T Nation

Preparing for a Financial Crisis

With actual unemployment in the U.S at 20%, the rest of the working force having gotten big paycuts and Trump probably on his way out, this makes me feel like 2008 all over again

Do you agree that we’re up for a major crisis?

And how do you prepare to both not be hit as hard, as well as make the most out of it (I know this may makes me sound like a pos, but I really do not mean it in a predatory way)

Cash out big chunks of stock so you have cash to spend when prices/markets crash. Convert Cash assets into gold/silver to protect against inflation. Cut down on bills now and start saving hard so you can have a little cushion to make it through lean times.

REalize though that this is very different from 2008. This was caused by a blackswan event, not by institutional problems like the mortgage crisis in 2008. The economy was healthy, very healthy in february so they do not need to rebuild… another thing to consider is that renters were hit hardest by covid as most service industry folks or those that work retail are going to rent. A much higher percentage of home owners were able to simply telecommute… one of the reasons why housing prices have remained high (if not in short supply). then add in the fact that the Fed has pumped TRILLIONS of dollars of FREE money into our pocketbooks and apparently is willing to continue to do so? We are in an unprecedented time, and no one knows what the hell is going to happen next.

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I agree. I think financial aid will be more quickly forthcoming and higher in magnitude (it already is by several fold). However I do think this is not turning around anytime soon.

Many jobs being lost may be lost permanently as larger companies pivot towards automation in an attempt to survive the downturn. This is a key time for that investment if you have access either to capital or aid, or deep cash reserves.

Honestly, I’d change my investment strategy as the market is not being driven even remotely by fundamentals. That always happens before a significant crash, as speculators try to make a quick buck before the final crash and burn.

I’m not saying this will be the greatest crash in history mind you. Simply that the market behavior screams crashed to me eventually. Particularly if the fundamentals of the economy don’t improve rapidly in the near future.

My father, who is retired, drew out enough cash to fund an entire year in February, and moved the rest of his funds to safer harbors (not sure which, I’m not privy).

I’d say looking for additional revenue streams or pivoting current skills towards future trends is a smart way to go in general. Or picking up new skills.

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Having a job that you can do from home makes it more likely that you will remain working. Having a good amount of money or wealth is going to help too. The rich just don’t seem to get hit as much were it hurts (a number on the computer goes down, but they can still sustain their lifestyle).

As far as making the most out of it. Having a steady income, and investing as much as you possibly can when the market is low has historically been a great strategy. If one would have used this strategy in 08 and a few years after, they would be in a great position going into this.

I don’t know about the US numbers, but in Canada we already have the biggest deficit since WW2. The COVID situation here is under control and only a few places have more than a handful of cases, but on the other hand parts of the US are shutting down for a 2nd time and there isn’t an end in sight. We can only wait and see what really happens, but I wouldn’t be surprised if things end up much worse than in 2008.

In times of crisis what matters most is liquidity, both personal and professional.

You won’t be wrong to sit on cash and gold and see how this all pans out.

If you feel adventurous, you could think of ways to profit from the behavior changes of the upper middle class due to the pandemic.

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Though the economy was healthy (or healthy-ish at the very least), will the upcoming forclosure and eviction crisis be something the US will recover from, combined with the high uneployment?That’s mosty what makes me think of 2008

Personally, definitely that’s the long term plan.Up to this point I had kinda given up on my university studies (math) and focused on working, but given that teaching never dies, plus all the opportunities this field opens, I see a degree coming soon

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Sadly Greece cathes up slowly to these types of changes, but looking into it.Not being micromanaged on a daily basis is a plus as well

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That makes us two

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Why specificly of the upper middle class?Could you give an example?

Because they can work from home, for starters.

I can talk to you about something that I know, and that is real estate.

Remote work offers the prospect of the burbs decoupling from major urban centers. That means that commuting distance stops being a factor when it comes to RE pricing, which means that prices in both commercial and residential real estate will change, depending on the location.

And when RE prices change, somebody makes money and somebody loses money.

Bad news for Manhattan, I guess. Why crowd the disease ridden (they were always disease ridden, only different diseases) suburban trains to NYC when you can work from home and perhaps even willing to take a pay cut equivalent to commuting costs?

Big companies in turn will drool at the prospect of reducing their operational expenses, including office space.

Also, upper middle class types who’ve led highly fragile lives susceptible to disruption will rethink their existing paradigm, driving house prices up in specific locations, especially for real estate that makes it more bearable to weather various types of disruptions, such as stay at home orders.

So “I’m dividing my time between X and Y” may be a thing of the past.

What’s the point of a summer house two hours away by plane if you cannot fly there?

That’s just real estate as an example, as shortages of plates and kettlebells have shown, the pandemic is bound to introduce behavior changes in other aspects as well.

Interestingly, there is an opposite theory out there amongst developers and construction TI companies that commercial office space will actually be in even higher demand or at least similar demand… why? Because instead of packing employees into cubicles and valuing dense office layouts, the new normal will call for greater spacing amongst employees. And even after fully adapting to telecomuting, everyone i talk to (old and young, accross industries) mentions that they do miss the collaborative benefits of an office, and the tips/tricks/attitudes/habits you pick up from mentors and other employees just being around them everyday. It will be interesting to see what plays out, and how office space gets utilized (for affordable residential?) if we do have a largescale shift towards telecommuting.

