Hacker News Reader

Comment by areoform | Hacker News Reader

What can the average founder, employee, and person do in the face of this news?

I understand that it’s scary, but what can we do to turn that fear into an actionable checklist?

For example, paying down debt would be a good idea. [sound of numerous economists jumping up and down saying this would turn prediction of recession into self-fulfilling prophecy] Also, holding off on any major new purchases like houses or new cars. [sound of foresaid economists moaning and putting their heads in their hands in despair]

It really depends on the type of debt. Don't pay down your mortgage by $10k. It will probably do nothing to lower your monthly payments. Do reduce high-interest credit card debt if possible. If you don't have high interest debt, save the money in cash or cash equivalents. High yield savings accounts are paying 2.5%. Also, do everything you can to increase your liquidity and access to liquidity. Maybe open a home equity line of credit, but don't dare spend from it! In a recession, liquidity is king. During the Great Recession, Leman Bros. went under due to illiquidity more than anything else. Whereas Warren Buffet made a killing because he could come up with cash when hardly anybody else could or would. The same principle applies to economic entities of any size.

> For example, paying down debt would be a good idea.

Opposite from a financial standpoint: if interests rates lower in the future you will be able to refinance.

From a job-vulnerability perspective it always lowers your risk though: better not to be very leveraged if your income can fluctuate.

You'll only be able to refinance if a bank is willing. If a recession is the driver of a fed rate reduction, that seems less plausible.

First thing, don't panic. (And I'm not trying to play on HHGTTG...).

So don't go rush out and liquidate all of your investments.

Second, always make sure you personally have a plan with savings for at least 6 months or more. Think about what would you do tomorrow if your source of income stopped and you had to make it for a year without any more income. How would your life style change? What sacrifices would you have to make?

Unfortunately, many people have very little to no savings and this isn't even an option.

If you are close to retiring (5-10 years or less), consult a financial advisor who you trust. At this point, you should have enough to live off of in safe/less volatile investments.

As a startup founder, I think the macro economics side is the last of your worries on a long list... you should always have contingencies for things not going right. For instance, a large company releases a competing product to you tomorrow...

Reduce your burn rate (you should have no debt except a mortgage or a lease obligation). Have at least 6-12 months of emergency fund in an FDIC insured account. Network to be prepared to find a new gig fast if yours evaporates. Be prepared for credit card and home equity credit lines recinded with no notice.

I did not do these things prior to the 2008 global financial crisis, and it was unpleasant.

If you're a founder and this genuinely does scare you: raise money. Assuming your company stays on the same trajectory, you can raise at much better terms now than when a recession hits, especially if said recession will impact your growth.

Yes, raise now and to be safe, assume that you will not be able to raise money again.

> What can the average founder, employee, and person do in the face of this news?

Make sure your finances are in reasonable order in case you get laid off:

* https://www.reddit.com/r/personalfinance/wiki/commontopics

Not all economic downturns are as bad as the Great Recession was.

Similarly: I'm in my early thirties with young kids. Apartment life is getting cramped and we're ready (eager) to finally buy a home. How should this prediction/speculation factor into my decision?

You can see how fixed rate mortgages trend during periods of recession here: https://fred.stlouisfed.org/series/MORTGAGE30US

Using this data, you can make some guesstimates on how waiting might effect your home purchasing decision.

By my read, mortgage rates tend to decrease during a recession. However, mortgage rates are already very low, so the potential savings may not be meaningful.

Wouldn't the larger driver be a potential fall in house prices?

With the exception of the 2008 financial crisis, housing prices typically appreciate during times of recession, albeit more modestly. My guess is that this is primarily driven by falling mortgage rates.

"The FHFA U.S. house price index rose by an average of 7.4 percent in the year prior to a recession and prices rose an average of 2.7 percent from the start of a recession to the end" [ https://www.cnbc.com/2018/12/11/housing-could-be-an-unlikely... ]

> With the exception of the 2008 financial crisis, housing prices typically appreciate during times of recession, albeit more modestly. My guess is that this is primarily driven by falling mortgage rates

My guess is that it's a smaller market with less price sensitive buyers, based on who can afford to buy and who is therefore likely to sell during a recession (the late 00s recession being different because of the central role of the housing market collapse in that recession.)

Hedge against market risk by moving from a market index into something like a volatility index.

The cost of carry to long volatility is insane, and there's no guarantee spikes in volatility will be well-correlated with drops in the market. Don't do this unless you know what you're doing.

Don't do this. See the other response as to why.

Reply on news.ycombinator.com