The Only 4 Strategies That Actually Protected Capital Since 1929
How "Safe" Dividend Stocks Get Crushed in Every Crash
So, three weeks ago, I was updating my depression-era models when I noticed something that didn't make sense.
Utilities—the ultimate "defensive" stocks—fell 89% during the Great Depression.
Eighty-nine percent.
That's worse than the overall market.
The very stocks people bought for "safety" destroyed more wealth than the speculative garbage.
I spent the next couple of days digging through data to understand why.
What I found challenges everything we've been taught about defensive investing.
Let me walk you through it.
Why "Defensive" Stocks Aren't Actually Defensive
They're only defensive in normal recessions.
In a depression, three things happen that turn these "safe" stocks into wealth destroyers:
1. The Debt Spiral
Utilities carry massive debt loads.
Here's why that matters:
ConEd today: $15 billion in debt, $20 billion market cap
Interest coverage: 2.5x (barely safe)
What happens in depression: Revenue drops 30%, interest coverage goes negative.
Result: Dividend cut, stock crashes, bondholders take over
I watched this exact scenario play out with GE in 2008.
"Safe" dividend aristocrat became a penny stock because debt doesn't care about your dividend history.
Let me show you the actual numbers from 2008-2009:
The pattern is always the same: Debt-heavy "defensive" companies can't maintain dividends when revenue drops.
2. The Demand Destruction
Everyone assumes people always need electricity and toothpaste.
True.
But here's what actually happens:
Normal times: Average home uses 900 kWh/month
Depression: People cut usage to 400 kWh/month
Utility revenue: Down 55%
But their costs: Only down 20% (infrastructure is fixed)
During the 1930s, electricity usage fell by half. The utilities still had to maintain the grid.
The math doesn't work.
Let me give you a modern example.
During Greece's depression (2008-2016):
Greek Utility Company (PPC):
Electricity demand: Down 35%
Bad debts: Up 400%
Stock price: Down 97%
Dividend: Eliminated entirely
This wasn't 1929.
This was five years ago in a modern economy. The playbook failed completely.
3. The Valuation Trap
People pay premium prices for "safety" right before that safety evaporates.
Utilities sector P/E: 18x
Historical depression P/E: 6x
Implied downside: 67% just to reach historical norms
Here's the psychology: When markets are good, investors pay up for "quality." When depression hits, they only care about survival.
Those premium multiples vanish overnight.
The best-performing assets in depressions aren't the ones that seem "safe." They're the ones that benefit from the chaos.
After studying every major crash since 1871, I found something fascinating.
Let me show you the data:
See the pattern?
Government bonds and contrarian strategies crush everything else.
What Actually Protects Capital (And Why)
After analyzing every major downturn, only four strategies consistently protected capital:
Strategy 1: Long-Duration Government Bonds
Why it works:
In a depression, deflation takes over. Cash becomes more valuable. Interest rates plummet. When that happens, existing high-rate bonds explode in value.
The math:
You own a 30-year bond paying 5%
Depression hits, new bonds pay 2%
Your bond is now worth 40% more (duration math)
Plus you're getting 5% while everyone else gets 2%
Real example: In 2008, long-term Treasuries returned +40% while stocks crashed 37%. That's a 77% spread.
But here's what's really interesting.
Let me show you the full calculation:
30-Year Treasury Duration Math:
Duration: ~20 years
Rate drop: 3% (from 5% to 2%)
Price gain: 20 × 3% = 60%
But convexity adds another 10%
Total return: 70% + your 5% coupon
How to implement:
Buy 30-year Treasuries directly (4.5% current yield); Or use TLT ETF for easier access
Alternative: Treasury strips (zero coupons) for maximum sensitivity
Allocation: 25-30% of portfolio
Pro tip: Buy actual bonds, not the ETF, if you can. You can hold to maturity and ignore price swings.
Strategy 2: Selling Volatility at Extremes
Why it works:
Fear creates mispricing. When the VIX hits 40+, option premiums go insane. You can sell insurance at 10x normal prices.
The math:
Normal times: Sell a put for 1% monthly premium
Panic times: Same put pays 10% monthly premium
Your risk is actually LOWER (you're buying at depressed prices)
Real example: March 2020: Disney at $85
Sold April $80 puts for $8
Return: 10% in 30 days
Worst case: Own Disney at effective price of $72
But let me show you the full strategy I used in March 2020:
My Actual March 2020 Trades:
Microsoft: Sold $130 puts for $12 (was at $140)
Apple: Sold $220 puts for $18 (was at $245)
JPMorgan: Sold $70 puts for $9 (was at $80)
Results: All expired worthless; Collected $39,000 in premiums; 45-day return: 28%; Annualized: 224%.
