In 2009 I walked away from my first business, it was a total loss. Literally and figuratively. I lost everything, and it was a very humbling experience.
I’m not an economist but I have been a business owner for 12 years, and prior losses have taught me to pay attention to the signs. Executives and owners who don’t take the time to read the economy with an eye toward future trends end up like Toys R Us and Blockbuster — formerly billion dollar companies but now just case studies in business schools of what not to do.
The problem with most recessions is being hard to predict when they will happen, and most people don’t pay attention until it’s too late. Then they act irrationally and start re-arranging deck chairs on their own personal version of the Titanic.
Traditional economic models use to rely on rational behavior, but people don’t act rationally. Behavioral economist Richard Thayer explains this well in his book, Misbehaving. People buy Bitcoin at $19k and then sell when it drops below $10k and don’t see opportunity in buying it as $6k. Buy high sell low. The people that made a fortune in Bitcoin didn’t jump on the trend; they were in it years before it went mainstream.
A few weeks ago I posted a short note about the coming recession on my Twitter and Instagram (@BrandonTWebb) was met with immediate skepticism.
Some basic warning signs:
- Declining Real estate sales (especially luxury). Real estate is always one of the biggest tells.
- Turkey’s economy is spiraling.
- Greece’s bailout is over, but their economy is still debt-ridden and in trouble.
- China’s economic growth has slowed from 10% per year to 5%.
- Bricks and mortar retail is taking a beating. Just have to look around at ground floor retail vacancies in any major city in America to know this.
Adversity always creates opportunities.
So we can embrace what we know is coming and prepare for it. I’m not an economist or financial adviser. However, I can share from my own experience. Here’s what I am doing to get ready.
First, in any recession, cash is king. Start saving as much as you can. If you don’t save a portion of what you make you’re living a lifestyle you can’t afford, period.
I think Crypto is a great place to be now. I’m not a crypto expert, but my best friend Kamal Ravikant and his friends are. I think Bitcoin will see a huge increase in value so keep buying Bitcoin when it dips below $6.5k. The people that think Bitcoin was a bubble are mistaken, it was driven to new highs because of mainstream adoption. Supply and demand drove it to $19k, and now it’s stabilized, and ready to go up in value again. I’ve also made several crypto investments. Opportunities like this only come around a few times in any lifetime. Crypto is like the Dotcom boom; fortunes will be lost and made.
Save cash to buy real estate. I love real estate as an investment. For you veterans, it’s a great time to use your VA home loan. I used to get laughed at when I tried to use this loan in California pre-2008 crash but, when the bottom dropped out real estate agents were begging for a VA home loan offer because they knew it was a good loan, backed by the U.S. Government.
I have personally sold out of all my positions in the stock market for cash on the sidelines. I’m just holding it in short-term CDs. Semi-liquid and the only penalty for early withdrawal is lost interest, no real penalty for having money on the sidelines that will earn much more when it’s well placed during the recession.
Speaking of government-backed loans, for anyone who wants to start a business, the SBA lending programs are incredibly underutilized. Where else can you borrow most of the money required to start or buy a cash flowing business? There are so many boomers, who just want to sell their baby to someone who will take good care of it.
I think it’s also worth looking outside the US to buy real estate when the bottom drops out; the dollar is much stronger in markets like Italy, Portugal, Germany, and Croatia to name a few. Italy has some of the best mortgage programs I’ve seen. You can buy a home with 40% down, below 2% interest (current rates) on a 15-year mortgage.
Everyone has a different situation but no matter what your income level, I hope this helps you think about how you can prepare and what opportunities you can seize when the recession comes because there will be many.