Sometime this year a recession will hit the US and EU, and likely most of the world. Many companies will need to let go of a lot of people, or even go bankrupt. Unemployment will go up. Market growth overall will slow down (or even go negative), and inflation will kind of stay around the 4-5% ish for quite a while. It’s not Ragnarok, things will improve with time, but you don’t want this to catch you unprepared.
Disclaimer: I am not a financial advisor nor expert. This isn’t financial advice. I am simply paying attention and sharing in case it might help anyone. I watched around 30 interviews with various experts from the field over the last 6-12 months, mostly on Kitco News and the David Lin report. Most of these experts agreed on what I write about – which is basically a TL:DR of everything they said. Let me know if this is helpful, and do share what you think in the comments!
Part 1: What’s been happening:
Essentially the c0v1d money printing was really retarded. They artificially created more money, so that automatically devalued everything. The US added $6.4 Trillion in 2020 and 2021. That’s a 42% increase of the total money supply. You get it? They just created almost HALF OF ALL THE DOLLARS IN THE WORLD out of nothing. Of course that’s going to create issues…
Since everyone had more money, all the goods, services automatically cost more. The evaluations of the companies went up, since more people invested in stocks, crypto etc. But there was no real market growth. Companies were not 42% more efficient on average…
Which brings us to inflation. What is inflation? It means your money is losing value, it’s worth less overtime. And of course if it happens over decades, that’s not an issue. But when the dollar loses 8% of its value in just 1 month, that’s a big, big problem. At the moment I think inflation in many countries is around 5% which is crazy high.
To combat that, countries are raising interest rates. A few years ago, you could get a loan of 100K on a 1% rate. Meaning that the bank would literally give you $100,000, and at the end of the year, you would just need to give them $1,000 for that. What a time to be alive, right? Now the rates are higher, close to 4-5% as well I think. Those 100K will cost you 5K now, which is a problem…
Part 2: What’s going to happen
When inflation is high for a long period of time, companies need to pay more money (increase salaries) to their workforce because the purchasing power of that wage dropped. Which means they are becoming less profitable over time.
At the same time, some of these companies (let’s not even start talking about banks) are highly leveraged. Meaning they use a lot of debt, borrowed money, to operate. Because of the interest rate increases, these companies now need to pay more and more money to the banks (lenders) making them even less profitable.
The third thing that is hurting most companies (not digital agencies thank god lol) are the cost of goods and transport. Fuel is more expensive, wood… literally all raw resources, again because of the money printing, became more expensive.
A triple whammy of less profitability – not fun!
So this is really, really bad for all companies everywhere. And unless they have very strong profit margins from the get go, and very deep pockets and savings, it will be very hard for them to come out of this without scars, or even alive.
The smart companies are already looking heavily into cost management, which for tech companies in most cases is laying off people. Google, Shopify, Facebook…And it sounds horrible, but if they don’t cut inefficiencies now, it literally means they might go out of business and then they need to fire everyone, which is even worse! I’m not sure about other non-tech sectors but cost cutting is being done across the board by prudent businesses.
Now, if a big portion of companies goes out of business, then fewer companies are available to deliver a service – say plumbers, then the cost of plumbing will go up, which will further reduce the buying power of the dollar. In addition, less companies will be available to employ you… a vicious circle. Not fun.
So, TL:DR – inflation will stay around. Which means that the purchasing power of your money will continue to decline. Unemployment will start going up and a lot of companies will struggle, the bad ones will die off.
Part 3: What to do
First of all, relax. Most likely nobody will die of hunger. The money-policy makers might also start printing more money again (or at least decrease interest rates despite not curbing inflation) to avoid a full on catastrophe. But essentially nobody really knows exactly how this will play out. So if you’re like me, you want to be cautious, and risk averse, to maximize chances of getting out of this in the best shape possible.
If you have money to invest (or already invested), be careful. The stock market will go down further. Gold and silver will likely go up, but even being in cash isn’t horrible as once the recession starts to turn upwards again, it will be a good time to buy devalued companies. If recession hits in a few months, I assume we’ll be in it for like a year, which means you should be in cash for a long time. Buying real estate is probably a solid move at any point, but I am assuming the housing prices will go down a bit after the recession hits. Some people might need to sell, and you might get a better deal.
If you’re not investing yet, don’t touch your “rainy day” fund. You know, the 2-3 months of expenses you have saved up that you never touch. 6-12 months are even safer. If you don’t have that, start working on it NOW. No more Starbucks for you. Skip the holiday and chill at home. It’s crazy how much calmer you feel when shit happens in your life if you have at least a few months of savings to go off on. Of course saving money is not a strategy to win, but it’s a strategy to prevent you from making really bad decisions and being employed in horrible businesses. Plus we all have too much “stuff” anyway. Fock materialism.
Get interested in how the company you work for is doing. Are they profitable? Do they see a bright or dark future? If it’s starting to get tough, it’s better that you at least know it and are not caught off guard. If it’s going well, then fantastic. A company’s profitability is the key indicator that will tell you if your job might be in danger.
Honestly the best advice for anyone that is not a business owner is to continually work on their set of skills. People with strong work ethic that are continuously growing will ALWAYS be needed. If you have that, you will always be able to get a job in whatever economic climate. Read the book from Seth Godin: Linchpin to learn how to become indispensable.
So there you go. I tried to use the simplest language I can to describe some of the stuff that’s happening in the world today. I believe “they” whoever that is, are trying to make the general population blind on purpose, so they can do whatever the f they want. Like printing 42% of the existing money supply.
If we all start learning about this, we will be more independent and will hopefully be able to outvote and remove reckless policy makers. And even if that doesn’t happen, we and our families will at least be better off ourselves.
Let me know how this type of content was. Let me know if you feel the market is moving into the same direction, or you see some other twists on the way? Do you think the FED can engineer a soft landing? Are you also pissed off that gold isn’t higher yet?
Go ahead to socials and drop some algo love too!
Depending on your time and preferences and life situation, it might be a good idea to start learning about this stuff. The 2 channels I mentioned above are a great start. Don’t get discouraged if you don’t get everything at first. I still don’t get a lot of stuff they talk about, for example every time they talk about yield, bonds and treasuries I just get lost. Same with futures trading (and yes I googled all of the above several times already…)