The key insight: You're not gambling. You're selling insurance when premiums are highest and setting strikes at levels where you'd happily buy anyway.
How to implement:
Wait for VIX above 35 (happens every 2-3 years)
Focus on companies with fortress balance sheets
Sell puts at 20-30% below current prices
Use 20% of portfolio maximum
Keep rest in Treasury bills as collateral
Warning: This requires option approval and discipline. Start small. Paper trade first, this is a must.
Strategy 3: Government-Backed Revenue Streams
Why it works:
Governments print money for two things even in depressions: Defense and infrastructure. Companies with locked-in government contracts get paid regardless.
The opportunity: European defense spending is accelerating:
2023: €240 billion
2025: €380 billion
2030 target: €500 billion
But European defense stocks trade at 1/3 the valuation of U.S. peers.
Real example: Rheinmetall (German defense):
14 new contracts in 6 months
10-year revenue visibility
Trading at 7x sales vs 21x for U.S. peers
My deep dive on the European defense opportunity:
Why Europe, Not U.S.?
Valuation gap: 3x cheaper than U.S. peers
Spending surge: NATO commitment = guaranteed growth
Currency diversification: Euros hedge dollar risk
The income amplifier:
Here's where it gets beautiful. These stocks have options markets.
Watch this:
Example with Saab:
Buy 100 shares at €45 = €4,500
Sell 2-month calls at €48 = €150
Annual option income: €900 (20%)
Plus dividend: €95 (2.1%)
Total yield: 22.1%
How to implement:
Buy European defense ETF (EUAD) or individual names
Immediately start selling covered calls
Target strikes 5-8% out of the money
Roll every 45-60 days
Allocation: 20-25% of portfolio
Strategy 4: Buying Dollars for 88 Cents
Why it works:
In market panics, closed-end fund (CEF) shares often trade well below the value of the bonds or stocks they own. Nothing is “wrong” with the underlying portfolio—investors are just dumping the wrapper. When fear fades, the market price drifts back toward net-asset value (NAV) and you pocket the spread.
The math today:
Example: Gabelli Dividend & Income (GDV)
Portfolio value (NAV): $27.85 per share
Market price: $24.36
Discount: -12.2 %
If the discount merely narrows to -5 %, the price would rise ~8 % even if NAV goes nowhere.
Add GDV’s 6.9 % annual distribution, and you’re collecting income while you wait.
Real-world opportunity set (as of 22 May 2025)
Note: deep-value screens that once flagged 15-20 % markdowns now turn up few hits; the average taxable-bond CEF trades around a -7 % discount versus -18 % at the 2009 bottom.
How to implement:
Screen weekly for discounts ≥ -12 % using CEFConnect or brokerage screener.
Favor fixed-income CEFs with ≤ 30 % effective leverage to reduce NAV swings.
Buy systematically—add a slice when the discount widens by at least 2 points.
Avoid destructive payouts: skip funds where >30 % of the distribution is return-of-capital.
Allocation: keep deep-discount CEFs in the VADER sleeve at 10–15 % of the total portfolio, recycling proceeds into T-Bills once the gap snaps shut.
During the 2008–09 crash, the average taxable-bond CEF sold 18 % below NAV, and many single funds touched -30 % to -40 %.
Investors who layered in then earned 50-100 % as discounts normalized, plus double-digit cash yields along the way.
This is it for today.
The strategies that actually work aren't complicated.
They're just different from what Wall Street sells us.
Long bonds protect against deflation.
Options let you monetize fear.
Government contracts provide real safety.
Closed-end discounts create mathematical advantages.
Master these four strategies, and the next crash becomes your opportunity.
I’ll be back tomorrow with a fresh batch of covered-call opportunities for our Premium subscribers.
Thank you for tuning in today and supporting my work!
Mike Thornton, Ph.D.
This analysis is based on historical data and mathematical relationships. Not personalized advice. Depressions are rare but devastating events. All investments carry risk. Consult a fiduciary advisor before implementing any strategy.
I went back to re read this strategy. What about buying gold? Silver ratio is currently out of balance, too.
Please explain more of the Treasuries purchase process. What would be the timing to sell the Treasuries?