 months to develop a specific vaccine for the flu mutation, and the flu may mutate even more.
We do not have the capacity to handle the death rate. Figure bodies stored in Refrigerated Trucks, mass graves, or cremation.
We do not have the hospital beds to handle a Pandemic. We may have to go to a ward set-up again.
If you bring in a family member, you may be drafted to help provide basic care, and you may be the best way to have good care for that person. The professional staff will be overworked.

The main killer for the Avian Flu is Acute Respiratory Distress Syndrome (ARDS). ARDS requires intubation and use of a ventilator for survival. We do not have enough ventilators, and we are being inventive and are thinking outside the box for this one. We may have to “gang” patients on Ventilators, or recruit people to hand squeeze AMBU bags to keep people alive.
We may have to “Triage” patients and use the available resources to try to save the salvable. Factors such as chronic illnesses, morbid obesity, or even advanced age may resign patients to the “sink or swim” ward. We staff may have to do this to our own friends or family.

Contrary to my own survival instincts, I intend to be on the job when it hits. They tell us that the staff may take double the percent casualty rate of the general populace. I will keep you updated to any useful information that comes my way. – Sput

Letter Re: How and Why to Get Physically Fit

JR-
With regard to the article on getting into physical conditioning and buying used exercise equipment, here is a general rule for readers to remember. They are like room heaters, air conditioners, pools, and lawn mowers etc. They are very seasonal. I have friends who work at thrift stores, and I can assure you the time to buy any exercise equipment is during the warmer months like right now [in the northern hemisphere]! The Ski Machine you refer to that costs almost $1,000 for the higher end models can be had for song during the summer months. Sometimes pennies on the dollar over the cost of buying new. In fact, I know of personal experiences where one was sold for less than a dollar to a person who was willing to ask about a unit sitting out back of the store. It was in almost brand new condition.
In the summer months, when everyone is physically active and the days are longer, very few folks are thinking about exercise. Folks are too busy enjoying their summer months to exercise indoors. These “junk” and thrift stores generally cannot sell them and don’t want to fill up valuable floor space with retail “dogs” when there are items that will move fast. With all the garage sales, flea markets, and yard sales, that are going on the supply is great and demand is low. They don’t tend to sell well there either so they accumulate at the local thrift stores as donations. This rule of thumb also applies to treadmills, weight benches, and other high quality seasonal items. One thing to remember about this kind of equipment is that everyone has great intentions about exercise equipment but very few of us ever really dedicate ourselves to our lofty goals. As a result, why ever buy new equipment, when you can let someone else absorb the new sticker price and second if you decide to stop or lose your motivation, you wont be stuck with buyers remorse.
With respect to thrift stores and the like, each one is different so you may have to find the right place to do business with. Don’t be afraid to make friends with the store workers and let them know what you are trying to find. Above all else be sincere. Then visit the store and remind them that you are still on a quest. Depending upon the circumstances, it’s generally just a matter of time and patience before what you are looking for, finds you. Also don’t be afraid to reward the employee or manager with a cold pop or a tip (if allowed) once you take delivery. This is very much appreciated by the employee and you will be remembered the next time you are on another “quest”- since so few people will ever display this kind of courtesy or generosity.
This same rule of seasonal supply and demand applies to other items you will need like clothing, insulation, building supplies etc,. Buy your necessities in the “off season” and be patient and most times you will find what you are looking for at a very reasonable price. That is the heart of the concept of preparedness on a budget. Tis Better to be the Ant with a mindset for what is coming than to be a Grasshopper caught up only in the moment with fiddle in hand.
A local auctioneer always sums it up best during his sales pitches before he starts the bidding on a piece of exercise equipment at his sales: “Folks, I have been in this business for over 30 years and I have yet to sell a worn out piece of exercise equipment!” Food For Thought. Keep it in mind the next time you are looking to buy “used” exercise equipment. – RBS

Odds ‘n Sods:

I recommend market watcher John’s Mauldin’s astute observations on the derivatives implosion and the tremendous downside risk in sub-prime Collateralized Debt Obligation (CDO) trading, titled “Where is the Real Risk in the Subprime Debacle?” It can be found in this PDF. (BTW, I highly recommend subscribing to John’s free weekly E-letter.) Meanwhile, Bloomberg has more news on troubled derivatives: United Capital’s Devaney Halts Hedge Fund Withdrawals

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Commodities market signs of the times: Keg Thefts Rise with Metals Prices, and Power line theft leaves South Africa in dark

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From a recent Daily Reckoning e-newsletter: “And here’s the latest mortgage scam – ‘equity stripping.’ Of course, equity stripping is what homeowners have been doing themselves for more than 10 years. Until the early ’90s, the typical homeowner owned nearly 70% of his house, free of debt. Now, the figure is only 52%. But now, as the housing slump deepens, more and more homeowners are faced with losing their houses. The American Bankers Association says that 19% of sub-prime mortgages are either delinquent or already in foreclosure. This has created a whole new mini-industry – helping people save their homes. Fast-moving finance companies read the published lists of houses entering the foreclosure process. They visit desperate owners, offering to restructure mortgages in order to prevent foreclosure. Then, they get owners to sign the houses over to the finance company, which strips out any remained equity – and then some. When the homeowners finally realize what has happened, they find themselves even deeper in debt…and the finance company no longer answers its phone.”

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We note the latest entrant in the Blogosphere with a penchant for preparedness: SHTF Daily. Check it out.

Jim’s Quote of the Day:

"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money." – Daniel Webster

Note from JWR:

If you find what you read in SurvivalBlog useful, then please become a 10 Cent Challenge subscriber. These subscriptions are entirely voluntary. Presently, only 1% of readers who visit at least once a week are subscribing. Our goal is 5%. For details on how to subscribe–including an anonymous method for those of you that keep a very low profile–see the 10 Cent Challenge Web Page. BTW, for those of you that have already subscribed, please don’t forget to mark your calendar for your annual renewal. We don’t send out e-mails to pester anyone about renewing. Unless someone opts for a PayPal recurring payment, renewals are initiated solely by subscribers. Thanks!

Letter Re: Advice on Pistol Caliber Carbines

Jim and Family:
I just found out that I can get a 16″ rifle here in Hawaii. I was considering an Uzi but am uncertain about the differences between model A and B. Also, the stamped metal doesn’t excite me, but I think having such a gun fills an important role in my armory.

For travel out of the stronghold, it takes the place between carrying a .223 or .308 rifle suitable for home defense and reaching out and touching someone and walking about with a handgun.

For travel when the world is in quasi-collapse and I want more rounds and accuracy than a pistol but don’t want to use a full assault rifle. I like the idea of an Uzi type gun, tucked under my jacket. Lightweight is also a plus. If the world becomes lawless, the barrel could also be shortened. So, what gun do you recommend? Uzi A, B or other? Thanks guys. – Fred in Hawaii

JWR Replies: I do not recommend full size semi-auto Uzis. In relation to the power of the cartridge that they shoot (the 9mm Parabellum pistol cartridge) they are quite over-sized and heavy. A Linda, TEC-9, or a Mini-Uzi is actually more practical if you want a high capacity 9mm with a fairly long sight radius. If you want a semi-auto 9mm carbine, then the Marlin Camp Carbine is actually a better choice. For that matter, an M1 Carbine is more powerful, and nearly as compact as an Uzi carbine (at least when one is in a Choate or M1A1 replica folding stock.)

I generally try to steer my consulting clients away from 9mm, .45 ACP or even .30 M1 carbines, except if they are strictly relegated to secondary/small game/training use. As previously discussed in SurvivalBlog, long guns chambered in pistol calibers lack penetration and stopping power. They generally give people a false sense of security. A semi-auto Uzi has a high quotient for drama, but is not a very practical gun. A .223 M4gery is far superior and versatile, capable of dealing with two-legged predators out to 300 meters. (That would be quite a stretch for a 9mm carbine!) If compactness is your primary goal (rather than long range accuracy) some pistols chambered in intermediate rifle calibers include the OA-93 pistol, the Kel-Tec PLR-16, and “Krinkov” AK pistols. Just be forewarned that they are quite noisy and have a big muzzle flash!

