Were You Prepared for This the Last Time It Hit?
Were you prepared for this the last time it hit?
We've been talking about something most of us may not have on our minds 24/7. Our work and the everyday demands of our personal lives typically don't leave us a lot of time to step back and look at the big wide world and all that's going on. And, as we've seen, a lot of what's going on really isn't worth the time and effort.
But as we've also seen, some things really need our attention. Let's pick up where we left off in our last post:
Something like a severe recession, while not pleasant to think about, isn't beyond the realm of possibilities. And I submit that prudence dictates that we take stock of how we might fare if and when a recession comes, as well as consider what measures we might take now to cushion ourselves and our families against the possible shock waves as best we can.
When you know a hurricane approaches, you don't ignore it and just go to work. You prepare in whatever ways you know will best equip you to weather the storm.
Hard to argue with this, isn't it? Today we'll get more specific about what we need to consider and work our way towards some prudent preparations.
First of all, so there's no mistaking it, there will be a recession. It's part of the natural order of economic cycles. In our country, since the establishment of our current central bank, the Federal Reserve, we can observe patterns that give us some idea about timing. Using past observations, we know that the 11 years that have passed since our last recession is an unusually long stretch. So in that sense, we're overdue for the next one.
On the other hand, timing is hardly an exact science when it comes to economic forecasting. So know that we're not forecasting here. Maybe a recession comes in the next few months, maybe it'll be the next few years. But either way, one will come.
But if recessions are a normal part of the economic cycle, why should we be concerned? Heck, we're still here and most of us have seen a number of these babies over the course of our lives. Then again, maybe you want to think back to 2007-2009. In that stretch we were hit by what was dubbed "The Great Recession." Remember? If not, think back. Really make the effort!
Why do I say "Make the effort!" (yes, with an exclamation point!)? Because my experience has been that most people - the vast majority in fact, have totally forgotten how bad it was. They've forgotten how we were a whisker's breadth from a worldwide financial collapse. They've forgotten that Washington Mutual, a huge bank at the time, disappeared in a matter of weeks. They've forgotten how two old and stalwart financial institutions - Bear Stearns and Lehman Brothers - literally collapsed over the course of days. If not for a massive bail out, AIG, one of the world's largest insurance companies, could have been bankrupted. If not for an injection of money from investor Warren Buffet, Goldman Sachs - perhaps the most famous, glamorous investment bank, catering to the ultra-rich and the world's highest profile companies - would likely have gone belly up.
Of course, it's human nature to forget all this. The world didn't end. We all survived - even if by the skin of our teeth. So what's the big deal?
The big deal is that all the conditions that caused the oh-so-close collapse of the world's financial markets and institutions continue to exist even as they did before the Great Recession. The world's market are, in fact, even more closely intertwined. What happens half way around the world effects us here, even if we don't perceive the effect.
In a recent conversation, a very smart relatively even-tempered client of mine brought up the issue of a possible recession. And I asked if he remembered the last one. He did, although he admitted he had put it all out his mind once things settled down. But he did remember submitting a gun permit application - something he had never before considered and would never have imagined considering until the Great Recession hit. He did so because he was afraid.
If this guy was afraid, you can be assured there were many more like him. But you have to remember what it was like, your personal circumstances, how you felt at the time.
What if your way of life - even life itself - really wasn't immediately or substantially threatened? In my own case, I had prepared to some degree, I didn't lose my job, we didn't face any threats from social unrest (something that happened in some parts of the world) and after the intense emotions over several months at the height of the crisis, life pretty much went on as before - in fact got better, in a financial sense.
But just as you might think "What's the big deal?" because you survived, even thrived intact after the Great Recession, so too I'm suggesting you need to consider your good fortune and ask the same question - "What's the big deal?" - in a different way. Just because things worked out then doesn't assure they will this go-round.
Wrapping up for today, know that I'm not being a scare-monger here. I'm not making any predictions or forecasts. I simply want to take a prudent view of what might be coming.
