Aug 18 2008
Trying to stay ahead
We are in a recession! There, somebody said it.
Everyone who wants the world to continue to move forward without a glitch has been denying this for months but anyone who has shopped for groceries or filled up their car with gas lately knows that things are costing more. That in itself is not enough to signal a recession but for most of us there have not been any proportionate income increases to go along with these increased cost and for us this spells trouble.
Will things get worse before they get better? No one knows for sure, but when I read things like the article I found in Barron’s last week I tend to think that they just might get worse before they get better. The title is enough to shake you in your boots, “Yes, That’s $2 Trillion of Debt Related Losses”. It is an interview with Nouriel Roubini, an economist who has been predicting for two years most of the problems we are now experiencing. Here is some of what he said in the interview.
Unfortunately for the rest of us, you have a pretty good track record. How much more misery lies ahead?
“We are in the second inning of a severe, protracted recession, which started in the first quarter of this year and is going to last at least 18 months, through the middle of next year. A systemic banking crisis will go on for awhile, with hundreds of banks going belly up.”
So far, we have seen no recession in the technical sense: two consecutive quarters of negative growth in real GDP. Why not?
“Maybe the recession started in January; if you look at the data on gross domestic product on a monthly basis between February and April, GDP was falling. Saying this is not a recession is just a joke.”
How long will it take for the collapse in the banking sector to play out?
“It is happening in real time. Many smaller banks are going bust already. More than 200 subprime-mortgage lenders have gone bust in the past year alone. And many community banks will go bankrupt. Community banks usually finance everything: the homes, the stores, the downtown, the commercial real estate, the shopping center. If you are in a town or a municipality where there is a housing bust, the bank is gone. Of three dozen or so medium-sized regional banks, a good third are in distress. That includes the Wachovias and Washington Mutuals of the world. Half of this group might go bankrupt. Even some of the majors could end up technically insolvent, though they might be deemed too big to fail.”
My purpose is not to make you feel worse than you already do but to get you thinking about what you can do to stay ahead of all this. First, you should have some money in the bank (one that won’t fail, I hope). Having cash during a downturn can help you weather your own personal downturn and take advantage of opportunities that are sure to be there at the bottom.
Next, you should find new ways to conserve the resources you have. I have a garden and I freeze, can and dehydrate tomatoes, peppers, beans, squash and cucumbers to see me through the winter. You can find ways to drive less or drive using less gas. Start buying store brands instead of name brand products (most of the store brands are made by the national brands anyway).
Lastly, you can find new sources of income. How much stuff do you have in that storage room or in the attic? Have a garage sale of put it on Craig’s List or EBay. Start a side business doing something you already know and like to do. Can you play an instrument? Give lessons. Are you a computer geek? Sell your skills to help people who need it. Are you a great cook? Find someone who wants to eat what you make. There are lots of ways to stay ahead if you just put your mind to it.
A recession doesn’t have to hurt a lot if you just stay ahead of it by being prepared and by taking action. Now is not the time to pull the covers over your head. Get up and start moving and you will be one of the survivors.
Let me know if I can help you in any way.
Marc
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