You have a unique situation in Hawaii, since “pistol” high capacity magazines are banned there. This is quite a limiting factor. If I understand the Hawaii magazine ban law correctly, if there is any pistol made that uses rifle magazines, then those rifle magazines are also banned. For example, there are currently pistols made that use AR-15 and AK-47 magazines, and there were also a few hundred pistols made back in the 1970s that used M1 Carbine magazines. (The Universal “Enforcer” pistol.) So 10+ round M1 Carbine magazines would be classed as high capacity “pistol” magazines in Hawaii. I did some searching and found this in a digest of state gun laws at The Hawaii Rifle Association web site: “Hawaii state law prohibits greater than 10 round detachable pistol magazines (including rifle magazines capable of use in any pistol, such as the AR-15/M16, M1 Carbine, H&K carbine, Thompson, and aftermarket Ruger .22 magazines) unless blocked to hold 10 rounds or less and ‘not readily restorable.’ Possession of illegal magazines is a misdemeanor, and possession of a handgun with one inserted is a class C felony.” Based on this, you may have to do some more legal research and plan accordingly to stay within the confines of Hawaii’s draconian gun laws.

Ethical Preparedness for WTSHTF, by SF in Hawaii

What (if anything) are you willing to kill for post-SHTF? To consider this question, first let’s start with a quote on justifiable homicide from Wikipedia:
Under early Athenian law, it was considered justifiable homicide to kill an adulterer caught in the act or a burglar caught in the act at night… in eighteenth century English law , it was considered a justifiable homicide if a husband killed a man “ravishing” or raping his wife (Blackstone, Wm. at p. 391), but modern law treats this as only a circumstance that will mitigate murder to a conviction for manslaughter . In other words, the socialization of modern men is supposed to result in less violent responses to provocations.
… in some cases in the United States . A homicide may be considered justified if it is done to prevent a very serious crime , such as rape, armed robbery, or murder. The assailant’s intent to commit a serious crime must be clear at the time. A homicide performed out of vengeance, or retribution for action in the past would generally not be considered justifiable.
In cases of self-defense, the defendant should generally obey a duty to retreat if it is possible to do so (except from one’s home or place of business). In the states of Florida and Louisiana , and other Castle Doctrine states, there is no duty to retreat. Preemptive self-defense, cases in which one kills another on suspicion that the victim might eventually become dangerous, is considered criminal, no matter how likely it is that one was right. Justifiable homicide is a legal gray area, and there is no real legal standard for a homicide to be considered justifiable. The circumstances under which homicide is justified are usually considered to be that the defendant had no alternative method of self-defense or defense of another than to kill the attacker.

There are two questions to ask ourselves. One, if SHTF happens gradually and some law and order still exists, how might the standards of justifiable homicide change? Secondly and more important, in our own minds and hearts, what degree of force are we willing to react with in difficult situations. Certainly if today a group of men stole your picnic basket you wouldn’t open fire against them, even if your wife made your favorite bacon, lettuce and tomato sandwiches. Now let’s change the scenario. It’s SHTF time and you wake to find a group of armed strangers stealing your food? Now how about your next door neighbor stealing your food for his starving kids? You’ve already been charitable and now he’s getting into your deep larder, but you used to drive his kids to the local soccer match where they played together.

Would you shoot a black masked, private mercenary thug that the governor called in and deputized that tried to disarm you forcibly? How about a well-meaning young kid in the National Guard who, pointing a gun at you, told you he had orders to disarm you (of your only weapon), contrary to the constitution and the needs of your family’s protection during a Katrina style disaster. You know that rapists and murders will be out at night while he’s safe asleep in his barracks. He’s too young and stupid to know what he’s doing is wrong. Still, there you both are. How about the local cop who got the same order. You’ve been fishing with him. He’s a good man, except for the fact that he’s about to violate his constitutional oath.

