Will the Coming Recession Trigger an Avalanche?
As we responsibly and diligently attend to our business today, it might be prudent to consider this question: Will the coming recession trigger an avalanche? From our recent posts, you'll recall that an avalanche can be used to explain how a complex system can seem to suddenly collapse - in whole or in part. The key concept here is the suddenness. And given the fact that our economy is a complex system, as are our financial markets, we need to be aware of the possibility of an economic or financial avalanche occurring, just as those who live or travel through snow-covered mountains need to be aware of a real avalanche.
Sure, most of us don't have time to "cogitate" on such matters when we're in the thick of our work flow. But we're taking the time now to consider at least some of the more dire effects that the coming recession may have on us. Given the possibilities, prudence dictates that we at least devote some time and attention to this.
So last time we referenced Jim Rickards' recent book Aftermath. And we noted the following:
We're looking at a massive debt bubble in both the public and private sectors, one that Rickards sees as that top layer of snow just waiting to be dislodged. What will be the consequences when it finally breaks loose?
Having read all of Aftermath, we can't necessarily vouch for the likelihood of the scenarios Rickards presents. Frankly, we just don't know whether he's got the one and only interpretation of the current state of our markets and our economy. And we're always a bit careful, if not outright skeptical, about accepting anyone's forecasts as complete and accurate predictions of the future. They are, at best educated guesses. But in the universe of educated guesses, we can vouch for Rickards both as to his understanding of the current state of affairs, his knowledge of and experience with markets, and the fairly consistent and disciplined thinking he reveals.
With that in mind, however, Aftermath should not serve as your one and only source of gaining an understanding of what might await us in the next recession. You should consider the views of others - as long as you know the source to informed and unbiased. Nevertheless, let's proceed to cull what we can from this most interesting book.
First of all, a caveat: This isn't light reading. While he's a skilled writer, Rickards doesn't try to dumb down his style. To really grasp what he's saying will require careful reading, perhaps some additional research - or at least Googling - of terms or topic with which you may not be familiar. But such efforts always pay off in the end. Besides, expanding our knowledge and understanding of the world around us should be a lifelong affair, a habit we've already developed.
Second, if you decide you need to take measures to better prepare yourself for the coming recession, do so with the understanding that no preparations, no matter how thorough, will be ironclad or fool-proof. In one of our recent posts, we used the example of a nuclear war. It's not something we should lose sleep about, but it's not something that can be absolutely ruled out. If such a catastrophe were to occur, can you think of anything you can do now to put yourself out of harm's way? I'm guessing being far - as in VERY far - from the site of an explosion may be the only factor that would work in your favor. And that's probably not something over which most of us have any control. If it happens, well, you can likely finish the thought yourself.
Third, as Catholics, let's not forget to pursue our studies, our analysis, and any conclusions we might draw in God's Presence. We can do our best to prepare, but we should also always and everywhere trust in His Divine Love and Mercy. It really does behoove us to abandon ourselves to His Holy Will. If we haven't already developed the habit of doing so in our daily lives, now's a good time to start.
Oh, and let's not forget that timing is very much art rather than science. So when we present a relatively dire scenario that may come to fruition, know that there's some leeway regarding the timing of it. Here's a clear example of the fluid nature of timing for events like a serious recession:
In 1998, one of the world's most prominent investment managers, and certainly one of our deepest thinkers and writers about the markets and the economy, told his clients he was selling out of stocks. He looked at all the available data, sifted it through his fecund brain and decades of practical experience managing money, and concluded that stocks were vastly overpriced. Because of this, he thought it prudent to sell out his stock positions to protect his investors. The problem he faced was that the bear market and recession he predicted didn't arrive until 2000, a good two years later.
Everything he said was correct. Eventually he was proven right. After the gut-wrenching three-year bear market fall in stock prices from 2000-2002, it turned out he did indeed protect his investors from what would have been significant losses. But because he sold two years too early, he lost a lot of customers between 1998-2000. Rather than trust his judgment call, these investors watched as other investors not only continued to make money for two years and then some. All of it would eventually be disgorged in the ensuing bear market, but they didn't know that at the time. So they foolishly fired one of the top managers in the world and followed the siren song of the tech bubble into oblivion.
I read an interview after the dust settled. The gentleman who made the early call stuck by his decision. He didn't like losing customers, but he didn't regret what he did. Eventually, his business was restored and he was even more successful.
So how should we view timing of the recession this go-round. While I have no reason to think it's going to hit immediately, I also have no strong reason to assert that it absolutely won't. Best to think it's right around the corner and put your ducks in a row. And if it comes before you complete your preparations, at least you won't be caught totally off-guard. Not that the knowledge will provide any financial cushion of course, but perhaps it will help you to remain emotionally settled, and therefore more capable of responding to any challenges that might come your way.
Well, that was more "prep" than I anticipated before digging into Aftermath. But as I was writing this, it seemed best to be thorough in setting the stage before considering what may be a rather disturbing recession. But don't worry, we'll open the curtain all the way next time.
Sure, most of us don't have time to "cogitate" on such matters when we're in the thick of our work flow. But we're taking the time now to consider at least some of the more dire effects that the coming recession may have on us. Given the possibilities, prudence dictates that we at least devote some time and attention to this.
So last time we referenced Jim Rickards' recent book Aftermath. And we noted the following:
We're looking at a massive debt bubble in both the public and private sectors, one that Rickards sees as that top layer of snow just waiting to be dislodged. What will be the consequences when it finally breaks loose?
Having read all of Aftermath, we can't necessarily vouch for the likelihood of the scenarios Rickards presents. Frankly, we just don't know whether he's got the one and only interpretation of the current state of our markets and our economy. And we're always a bit careful, if not outright skeptical, about accepting anyone's forecasts as complete and accurate predictions of the future. They are, at best educated guesses. But in the universe of educated guesses, we can vouch for Rickards both as to his understanding of the current state of affairs, his knowledge of and experience with markets, and the fairly consistent and disciplined thinking he reveals.
With that in mind, however, Aftermath should not serve as your one and only source of gaining an understanding of what might await us in the next recession. You should consider the views of others - as long as you know the source to informed and unbiased. Nevertheless, let's proceed to cull what we can from this most interesting book.
First of all, a caveat: This isn't light reading. While he's a skilled writer, Rickards doesn't try to dumb down his style. To really grasp what he's saying will require careful reading, perhaps some additional research - or at least Googling - of terms or topic with which you may not be familiar. But such efforts always pay off in the end. Besides, expanding our knowledge and understanding of the world around us should be a lifelong affair, a habit we've already developed.
Second, if you decide you need to take measures to better prepare yourself for the coming recession, do so with the understanding that no preparations, no matter how thorough, will be ironclad or fool-proof. In one of our recent posts, we used the example of a nuclear war. It's not something we should lose sleep about, but it's not something that can be absolutely ruled out. If such a catastrophe were to occur, can you think of anything you can do now to put yourself out of harm's way? I'm guessing being far - as in VERY far - from the site of an explosion may be the only factor that would work in your favor. And that's probably not something over which most of us have any control. If it happens, well, you can likely finish the thought yourself.
Third, as Catholics, let's not forget to pursue our studies, our analysis, and any conclusions we might draw in God's Presence. We can do our best to prepare, but we should also always and everywhere trust in His Divine Love and Mercy. It really does behoove us to abandon ourselves to His Holy Will. If we haven't already developed the habit of doing so in our daily lives, now's a good time to start.
Oh, and let's not forget that timing is very much art rather than science. So when we present a relatively dire scenario that may come to fruition, know that there's some leeway regarding the timing of it. Here's a clear example of the fluid nature of timing for events like a serious recession:
In 1998, one of the world's most prominent investment managers, and certainly one of our deepest thinkers and writers about the markets and the economy, told his clients he was selling out of stocks. He looked at all the available data, sifted it through his fecund brain and decades of practical experience managing money, and concluded that stocks were vastly overpriced. Because of this, he thought it prudent to sell out his stock positions to protect his investors. The problem he faced was that the bear market and recession he predicted didn't arrive until 2000, a good two years later.
Everything he said was correct. Eventually he was proven right. After the gut-wrenching three-year bear market fall in stock prices from 2000-2002, it turned out he did indeed protect his investors from what would have been significant losses. But because he sold two years too early, he lost a lot of customers between 1998-2000. Rather than trust his judgment call, these investors watched as other investors not only continued to make money for two years and then some. All of it would eventually be disgorged in the ensuing bear market, but they didn't know that at the time. So they foolishly fired one of the top managers in the world and followed the siren song of the tech bubble into oblivion.
I read an interview after the dust settled. The gentleman who made the early call stuck by his decision. He didn't like losing customers, but he didn't regret what he did. Eventually, his business was restored and he was even more successful.
So how should we view timing of the recession this go-round. While I have no reason to think it's going to hit immediately, I also have no strong reason to assert that it absolutely won't. Best to think it's right around the corner and put your ducks in a row. And if it comes before you complete your preparations, at least you won't be caught totally off-guard. Not that the knowledge will provide any financial cushion of course, but perhaps it will help you to remain emotionally settled, and therefore more capable of responding to any challenges that might come your way.
Well, that was more "prep" than I anticipated before digging into Aftermath. But as I was writing this, it seemed best to be thorough in setting the stage before considering what may be a rather disturbing recession. But don't worry, we'll open the curtain all the way next time.
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