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 Field notes on surviving the next financial crash

Field notes on surviving the next financial crash

Things seem to be going pretty well with the economy, right?

If you’ve been paying attention to anything I’ve said, that false sense of confidence should scare you more than anything else. The fundamental causes of our next financial crisis – unsustainable debt bubbles, vastly underfunded pensions, Social Security, and social services, and a rapidly aging population which is taking money out of the economy – not putting it back in – are still being patched up with the Band Aid of more debt.

When the next financial downturn hits (and it will hit – hard!), I want you to be ready, educated, and prepared. That includes formulating a financial management strategy that focuses on safety, while still giving you the flexibility to grow your money and pounce on golden opportunities. 

So, today I’m going to provide you with a list of some of my other observations, thoughts (and fears) about the coming financial downturn. These are in no particular order, but I thought they would be important to include. 

  1. Last year, income raises for people only went up 1.7 percent. But if we adhere to the Federal Government’s 1980 formula for defining inflation, we find that real inflation was actually closer to 8 percent last year. No one is talking about that reality because the new formula for inflation doesn’t factor in housing, food and energy costs, etc.
  2. I strongly believe that we’re in the midst of a debt bubble due to increases in interest rates. So, if we borrow any money, we should make sure to borrow at the cheapest rates possible on fixed loans (not variable or adjustable that will rise as rates go up) with the longest term. 
  3. The people who borrow money on short terms or variable rates are going to be in some serious trouble as rates go up. Either they will have to generate more money to pay the debt, or default and go into foreclosure (for their house) or file bankruptcy.
  4. Of course, those people who are defaulting and losing their homes, cars, businesses, and other assets because they’re not financially solvent are the same ones who will create opportunities for you, since you’ve stockpiled cash and enjoy financial flexibility from your investments. 
  5. Don’t allow your bank, adviser, or stockbroker to push you to have money in long term safe assets – flexibility and liquidity should be major considerations. 
  6. If (and when) interest rates go up, that’s a great time to put your safe money to work for you. However, if it’s locked up in a long-term CD, for example, then you can’t use your money to make more money – which is the whole point of investing. 
  7. Don’t invest your money with companies and things that don’t have an exit plan. What is Airbnb’s exit plan? To take over Hilton or Marriott. Nope! It’s to find more investors to throw money their way because they’re popular – which sounds like a legalized pyramid scheme to me. However, these pyramid schemes – legal or not – never last. 
  8. Look to invest in companies that have a solid plan on how they’ll eventually make money. At the end of the day, business fundamentals are king. Businesses aren’t meant to be non-profits, and so they need to turn a profit at some point for them to be worth your investment.
  9.  How can you gauge your investments and retirement accounts to see if they’re recession-proof? If you can take a 40 percent beating (drop in short time) and you’ll still be OK, then it’s safe enough to continue. 
  10. Remember that cash is king – which means monthly income to pay your bills should be your number one priority. If you’re getting closer to retirement, take a hard look at how much money you will need to cover your basic necessities, including medical care, adjusted for inflation and the rising costs, and other unexpected expenditures. 

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Look for more field notes on how to survive the coming financial crash and you can always contact me to talk about your investment strategy!