We’re a little late with this week’s muse … we’ve been busy finishing up an EPIC collection of interviews for our soon-to-be-released COVID-19 Crisis Investing Webinar Series.
The original plan was to do a simple webinar with a collection of our big-brained friends. It turned into a MUCH bigger undertaking … in a GREAT way.
Obviously, there’s a LOT happening in the economy and financial system right now …
… and the issues are much deeper than debates about wearing masks … or whether tearing down statues falls under the heading of peaceful protests.
Meanwhile, as Americans head into our Independence Day celebration, there’s a lot to think about … both at the macro-policy level and the micro-investing strategy level.
Remember … your business and investments operate inside a complex, yet delicate ecology made up of people, resources, organizations, policies, procedures, and a physical environment which sometimes tosses a curveball.
Like your body, this ecology is a finely tuned machine … and though it’s often flexible and resilient … it has its limits.
Injury, disfigurement or worse are often on the other side of exceeding limits. Pain is usually the telltale sign you’re approaching the danger zone.
Ignoring the warning signs almost always ends badly. Yet even mature adults revert to childlike “covering their eyes” trying to hide from scary realities.
You can ignore reality, but you can’t ignore the consequences of ignoring reality.
Of course, pessimists only see the downside and are often paralyzed.
Optimists see only the upside … and sometimes get blindsided by dangers which are obvious in hindsight. We know. We’ve done it.
As real estate investing legend, Sam Zell says … the secret to success is the ability to pursue the upside while keeping the downside in view so it can be managed.
In other words, Sam Zell is a realist … which is probably an appropriate word for a successful real estate investor.
Our world is FULL of downside right now. Pain is everywhere.
It’s fairly obvious that people, businesses, markets, financial systems, and even society itself are all approaching their limits.
Will they bend or will they break? If they break, what does that look like? Do YOU have a plan?
Not only are those frightening contemplations, they’re hard work.
But if you love the freedom to pursue opportunity, own property, build wealth, and retain and enjoy the fruits of your efforts, it’s hard work you’ll need to do.
“Most people do not really want freedom, because freedom involves responsibility, and most people are frightened of responsibility.”
– Sigmund Freud
“If you don’t design your own life plan, chances are you’ll fall into someone else’s plan. And guess what they have planned for you? Not much.”
– Jim Rohn
“Power over a man’s subsistence is power over his will.”
– Alexander Hamilton
(That last one is a little disturbing in a “lockdown” world …)
The challenges all freedom-loving entrepreneurs and investors face in this current crisis are multi-faceted but can be distilled into a few macro and micro components.
In the macro, this could be the endgame for the 49-year experiment of a global debt-based financial system.
Or maybe it’s just a bigger crash on the way to some future endgame.
Most of the bright folks we’ve talked to think the system most of us have operated in for virtually our entire lives is dangerously close to collapse and reset (again) …
… or perhaps even full-blown replacement.
All of which begs the questions … what’s going to happen in the macro and how do you prepare in the micro?
Of course, no one knows what’s going to happen, so it’s important to analyze and anticipate possibilities and probabilities.
It may seem complicated, but it’s really a simple, though potentially catastrophic, sequence of events.
It’s important to be mindful of where we are in the process … and how likely we are to advance the next level of “yikes”.
The health crisis led to the economic shutdown, which has the potential to create a financial system crisis or collapse.
So the Federal Reserve is risking a currency crisis (or collapse) by printing many trillions of dollars trying to stop it.
Will they succeed? And if they don’t, when will we know and how will it impact all of us?
More importantly, what can we each do to prepare for a worst-case scenario?
These are the issues concerned investors are wrestling with … and the subject of our conversations both on and off the mic with our COVID-19 Crisis Investing Webinar Series faculty.
For now, here are some important concepts and actions to consider …
Incomes, whether active or passive, are based on economic activity. When commerce stops, so does revenue, and consequently rents and loan payments.
You might be a little late to the party, but if you don’t have solid liquid reserves, it’s something you probably want to get in place quickly.
The longer this crisis continues, the more likely your revenue will be negatively impacted. Liquidity is essential when revenue wanes.
Liquidity is also a VERY powerful tool when credit markets seize … often taking asset prices down with them.
The best bargains are often found by brave, bold, and liquid investors in the pit of a financial crisis.
Meanwhile, at the macro level, all those missed payments could create major problems not just in credit markets, but the banking system too.
Remember … there were already symptoms of a sick banking system just a few months before the COVID-19 crisis came to light.
We don’t know. But it seems like there’s a WHOLE lot of printing going on. The big question is whether the dollar is strong enough to endure this severe dilution.
Meanwhile, it seems clear credit markets are full of potentially toxic assets no one but the Fed will buy. That’s a significant warning sign.
So, at the micro-level, consider your dependence on and exposure to credit markets and the banking system.
You might find your credit lines being cut off or reduced without warning through no fault of your own. That’s what happened in the lead up to 2008.
Remember … these are unprecedented times.
Unimaginable things may not be likely (yet), but they’re definitely moving up the ladder of possibility.
Ignoring the possibilities doesn’t make them go away.
But unless the preparation itself is exorbitantly costly or complicated, it’s better to be prepared and not have a crisis than to have a crisis and not be prepared.
After all, inconvenient or novel isn’t the same as costly or complicated.
Many people are counting on their “leaders” and “advisors” to tackle the tough tasks, stand the night watch, and provide adequate warnings.
Maybe not such a good plan.
So as we consider what America’s founders sought to accomplish when creating the United States of America, it’s important to remember …
… the American system was built by and designed for people who wanted massive freedom and are willing to accept massive responsibility to obtain and retain it.
“Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”
– Benjamin Franklin
This freedom … to own businesses and property, speak freely and debate ideas, succeed and fail based on individual effort and ingenuity versus a pedigree or birthright …
… are all based on one singular foundation: individual freedom and personal responsibility.
We can debate whether this is the best system, but the founders made it clear …
“Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”
– John Adams
Of course, the freedom we have allows us to debate the details of what morals and religions are best … and those are debates worth having.
But the core basis of both morals and religion are generally accepted to be personal responsibility.
We think it’s clear we’re in Act Two of a four phase cascading crisis.
And while we’re all in this together, we’re each individually responsible to mind our own business first. Just like when the oxygen masks drop in a crisis on an airplane.
So JOB ONE is to get into and stay in a position of excess strength, wisdom, time, and capacity so you can help those in your sphere.
Because if everyone is waiting for somebody to do something then nobody does anything. That’s obviously not good … and a weak, desperate society is often taken advantage of.
So we encourage you to work diligently on what you can control so you’re better positioned to respond strongly to the many things you can’t control.
Study, think, act, learn, and then share your wisdom with the people around you.
This isn’t the time to be passive.