It’s better to go through these moral exercises in advance and have your line in the sand already drawn. Of course we cannot know what we will really do when confronted with difficult choices, but freezing up at the moment of truth while we work out our ethical dilemmas is not the best option. We need to know what we are willing to do, and how far we are prepared to go in advance so that when the time comes, we can act decisively, already having made peace with the righteousness of our decision. – SF in Hawaii

JWR Adds: I am a strong proponent of storing extra wheat, rice, beans, and honey to dispense as charity. Buy as much as you can afford. Shop around for the best prices, buy in bulk, and pack it properly to prevent spoilage and the ravages of vermin (as described in the“Rawles Gets You Ready” preparedness course.) Bulk foods also make good barter items for paying neighbors that might become your employees in the event of TEOTWAWKI (farm hands, security guards, et cetera.)

Odds ‘n Sods:

Novelist Michael Z. Williamson sent us a link to a PDF on Combat Loads in Afghanistan. Mike’s comments: “It shows march, approach and combat loads of troops in Afghanistan, for reference for building bug out bags. Obviously, a civilian bag will be lighter on batteries and ammo, and heavier on food, water and shelter. But this is a handy reference for comparison.”

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A pointed history lesson from the Von Mises Institute: Inflation and the French Revolution–The Story of a Monetary Catastrophe

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From The Chicago Tribune: Layoff fears part of ‘new normal’ — Affluence, college education no protection from job market that cycles quickly through workers. Every family should develop a home-based business that they can fall back on, in hard times.

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I spotted an interesting thread over at The Oil Drum with some observations from Uganda, on improvised battery charging. My comment: Every family should at the very least have a small photovoltaic panel and a “jump pack” battery, for recharging small NiCd and NiMH batteries. (See the recent thread on SurvivalBlog for sources.) As a minimum, you need to be able to recharge batteries for your MURS walkie-talkies, intrusion detection sensors, and night vision gear. These are essential for retreat security!

Notes from JWR:

The high bid is now at $210 in the SurvivalBlog benefit auction for a batch of 10 brand new original Imperial Defence SA-80 (AR-15) steel 30 round rifle magazines. The auction ends on July 15th.

Today we present another article for Round 11 of the SurvivalBlog non-fiction writing contest. The writer of the best non-fiction article will win a valuable four day “gray” transferable Front Sight course certificate. (Worth up to $2,000!) Second prize is a copy of my “Rawles Gets You Ready” preparedness course, generously donated by Jake Stafford of Arbogast Publishing. I will again be sending out a few complimentary copies of my novel “Patriots” as “honorable mention” awards. Round 11 runs for two months, ending on the last day of July. Remember that articles that relate practical “how to” skills for survival will have an advantage in the judging.

