I rarely read the financial sections of newspapers, nor do I frequent online blogs about investing, the economy, and the politics that affect these parts of our world. I’m busy writing most of the time.
However, I have friends who live and breath finance. They take in a steady, global diet information that often has relevance to personal finance, namely how to invest, preserve, and grow wealth.
They digest it, weigh it, and use it to profit in the long term…and sometimes the short term.
When we discuss financial and economic news, my eyes typically glaze over after a few minutes. Okay, two minutes. But I perked up last week when two separate conversations mentioned Michael Burry, the famous/infamous investor who predicted the 2008 crash and subsequently made tens of millions of dollars betting on a downturn. (See the film The Big Short for a cinematic telling of the story.)
The synopsis of Burry’s comments recounted by two of my friends (who do not know each other) goes something like this: all of the economic indicators that preceded the 1929 crash and the 2008 crash are now gathering like storm clouds on the horizon, here in 2022. So buckle up, we’re in for another not very good, very bad period for the US economy and possibly for the global economy. I may have not summarized that as articulately as other pundits, but you get the picture.
“Burry just doesn’t get it wrong,” groaned one friend. “Not on big things. And ‘wrong’ for him is just early. It still happens, just later than he thought.”
Sobering commentary, to be sure. Granted, regulators, governments, and banks have much more sophisticated tools with which to tweak and correct issues in financial markets. I know several guys who were certain that the EU would not survive past 2013, but here we are, still paying for our croissants with euros. So I remain distanced from much opinion.
And it is true that political will and a roomful of really smart people seeking solutions can be a powerful force when addressing a crisis. However, the politicians at the wheel and the really smart people in the room have to be aware and accepting of reality in order to take timely and effective action to curb the impact of ‘financial corrections’, as they call them.
Few were aware or accepting in 2008. And things got ugly. People lost jobs, homes, life savings, and most critically, hope. Many of us remember all too well.
As depressing as this blog post sounds so far, I’m notoriously impatient with Doom & Gloom. I’m incredibly passionate about Awareness and Action.
But first, let’s say the legendary and quite successful professional investor Michael Burry is wrong, and the next 5 years are going to be peaches a cream with just a smidgen (is that spelled correctly?) of inflation.
Great. Lovely. Good for you. Ignore the advice that follows.
If Michael Burry is more or less correct and an economic downturn is on its way in a very big way, what can each of us do to prepare? First, look at the math of your own personal situation. In this case, the math is your own state of Financial Independence.
Financial Independence can be defined as a relative situation, namely, how long you can go without your job? Some people have enough cash stacked in the bank and enough passive income from investments to pay the rent and eat beans for a month, some for 6 months, some for 2 years, and some can live comfortably for a lifetime.
How long you can go without worry and without selling the family silver in order to survive is your measure of Financial Independence.
Because Americans live in a consumer society, it is often difficult for us to become aware of things we can live without, things that aren’t helping us be more financially independent.
A wake up call like Burry’s can be beneficial if we look at it correctly and respond mindfully. So, how do we look at it?
First, as a Lifestyle Adjustment Call To Arms. If consumer spending is a part of your weekly or monthly ritual, online or in stores, think about that. If restaurants and clubs are a part of your weekly routine, think about those expenses. If online gambling is a part of your leisure time, think about that, too.
Think about Awareness and Action…as an Actor.
Let’s say a stage director calls you in for a dress rehearsal. Let’s try that approach. You’re called on stage and the director says something like this… Okay, Jen, you’ve just been given notice that your position at work will be terminated in 3 months. You’ll be given a severance package, but you’re out of a job, right before the holidays. What do you do?
Very unpleasant improv, but let’s follow it and see where it leads… Jen takes a deep breath, processes her emotions, curses her corporate bosses, then gathers her thoughts. She sits down at her laptop on stage. She types. What are you doing, Jen? the director asks. I’m going to pay off my high interest credit card balance, not all at once, but quickly. I’ve been delaying that painful process, but now I need to address it.
What will you do next? I’m going to get my resume out there and look for another position, maybe in a different industry, so that I can be ready to make a move without a long lapse in income. Being able to just bank and save that severance package money would be a wonderful opportunity.
Then I’m going to review my finances and see where I’m wasting money each month, see what my options are as far as looking at a smaller apartment. Just look at everything I can to make sure I’m living as efficiently as possible without depriving myself. And I’ll visit the dentist for a cleaning while I’ve still got coverage for that expense.
Good. What else? I’m going to look at taking mass transit instead of driving to work. Maybe I can pick up a used bicycle and do without a car for awhile. I’m not sure. I’m definitely going to sell or giveaway some of this exercise equipment I’ve accumulated. I’m going to get rid of all the clothes I don’t wear. I’ll lose the clutter and maybe pick up a few bucks in the process. I’ll definitely have a cleaner, more harmonious living space.
I’m going to see how I can generate a second income, something that makes sense. I’m going to focus on accumulating as much cash on hand as I can in the next 90 days and see where that puts me.
Anything else? I may not take a vacation over the holidays like I’d planned. Not with this on the horizon.
So that’s the thought process for ‘Jen’. It’s hypothetical, but it’s a very accessible scenario for all of us to consider…and act upon in the present moment, even if–and especially if–things are going just fine right now.
As I’ve said before, it’s easier to make these adjustments when you can than to make them when you have to. So what adjustments can we make?
I’d love to hear your thoughts…about how you see the economy, what your plans for the rest of the year involve, and how you think we can best address the coming winter.
I remain optimistic. I remain realistic.
- BGT