Personally, i think that our economy here in the USA wont start feeling the effects of this disaster until late fall into winter. The stimulus packages and fed floating the stock market has just delayed the inevitable and given smart folks time to reallocate assets and prepare for the impending recession… how deep we go and for how long is anyone’s guess. Its a bummer, i came into the workforce in the teeth of the great recession, and right as im hitting the start of my peak earning years my age group gets walloped with this. Oh well, such is life. At least im still a white male in America! Could be a lot worse.

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This is the biggest problem. It creates uncertainty and that is more deadly to economy more than hard numbers. It’s hard to do business when you don’t know the next time the government is going to come in and shut you down.
The frightening part, is that shuttering businesses has become way to easy. There is no consideration for the effect this will have on the people being shut down.

The main question is, does the threat of death and the overwhelming of the healthcare system actually warrant shutting down entire segments of the economy.
I don’t think the numbers, if even 100% accurate warrant another shutdown. I don’t see where businesses can’t open, with precautions in place and let people make their own decisions.

A secondary question, though not less important, is whether or not this shuttering is politically motivated. Unhappy people vote for change. Making people poor, makes them unhappy. It’s not lost on me, where the second shutdowns are mostly happening and who is putting the political pressure to shut people down.

NYC will be the case study to watch. It had the highest numbers of deaths and cases, by far. Couple that with riots and street violence and an exploding murder rate and you have a perfect storm.

I fear recent events may damn our greatest cities to a Detroit like future. That will be sad to see.

As far as financial crises, clearly all of this stuff is having a negative effect. It’s hard to predict the downstream effects and it’s hard to see anything clearly when you still right in the middle of the issues that are driving the current conditions.
I fear that these conditions will continue to be dragged out until at least November.

That was the question from the beginning. I think it’s going to vary from place to place, generally speaking I don’t think that shutting down is necessary but perhaps in some places it might be. Like places with large numbers of at-risk people, a high number of cases, and insufficient healthcare resources.

You can’t have a cure that is worse than the disease. The virus might kill close to 1% of people and leave some with permanent issues, but totally crippling the economy could potentially make things worse than that. You have to weigh your options and not go blindly into one thing or another. Looking at Canada, it appears that with limited restrictions in place the virus can be kept under control. The US is worst case scenario, the death rate per capita (questionable as the data is) is roughly the same as Sweden where restrictions were minimal and the strategy is widely considered to be a failure.

I was saying the same thing when the shutdowns began in March, looks like the perfect setup for a transition to socialism/communism. Over here if you are making less than $1000 a month you can get $2000 from the government, and now many politicians are calling for this to become a permanent “guaranteed living wage” program. All this while the economy falls apart and the federal deficit went up 10x. What next, ration cards?

Over here there are more than a few companies which have permanently switched to telecommuting. Shopify for one, which is based in Ottawa. Working from an office was the established norm, but it also costs a lot of money to rent the space, so a lot of companies are more than happy to have people work from home.

As for turning offices into residential space, I’m sure some will, condos are going up all over the place in big cities in Canada, but I doubt it will be affordable unless the government gets involved. More likely the building will be abandoned due to the landlord going broke when the tenants go out of business or close their offices. Turning offices into apartments would cost a lot of money, they would need totally different bathroom facilities and kitchens. I could see a bunch of squatters capturing office buildings, it’ a common thing in Brazil.

Hey whitey, better check your privilege!

In a lot of countries you have individual apartments that share a community kitchen and bathrooms. this would seem be a pretty easy conversion for office space if they went that way as offices typically have a few bathrooms, and at least 1 breakroom/kitchen per floor. Going typical resi would mean upsizing all plumbing which gets prohibitively expensive.

That’s exactly what I’m saying, a lot of landlords are going to be financially screwed and I would not be surprised if a lot of buildings end up simply abandoned. Either the landlord will go bankrupt or the upkeep will outweigh any potential profits.

Not in North America though, here it’s rooming houses and some college dorms that have that. It won’t be popular, that’s for sure. And again, offices typically don’t have shower facilities, if you’re going to add that in then might as well add bathrooms too.

I’m not saying that it’s not going to happen at all, just it won’t be the majority of office buildings. More likely condo developers would buy the place and redo the plumbing, or just tear down the building and build a new one. There are tons of new condos here, and even more in Toronto, lots of money to be made there (assuming not everyone ends up broke) and not much to be made off affordable housing, unfortunately.

Maybe the situation is different in the US, but the affordable housing here is either public housing, housing co-ops (which are subsidized by the government and essentially just independently managed housing projects, some better than others) and old rundown houses and apartments. Before COVID, lots of people were moving to the major cities and were apparently willing to pay whatever it costs to live there, rents were going up and up and a lot of cheaper places were fixed up, tenants often evicted, and rents went through the roof.

A while back I lived in a bachelor apartment (1 room with a bathroom and kitchen) in a not-so-pretty building, a different company took over and fixed everything except the apartments of current tenants, and eventually the rent for new tenants was around double of what it was previously. There are some apartment and townhouse complexes that were basically on the same level as public housing or maybe a step below which again got taken over by a new company that threw everyone out, either tore the place down or totally renovated it, and the rent is now unaffordable for average people. The government at least invested some money in fixing up public housing a few years ago so the places aren’t falling apart anymore, but that does nothing to fi the shortage of affordable housing.

Yes, but are companies willing to pay for all that office space in a full blown economic crisis? Reducing OPEX is the first thing on a to-do list of an unimaginative upper middle manager with a MBA.

Notice how many big tech companies were extremely generous when it came to sending people to work from home and keeping them there. Notice the diabolical twist in the subtitle: