A nuclear war isn’t how I thought I’d start fatherhood.
Only a few weeks until I become a dad. Yet the madman in charge of the largest country in the world could release his rockets, although I doubt it. Reagan found a way to get Gorbachev to take a chill pill.
Same with the Cuban missile crisis. Crisis averted. Nonetheless, this type of news doesn’t help the global economy.
We’ve been in a technical recession since the start of the year. High inflation has added another layer of pain, thanks to 40% of US dollars in history being created since March 2020.
Making interest rates higher to offset the inflation caused by all the money created out of thin air hasn’t helped either.
The hope was the recession would be over by now. It’s not.
Here’s what I’m doing. It’ll give you a few ideas.
Watch interest rates like a hawk
The world is in a huge amount of debt. More than ever before.
This means there’s a point where higher interest rates will break the market. Just like the banks overcorrected during March 2020 with free money and stimulus for everybody, the adjustment in the other direction is almost always wrong, too.
At some point higher interest rates will lead to the liquidation phase.
This is where people and businesses have to lower debt and sell assets to keep their banks off their backs.
We’re almost at that point.
When everybody starts selling assets at the same time prices go lower. This can sometimes lead to a panic, too, where everyone is selling at once and fear feeds on itself.
Once assets start to go on sale I’m buying real estate. I’ve been out of the market for too long. But I need diversification in my investment portfolio. Humans will always want land and it’s scarce.
As interest rates go higher real estate prices will go lower. As more people sell their real estate prices will fall.
It’s unfortunate it has to be this way…
On the flip side, human greed has been too great for too long.
This is the part of the economic cycle where people get their faces ripped off financially for taking on too much debt.
The free markets create these liquidations so that human psychology can reset itself. Otherwise everything goes to the moon, which means most things are worth nothing.
A potential 2008-style bank collapse
The two biggest European banks, Deutsche Bank and Credit Suisse, aren’t looking great.
Doomsdayers say they’ll go bankrupt.
Their position doesn’t look good and their stock prices are getting close to zero. With a combined $2.7 trillion in assets, the global economy would be in trouble if they were to collapse.
I don’t think they do go down. Or if they do … they’ll get bailed out. They’re too big to fail.
Still, I’m taking no chances.
Since March 2020 I no longer use one bank. I use banks all over the world in case a few have issues, like they did in 2008.
The #1 thing the average person doesn’t know is the money in their bank account isn’t theirs.
It legally belongs to the bank.
I should know, I’ve worked in banking my entire life.
If a bank goes bankrupt then the customers become unsecured creditors. This means you get the scraps that are leftover after all the big shots and CEOs tear off all the juicy bits from the carcass.
Photo by Christopher Windus on Unsplash
Think of it this way: the money in your bank account is your bank’s investment fund.
You give them your money and then they take it and wildly gamble on Wall Street with it. Then they pay you a tiny share of the profit in the form of interest on your savings account.
As long as you know the money in your bank account isn’t safe, you’ll make better decisions.
Always bank with multiple banks. Just in case.
Less money into crypto
I’m investing less money in crypto right now than I was.
But not $0. I still buy crypto every month when I get paid. I want to take advantage of the low prices. The problem is 90% of cryptocurrencies are junk and won’t make it.
I should know. In the last 2017 crypto boom I bought a bunch of smaller coins that should have gone to the moon. They went to zero.
The same happened in the 2021 crash which we’re still recovering from. Most of the cryptocurrencies that showed decent traction never recovered — and never will.
That’s why I’ve always focused on the top 10 largest cryptocurrencies by market cap. And that’s why I own more Bitcoin and Ethereum than anything else. They are proven technologies that will make it to the next upcycle, the same way they did in previous cycles.
Crypto isn’t going away. The trends of decentralized finance, NFTs, metaverse, and instant money transfers aren’t vanishing either. But some of the other crypto trends probably will.
I’m heavily buying the exponential age
The “exponential age” is a fancy term for the technologies that will shape our future — blockchain, space exploration, electric cars, artificial intelligence, etc.
There’s no doubt these technologies will rule. So I’m buying the stocks of individual companies that meet this criteria. The reason I’m not buying an index fund of these stocks is there isn’t a good one I’ve found.
As part of this thesis I’m also heavily buying the Nasdaq (high-growth US tech stocks). While many were overvalued in the last cycle, right now, with prices this low, they are a great buy.
The challenge is these tech stocks will probably get cheaper.
So in the short term I’ll be buying stocks that could continue to go lower. This might seem like a dumb idea…
The problem is no one knows how low stocks can go. If I try and time the bottom and wait for the lowest prices, I could miss out.
This is what happened to me in 2020. The world got shut down by a bat virus and I predicted more blood in the streets than there was.
I’m not making that mistake again.
These tech stocks are already at great prices. If they keep going lower I’ll continue to buy them. Eventually they’ll all go back to their previous highs, anyway — like they always do.
Trying to get the maximum discount on financial assets is the dumbest idea in history. You may as well go to the casino.
Be grateful for the current discounts.
More cash on the sidelines for naughty opportunities
Rather than heavily invest, I’m keeping more cash than normal on the sidelines. This might seem dumb.
Inflation is at an all-time high. Every minute my cash sits there it’s melting away at 8.6%. While that loss is painful, it buys me opportunity.
If Ethereum drops a stupid amount further because of the recession, I want to load up my bags. If I have zero cash then this opportunity is automatically rejected.
Conversely, if the recession gets bad and I need to dig my way out of unexpected problems, the cash will become useful.
Too many investors don’t hold enough cash.
This quote comes to mind: “The market can remain irrational longer than you can stay solvent.”
Holding only USD
As interest rates go higher the US dollar gets stronger.
The dollar is getting so strong it’s becoming a wrecking ball to all other currencies. The Great British Pound is starting to look and behave like a crappy cryptocurrency no one wants to own.
I live in Australia so most people own the Aussie dollar. Not me. Most of my income is earned in USD and it stays in USD. I want to own the cleanest dirty shirt in the laundry. It’s the same reason I’m buying USD-denominated assets like Nasdaq tech stocks.
When people are fearful the US dollar is the best protection (if you decide to hold currency on the sidelines to buy up assets on discount).
There are big risks. We’re in uncharted territory. Stay safe.
This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.
