How to survive and thrive in a down market

Now let's take the banks side, for a second. What happens in banks ? Well they lend money from the Fed (only the big ones) or from other banks (more likely) and lend it out. In return they get an income stream. They lend out X, every month X/100 comes back in, for, say, 110 months.

Now what is bankruptcy ? Bankruptcy of your customer means the income stream stops, and you get a "lump sum" repayment. So that means, for example, that in month 20 of the above loan, you get 60% X, and no more income stream. That's bad, of course. (63% is a nice "global average" rule of thumb figure of what you'll get back, obviously in practice it varies and the "quality of the debt", to a large extent, is how much you can expect to get back in bankruptcy)

In the case of a student loan, you get nothing. No lump sum is coming forth, and obviously the income stream stops. But you've still got the loan. So that means that you fantasize that every month you make an extra loan which covers the monthly payment for that month. Now let's assume it takes 2 years for your customer to get out of bankruptcy, to the point they can start to repay ("global average" is 1.6 years).

In practice student loans are extremely bad quality debt, which is why we have this arrangement in the first place. When the customer goes bankrupt, as discussed, they pay back nothing, and it takes students, in practice, more than 1.6 years to start paying anything back. This is why we have this indentured servitude rule in the first place.

So ... how does this affect banks ? Well of course, given the above, that's easy to see, at minimum for the first 1.6 years after increased student loan bankruptcies, they're screwed. In practice, more, and this will cascade: more student loan bankruptcies will force economy-wide tightening, which will cause people to get fired, which will result in student loan bankruptcies. And then we loaned out 1.5 trillion dollars like that.

So, assuming the Fed can just mass-stimulate the economy whenever it wants, it's actually kind of OK, for a while. But ... wait ... at what point can they stop stimulating ? Well ... oh ... never.

(you might argue at that last point : "not true", if the economic performance exceeds student loan interest rates for long enough (way longer than that 1.6 years from above), then it stops. How much is that ? 7.81 percent. How long is that ? Essentially it often boils down to double how much they're behind. When was the last time the economy did that well ? The 1950s, and ... even then, only for 3 years ... not for long enough given how far behind the average "indentured servant" is)

So we can at least now understand that we ought to get mad at the people who allowed this deal in the first place. The banks ... cannot reasonably behave any different from what they're doing.

Without a plan, or even a good reason, for that money how does it contribute to making your business more profitable or resilient to the vagaries of your market? In the short term it'll keep you afloat but that isn't going to be a big consolation when the money does run out. Stock piling cash in exchange for huge amounts of equity seems totally irresponsible.

Specifically, I’m considering buying a house and renting out my current house right now...to buy or not to buy. Leveraging up is great until house prices drop by 30%. Then again, the previous recession was specifically a housing crunch, so perhaps the next recession won’t create the same housing drop.

No one on this thread knows the future, but it’s hard having lived through a very long bull market to anticipate the results of what looks to be a pretty severe bear market.

Hussman Funds is calling for negative total returns on the S&P500 for the next 10 years, which feels like a very long time.

The rest is the same advice you get everywhere: It's expensive not to exercise. It's expensive to own a car. Biking to work solves both those problems. Don't overspend on depreciating assets until you don't need to work for the rest of your life. Don't underspend on your education. Don't waste time fretting the small stuff, focus on maximizing income. Be tax efficient. Don't buy overheated assets. In the short term it always looks like it will be the end if you don't get in _right now_. Things always correct.

I was a developer during the first recession between 2000-2002, but most of our customers were utility companies so we weren’t really affected.

During the second downturn in 2008-2011, what I noticed is that the people in technology who were having a hard time finding a job were managers, and software developers who were not at the top of their game - weren’t focused on knowing the most in demand technologies. Companies had all of the power so they didn’t have to settle for people who had only 70% of the required skill.

My suggestion? Of course save, but also keep a strong network of people in the industry, keep relationships with local trusted recruiters, look at job boards and see what in demand skills are and focus on getting really good at those. If it means changing companies, do it.

The other issue because of our backwards health care system in the US where your health care is tied to your employer and the ACA is always under attack is health insurance. During the last downturn a lot of companies were only hiring contractors. While you think you can always using COBRA to keep insurance on your last job, if that company goes out of business, COBRA is no longer an object.

My wife and I optimized for that. She has a very secure government job with family benefits.

Side note: if you want to hedge your bets - save for a rainy day and save for retirement. If you’re in the US, a conservatively invested Roth IRA is ideal. There are no penalties for withdrawing the principal from a Roth IRA but if you don’t need it, you can let it grow tax free.

- My car was fine, I didn't need a new one every 3-5 years. I drove it for 15 years before I bought another used one.

- I bought the least expensive house on the most expensive street I could afford.

- I never tried to compete with neighbors or colleagues (keeping up with the Jones's).

- Only went out to eat on special occasions and bagged a lunch to work everyday.

- Always paid special attention to my bills and costs so I was aware of my spending and could trim waste where necessary.

- Consistently looked for better employment opportunities where I was able to triple my salary in about 6 years (invest in yourself, stay relevant).

- Held off on starting a family until I was 32.

-Invested through a 401k, etc.

There was an element of luck since my wife was a great saver and low maintenance. We also had no health issues or unfortunate life events. If you live responsibly (within your means) and build that safety net, you will be fine. Try to stay out of what I call bad debt, like Credit Cards, Car loans, Lines of Credit, etc.

But I was in school at the same time as well. I had to leave because the money dried up. (I was reliant on government and bank loans, and couldn't for the life of me find a part-time job that would take me on at the time)

I ended up having to leave school halfway through my second year, give up my apartment, leave the city and move home a few hours outside of the city to a small, small town. The bits of available labour out there dried up as well. I thankfully had a family member in Calgary and moved there with the promise of a construction job.

When I arrived, the job never materialized. Fortunately the town was fairly insulated against the recession due to the oil sands boom up in Fort McMurray (well before the fire) and I was able to find a job working in audio/visual boutique sales. I made a subsistence there, though I was miserable and my time there was largely feels like a waste. The oil sands workers on their off-time would spend loads of money in the city, so it kept sales flowing. I'll skip the rest of the story, because it's tedious.

It seems like the advice everyone else has is good. I get concerned about the same thing sometimes. If the city dried up, would I have to leave my girlfriend to find work elsewhere? Would I have to put my career on pause again?

As someone else in this thread has noted, save during boom times, buy during bust times.

We've have 2 corrections the past 5 years. We even had one in the beginning of this year.

https://www.investopedia.com/terms/c/correction.asp

What you may be referring to is a recession, which is different from a correction.

--Buffett