Well, hopefully. A lot of cats are getting put back already here. And what will happen when the big next financial crisis hits? It is a sellers market now, but that will turn around; wondering what companies are going to do then.
The million dollar question is, will this be a 'V shaped recovery', a.k.a. 'pause' or will it turn into something worse. I hear a lot about companies with cash flow problems which may not survive the hit. Is that true? Beats me. It seems credit is cheap right now. What about long term though? For many industries, it takes a while to spin things back up and see cash flow. Will the economic mitigation measures be enough to see those companies through?
We may also be looking at permanent changes in behavior. Sure, there is a lot of pent up demand for getting out and socializing, but if people are being bled dry by meager stimulus checks, they're not going to rush to fill the restaurants and malls when this is over.
God knows what will happen but there are a lot of small and not so small fires everywhere:
- Trade war
- Chinese growth faltering
- Chinese debt bubble
- Brazilian crisis
- Turkish crisis
- Italian populism / Italian debt
- US student loan bubble
- Real estate market slowing down in the US and the UK
- Brexit
- Over leveraged private companies because of the intense private equity deal making
- Tech companies reaching market saturation (internet access, smartphone or pc ownership, social medias, ecommerce), tech industry ceasing to be a high growth industry
I may forget some. Perhaps the next financial crisis will be the result of a combination of all of these rather than a single event (like the 2008 financial crisis was the result of a combination of a real estate market slowdown, a subprime debt bubble, and an over leveraged and complacent banking system, followed in 2011 by a sovereign debt crisis, of which Italy was already the most worrying elephant in the room).
Another day, another downsizing. The warning signs were right in front of you: [0]
And now everyone and including their cats and dogs are all talking about a 'recession'. You're too late, it has already happened and it is lagging behind and taking effect. Should have prepared for that in November 2021.
Well, we're in a strong economy so of course the default rate will be near-zero. What happens if there is a financial or economic crisis and companies start defaulting?
Yes, there will be more layoffs, and when earnings collapse there will be another fall in stocks.
Raising money is going to become very difficult, even for those in a good position who manage to raise, they'll be asked for a lot more of their company in return for less money.
This might be a real bear market in equities (anyone remember those?), where things are bad for years and we may see something like the 70s, where the inflation peaked twice, the second time it was worse.
We haven’t even felt the main wave of bankruptcies and disruption yet.
Credit is locking up (try getting an unsecured loan) and people aren’t paying bills. 50% of New York tenants didn’t pay rent. Every seasonal business is dead. Life looks ok for IT people working in their underwear right now, but we are heading into a very challenging time with fundamental changes in consumer behavior.
I hear a lot of things. I personally believe that the net result of all of this in a few (3-5) years when the worst part of it shakes out is that a lot of people who used to have equity will now be renting, but living in basically the same areas/levels: this is going to result in a very large net equity transfer to those who have cash on hand or cash flows in the next few years, at the expense of wage slaves who get totally fucked because their employers collapse over the summer and unemployment skyrockets.
Lots of large companies are going to do big layoffs to survive. Many others are going to dump their entire workforces when they go under entirely. Large industries like travel and tourism and entertainment and gambling and the related services for same are going to get scaled back for years. Money for the non-wealthy (and by wealthy I include pretty much everyone who knows pointer math or web programming, as even having $-20k in assets if you're able to make $100k+ puts you far better off than most) is going to become harder and harder to come by. I expect this to result in a lot of evictions when the courts reopen, and lots of foreclosures about 3-6 months after the layoffs peak in 3-4 months. All of the figures I am guessing at here are +/- ~10 weeks and are sketchy guessing at best, because who the fuck knows what's going to happen the rest of the year with any potential second or third waves of disease, or governmental closure orders, or even the outbreak of another world war.
It sounds like you have savings and income. Personally, with all of this uncertainty, I'd guard both as carefully as you can. Millionaires can afford to take bigger risks right now, normal people with nest eggs generally cannot, as it's not certain that the jobs will be as plentiful or high-paying in the next ten years as they were the last.
If in doubt, stick with the index fund, and just "set it and forget it". If you want to get more actively involved (or if you don't plan to change cities much and don't already own a home), real estate is almost always a good long term investment as well.
My advice would be markedly different if you were asking about $8M or $800k and not $80k, but $80k isn't a ton of money these days (I'm guessing it's less than a year of your gross income) so I personally would go lower-risk for the first few hundred k before ramping up the potential for higher returns.
I guess the tens of millions of retail investors who entered the market in the past year or so will burn their fingers.
Lenders will probably take a hit since a lot of people were playing with borrowed money.
The credibility of the government will take a hit - many have already been moving money out of the country at a record rate because they don't trust the government, and retail investors who are now losing their savings will start questioning the government.
Can you imagine what this market looks like when the next recession hits? Banks unload all this bad debt to these non-performing debt buyers and wipe their hands, meanwhile the economy crashes and there's no money getting collected and nobody wants to buy the debt off them.
This is the start of the next Global Financial Crisis folks. It's not hard to see the pieces in motion now:
1 - The Q1 supply shock is going to be a temporary thing. They'll recover alright after causing some companies to miss their Q1 earnings. If this was the only effect, we would recover just fine here later this year, but...
2 - Coronavirus is just getting started in the US and Europe. If it spreads widely, and unabated, then the those countries will be forced to enact school closures, business closures, etc, which will cause a massive demand shock.
3 - Demand shock will tank airlines, cruises, restaurants, malls, etc. Basically anything that requires groups of people to make money.
4 - Eventually, demand shock will hit corporate balance sheets in a big way. Many corporations (especially in the energy industry) are overloaded with debt [1]. If this goes on long enough, then those companies will go bankrupt.
5 - If enough companies default on their debt simultaneously, then derivatives on corporate debt (defaults) will cause a systemic crisis again [2].
There's no guarantee that this will happen, but if it does it's going to make 2008 look like a joke by comparison.
If it does, we need to do the right thing this time: wind down the banks and let them fail.
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