Even for a couple of old dudes, we’ve never seen anything like what’s happening now.
And we’re not just talking about the COVID-19 pandemic, though it’s proving to be the proverbial “black swan” financial pundits have been watching for.
Preppers (financial and otherwise) are feeling slightly vindicated, while mockers perhaps a little foolish. Peter Schiff is suddenly getting popular again.
Meanwhile, folks who were asleep at the wheel are snapping awake to find they’re on a collision course with a financial crash … and they’re not buckled up.
Of course, there’s the news … and the news underneath the news that the clues in the news help us find.
With all the chatter right now, it’s a little scary.
It’s important to stay calm, think clearly, and engage in quality conversations with experienced, informed, and diligent investors.
That’s what we’re doing … and because our ability to travel and attend conferences is currently curtailed, we’re using alternatives.
It’s more important now than ever to get and stay connected.
Our mission this muse is to point out some things we think are very important for investors and entrepreneurs to consider as we all sail into stormy uncharted waters together.
First of all, we’re thankful to live in a world where news and perspectives are readily available.
Access to information and ideas helps each of us find our tribe and feel connected … even in the midst of isolation and potential quarantine.
Thank you for being a part of our tribe.
In a world full of fear, uncertainty, and doubt, there’s likely to be some emotional conflicts about what’s right, who’s right, what should be done.
The truth is … nobody really knows.
So here are a couple of principles we mutter to ourselves in those times we get upset or stressed out …
“There are three sides to a coin. Head, tails, and the edge. The only way to see both sides of any issue is to stand on the edge.”
– Robert Kiyosaki
“When emotions run high, intelligence runs low.”
– Blair Singer
In times like these, we think you’ll find those principles useful.
While we’re on the topic of helpful principles gleaned from the minds of smart people …
“Be fearful when others are greedy, and greedy when others are fearful.”
– Warren Buffet
Most of the world is hunkering down. When you don’t know what to think or do, it’s easy to sit out and hope … or to follow the herd.
We’re not fans of either approach. Just like a physical disaster requires brave first responders, so do financial and economic disasters.
We’re not saying this is a disaster … yet. But it’s not fear-mongering paranoia to suggest it could turn into one pretty quickly.
Better to be prepared and not have a crisis, than have a crisis and not be prepared.
Of course, bad times aren’t the end of the world. They’re just part of the cycle of life.
Our friend and history buff Simon Black often reminds us that over centuries, through wars, pandemics, oppression, and natural disasters … somehow, someway, humans rise to the occasion.
We come together, we figure it out, and we go on to build a better world.
Sure, there are a lot of rocks, potholes, and pitfalls on the road to recovery. But as a little orphan once said …
“The sun’ll come out … tomorrow. Bet your bottom dollar that tomorrow … there’ll be sun.”
With all that said, we’re going to take a quick tour through the HUGE amount of clues in the news. If you’re new to all this, it might seem confusing or irrelevant.
That’s what we used to think before 2008.
Then after getting smacked down, we realized the warning lights were flashing the entire time. We just didn’t know what they meant.
So don’t get bored, irritated, or discouraged. Just dig in and keep studying … especially if you’re in the camp of people caught flat-footed by the recent turn of events.
The stock market is tanking. Everyone can see it. It’s what most people talk about.
But contrary to popular tweets, the stock market isn’t a proxy for the economy … or the financial system.
The news is warning us the financial system is in deep distress …
The Fed’s hair is ON FIRE. Back to back emergency rate cuts.
And they’re putting ONE TRILLION DOLLARS PER DAY into the repo market … which was flashing trouble way long before COVID-19 showed up.
The Fed also cut rates to ZERO and pledged to buy up $700 billion in Treasuries and mortgage bonds. The last time they did that was the 2008 financial crisis.
The Fed also dropped bank reserve requirements to ZERO. So your bank doesn’t need to have a single penny in reserve to back up your deposits.
Meanwhile, the Federal government (which is different from the Federal Reserve) is planning a $1 trillion fiscal stimulus (spending) plan to help boost the economy.
But the Federal government doesn’t have a trillion dollars. Apple probably still has more cash than Uncle Sam.
And because there’s already a huge cash crunch, the Federal Reserve will need to print all those dollars … and buy Uncle Sam’s bonds, so Uncle Sam can spend.
But how do you boost an economy that’s shut down? You can’t step on the gas of a parked car and expect it to go fast.
Worse, many businesses and jobs may not survive an extended shut down … or even a substantial slow down.
For example, the oil industry was almost the sole job creation vehicle for the U.S. coming out of 2008. To get there, the shale industry took on TONS of debt.
You could argue whether the debt made sense at $60 a barrel.
But at less than $30, many oil companies will go bankrupt. Until and when they do, lots of jobs will be lost.
Perhaps, it’s obvious that job losses make it hard for tenants to pay rent … which will eventually make life hard for landlords.
So although real estate is insulated from the price declines Wall Street is facing, it’s not immune. And some of these “cures” could be worse than the disease.
But we’re not saying the Fed or Uncle Sam should or shouldn’t be doing what they’re doing. It doesn’t matter what we or anyone thinks SHOULD happen.
This isn’t a policy discussion. It’s a REALITY discussion because it’s happening.
But if the Fed blows up its balance sheet to ten trillion or more, what happens to the dollar? Over-printed currencies fail. The dollar isn’t immune.
And if production is shut down because no one’s going to work, what happens to production? Are empty shelves the exception … or the rule?
Lots of cash and empty shelves in Venezuela. Yikes.
There’s more bad news, but we know you can only handle so much.
So take a deep breath …. exhale slowly … ahhhhh …..
The world isn’t ending. It’s changing. The pace of change just accelerated, which means you need to process and react faster.
It’s not too late to look at your portfolio, sources of income, strategic direction … and do a SWOT analysis … Strengths, Weaknesses, Opportunities, Threats.
They’re all present … if YOU are.
People, businesses, and money will all migrate in search of safety.
So certain markets, asset classes, investment vehicles, and structures will lose.
Some will win.
Your mission is to look at the landscape of the changing reality and make good decisions about where YOU go from here. Get in a position to thrive.
We’ll be talking about this a LOT in the weeks and months ahead. Stay tuned!