Cutlery Considerations for TEOTWAWKI, by Gage

In a post-TEOTWAWKI environment many of the services we take for granted now will be nonexistent. We will be growing or own produce, butchering our own livestock, cooking our own food, performing our own minor surgeries and protecting or own lives. We will have to rely on our own skills, knowledge and equipment. Of all the tools available to humans none has more importance than a wide selection of cutlery. History has revealed to us six simple machines that revolutionized the world: the wheel, the lever, the pulley, the inclined plane, the screw, and the wedge. As you may have guessed the wedge is an example of the knife. If you were to keep track of every time you, or a mechanical device, used the simple wedge (knife) to accomplish a task for one day you would surely be amazed. In my opinion acquiring a wide selection of cutlery should be considered a top priority in any preparedness plan.
Contrary to the propaganda expelled by some of the mass marketing knife manufacturers there is no one “do it all” knife. There are hundreds of knife designs, shapes, lengths, grinds, etc. They all serve a specific purpose. Some can overlap and do double duty but to be truly efficient you should chose a knife specifically suited for an intended task. Let’s look at what those tasks might be and some suggestions to consider when purchasing your survival cutlery.
Butchering: When it comes to butchering domestic livestock you can get by with three basic knife designs: a straight or curved 6” to 8” boner, a 6” skinner with an upswept point and a 8” to 10” breaker. These should be stainless steel with a synthetic handle. The stainless blade will hold up to the acids and blood from the carcasses and the synthetic handles are much easier to hold when your hands are bloody. Victorinox, sold by Forschner, are superb knives at very reasonable prices. There are other well-made blades out there, but these are the industries standard.
Kitchen Knives: Here you will want a full set of 5” steak knives, 3 or 4 paring knives, a 10” chef’s knife, a 8” scalloped edge bread knife, and a few 6” to 8” boning knives. I would also suggest a good quality game shears for disjointing wild (or domestic) small game and waterfowl. Again, I highly recommend stainless steel in the 440C series for corrosion resistance. Blade grinds for kitchen and butchering knives are generally based on a flat grind and work superbly.
Hunting: There are about a hundred knife designs sold under the heading hunting knives and my suggestions are just that, my suggestions. To help make things a little easier, I will give you too basic blade designs to choose from: a drop point or a clip point. A drop point is as it sounds, the spine of the knife drops slightly from the back edge to the point. It would be safe to say this is the most widely made hunting knife design in history. The clip point design has a shallow swedge (false edge) running an inch or two back from the point and is seen in many ‘so called” bowie knives. The clip point configuration makes piercing cuts a little easier but the choice is yours as both designs make for an excellent hunting knife. The blades length should be a least 4”. Blade grind should be either a flat or hollow grind. Both grinds make for excellent slicers that are easy to sharpen as well as strong. A high carbon blade with a mirror polish and Rockwell rating of 58-60 should serve you well for a lifetime.
Next you should get a bird and trout knife. If you have ever tried to skin a squirrel or dress a partridge with a full size hunting knife you will know frustration. A small 2” to 3” thin bladed knife, possibly with a ring to slip over your finger so you don’t have to set it down while skinning will be worth its weight in gold and yet cost next to nothing.
Lastly I would purchase two filet knives, one around 5” and the other around 10”. Fishing is not only an enjoyable pastime, but if times get tough could be an untapped source for the survival larder.
Rescue: Every vehicle you own should have a rescue knife secured to the steering wheel with a lanyard of some kind. The characteristics of a good rescue knife include a rounded or sheepsfoot type tip, a serrated edge, and possibly a glass breaker in the end of the handle. The serrated edge makes short work of seat belts and the rounded tip adds safety when under duress or injured. Keep this secured to the steering wheel so it is always within reach and not flying around the interior. There are several good one-handed opening rescue knives available if that style suits your needs.
Brush Knives: After the Schumer hits the fan you will be in need of a few good brush knives. From constructing hides and clearing shooting lanes to harvesting food and stripping logs. First off purchase a couple of machetes. 20” or so will suffice and set you back less than $20 a piece. Next you can’t go wrong with a Kukri. They will do what the machete can’t, namely cut thicker, harder stock as well as double as an excellent draw knife for debarking and shaping logs and the like. The kukri also works wonders as a cleaver when butchering small game and fowl for the freezer. “Cold Steel” carries both the machetes and kukris at affordable prices and they are superbly made.
Camp/Utility Knives: Knives under this heading are generally in the 6” to 8” range, made of high carbon steel with a flat grind for strength. Don’t get a blade with too high a Rockwell rating as you will be sharpening this knife a lot. A thick, stiff spine is needed as this knife will be used for everything from pounding stakes to shaving [fire starting] fuzz sticks. A Rockwell rating of 54 to 58 would be ideal. Also one of the baked on finishes that are widely available would be in order for this workhorse.