Next time, we'll start to get into the nitty-gritty of what might be coming and what we should do about it.
We've been talking about something most of us may not have on our minds 24/7. Our work and the everyday demands of our personal lives typically don't leave us a lot of time to step back and look at the big wide world and all that's going on. And, as we've seen, a lot of what's going on really isn't worth the time and effort.
But as we've also seen, some things really need our attention. Let's pick up where we left off in our last post:
Something like a severe recession, while not pleasant to think about, isn't beyond the realm of possibilities. And I submit that prudence dictates that we take stock of how we might fare if and when a recession comes, as well as consider what measures we might take now to cushion ourselves and our families against the possible shock waves as best we can.
When you know a hurricane approaches, you don't ignore it and just go to work. You prepare in whatever ways you know will best equip you to weather the storm.
Hard to argue with this, isn't it? Today we'll get more specific about what we need to consider and work our way towards some prudent preparations.
First of all, so there's no mistaking it, there will be a recession. It's part of the natural order of economic cycles. In our country, since the establishment of our current central bank, the Federal Reserve, we can observe patterns that give us some idea about timing. Using past observations, we know that the 11 years that have passed since our last recession is an unusually long stretch. So in that sense, we're overdue for the next one.
On the other hand, timing is hardly an exact science when it comes to economic forecasting. So know that we're not forecasting here. Maybe a recession comes in the next few months, maybe it'll be the next few years. But either way, one will come.
But if recessions are a normal part of the economic cycle, why should we be concerned? Heck, we're still here and most of us have seen a number of these babies over the course of our lives. Then again, maybe you want to think back to 2007-2009. In that stretch we were hit by what was dubbed "The Great Recession." Remember? If not, think back. Really make the effort!
Why do I say "Make the effort!" (yes, with an exclamation point!)? Because my experience has been that most people - the vast majority in fact, have totally forgotten how bad it was. They've forgotten how we were a whisker's breadth from a worldwide financial collapse. They've forgotten that Washington Mutual, a huge bank at the time, disappeared in a matter of weeks. They've forgotten how two old and stalwart financial institutions - Bear Stearns and Lehman Brothers - literally collapsed over the course of days. If not for a massive bail out, AIG, one of the world's largest insurance companies, could have been bankrupted. If not for an injection of money from investor Warren Buffet, Goldman Sachs - perhaps the most famous, glamorous investment bank, catering to the ultra-rich and the world's highest profile companies - would likely have gone belly up.
Of course, it's human nature to forget all this. The world didn't end. We all survived - even if by the skin of our teeth. So what's the big deal?
The big deal is that all the conditions that caused the oh-so-close collapse of the world's financial markets and institutions continue to exist even as they did before the Great Recession. The world's market are, in fact, even more closely intertwined. What happens half way around the world effects us here, even if we don't perceive the effect.
In a recent conversation, a very smart relatively even-tempered client of mine brought up the issue of a possible recession. And I asked if he remembered the last one. He did, although he admitted he had put it all out his mind once things settled down. But he did remember submitting a gun permit application - something he had never before considered and would never have imagined considering until the Great Recession hit. He did so because he was afraid.
If this guy was afraid, you can be assured there were many more like him. But you have to remember what it was like, your personal circumstances, how you felt at the time.
What if your way of life - even life itself - really wasn't immediately or substantially threatened? In my own case, I had prepared to some degree, I didn't lose my job, we didn't face any threats from social unrest (something that happened in some parts of the world) and after the intense emotions over several months at the height of the crisis, life pretty much went on as before - in fact got better, in a financial sense.
But just as you might think "What's the big deal?" because you survived, even thrived intact after the Great Recession, so too I'm suggesting you need to consider your good fortune and ask the same question - "What's the big deal?" - in a different way. Just because things worked out then doesn't assure they will this go-round.
Wrapping up for today, know that I'm not being a scare-monger here. I'm not making any predictions or forecasts. I simply want to take a prudent view of what might be coming.
Next time, we'll start to get into the nitty-gritty of what might be coming and what we should do about it.
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