Fighting Knives: A true fighting knife is inherently designed differently than most other knives. First let me say, any knife can be a fighting knife in the hands of a desperate man or woman, but some are better suited than others. A well thought-out fighting knife has a few definite attributes. One is the handle, it should be well fitted to the hand and of a material that allows a strong purchase when held. Next the weight; it should be light enough to be fast in the hand, but heavy enough to cause impact damage when hacking or if a less than lethal technique is required. The length of the blade is usually 6” to 10”. A shorter blade will be fast but lack the heft for deep penetration and a longer blade may be slow and unyielding. It will be your choice as to blade configuration. There are those who will opt for the double edge dagger style and those who swear by the single edge. It’s our call. One thing I cannot stress enough about the fighting knife. Do not use it for anything but fighting. This knife should be dedicated to one job, riding on your hip next to your handgun. If when you should ever have to use it you do not want it dulled from clearing brush or chipped from digging roots.
Personal/Pocket Knives: Personal knives fall under a separate heading. This will be the knife/or knives you carry everyday. Mine is a one hand opening tactical folder, a three bladed stockman, and a Leatherman wave. Yours could be a neck knife, a belt knife or a pocketknife. You may like a folding knife in a sheath or a two bladed trapper. Personally I have dozens of pocketknives from several different knife makers. Buck, Case, Gerber, CRKT, Cold Steel, Browning, etc. all ride with me at different times. This leads me to another suggestion. Pocket knives make excellent barter items. If my services were rendered I for one would accept a nice Case Trapper over a few pre-1965 quarters any day. It just makes good sense to stock up on pocketknives now for future use. If you frequent flea markets, garage sales, and the like you can come by these gems at very reasonable cost. Look for brand names such as Case, Winchester, Buck, Camillus, etc.
Tactical Knives: In 1982 Spyderco introduced a new knife design called the Clipit. It was unique in the fact it had a hole in the top of the blade so it could be opened with one hand, a two step serrated edge and a metal clip that allowed it to be attached to a pocket, belt, etc. Today almost every knife maker offers a version of this design. I urge you to acquire at least one of these knives and become familiar with its function. There is truly a no more practical, and tactical blade configuration out there. To be able to clip a blade almost anywhere and open it with one hand as fast as a switchblade, with out the legalities, makes this my number one suggestion.
Sharpening: Now that you have a basic understanding of your cutlery requirements we need to address how to keep them sharp. First buy a Norton Tri-stone cradle. This unit consists of three India stones. One course, one medium and one fine. With these stones you will be able to sharpen almost anything. Next purchase a diamond whetstone and a diamond tapered rod for touching up your serrated blades. The diamond whetstones come in handy folding versions that are perfectly suited for your bug out bag or glove box. I suggest you purchase John Juranitch’s book or video called The Razor’s Edge. This man is a true expert on the subject and you will learn his time-tested secrets. Also, get in the habit of carrying a couple small 2” by 6” sheets of 320 or 400 grit sandpaper in your wallet. These are very handy for touching up a dull blade at virtually no cost. My final suggestion on sharpening is to acquire a good 10” to 12” butchers steel. Many knives that seem dull do not need to be resharpened on a stone, but simply stroked on a steel. If you were to look at the microscopic edge of a dull knife you would likely see the edge is simply rolled over to one side. If you were to lightly stroke the knife down the steel as if you were trying to shave a thin sliver off, you could straighten the edge back into serviceable function.
Miscellaneous: Finally I suggest you acquire a good quality multi- tool and/or a Victorinox Swiss Army knife. They are indispensable. A full sized hand meat saw as well as a cleaver. A dozen or so box cutters, a couple scalpels in sterilized packages and a straight razor. (The Bic disposable razors will run out fast.) Finally, one single and one double bit axe, a good hatchet, and a splitting maul. These are my suggestions to get you started, but you may have other ideas as to what you may need for your particular situation. Remember, the best knife is the one in your hand when you need it.

JWR Adds: There is a trade-off between quantity and quality in acquiring cutlery. I’d rather spend $600 and buy a dozen Cold Steel or CRKT knives instead of just one custom-made knife for the same money. In survival planning there is great value in redundancy, to allow for eventual loss, theft, or breakage of tools, and to provide spares for barter and charity. Having fairly inexpensive spares also means that you will have a knife when and where you need it. For example, here at the Rawles Ranch, in addition to a full-size hay cutting scythe, we also have five inexpensive hand scythes that cost a total of $30. Likewise, we habitually keep both a modestly-priced tanto style Cold steel or CRKT folding knife as well as a Leatherman tool in each of our vehicles and in each of our G.O.O.D. kits. But please don’t take the emphasis on quantity to an extreme. Be sure to avoid the “bargain” mainland Chinese junk. You need cutlery that is dependable.