Juggling Dynamite

The sudden income stop and financial market drop year-to-date have taken most by surprise and stories of hardship are far and wide.

Every one of us needs to make our financial decisions as if human life is full of risk every day in every way–because it is.  Against this universal truth, the same factors mitigate individual outcomes at every income level and they are these:  how much of our income is consumed by living expenses and payments, whether we have debts, how much of our income we save regularly, how much we have in savings versus our burn rate, and the extent to which our savings are exposed to the risk of loss versus safe, liquid and available when needed.

These are financial management basics for everyone.  Like people of lesser means, millionaires and billionaires often have financial problems when they mismanage these basic principles.  Big incomes don’t solve poor management choices.

As explained by Scott Terrio below, insolvency filings in the past couple of years were concentrated in households who did not own real estate.  Now, property owners are the new growth group for insolvency filings.  And so the credit cycle goes…

Consumer proposals and insolvencies are surging, as the skyrocketing cost of living pushes more and more Canadians to the absolute financial brink. For more on how some Canadians are “hitting the wall” when it comes to debt, BNN Bloomberg spoke with Scott Terrio, manager of consumer insolvencies at Hoyes, Michalos & Associates.  Here is a direct video link.

Aggressive risk-takers are widely declared ‘genius’ winners during speculative booms, while risk-managers concerned about downside risks and resiliency are discounted as pessimists and ‘underperformers’.  In the same vein, those who make money by selling ‘investments’ to others commonly espouse that ‘cash is trash’ since they are in the business of getting people to exchange their cash for goods and services.

In reality, no one knows exactly what’s coming next in life, but low financial leverage and high liquidity enable optionality and–as COVIV-19 has so quickly reminded–are the lifeblood of households, businesses and investment opportunity–the difference between resilience or demise in times of stress, like now.

To keep our heads and personal discipline when others are losing theirs requires preparation, patience and a plan to move against the herd in times of exuberance and depression.  This recent Hedgeye TV discussion with Dr. Malmgren is far-reaching and worth a mull as we think about the world.

Pippa Malmgren is a trend-spotting economist, entrepreneur, two-time bestselling author, former economic advisor to President George W. Bush and co-founder of H Robotics.  Here is a direct video link.

Positive news is scarce these days. In this clip ECRI’s Achuthan updates on what their economic models are seeing in the present recession and suggests that it might end faster than average, and be followed by an ‘arduous recovery’.  An ‘arduous’ recovery may not feel much better than the recession though.

Economic forecaster Lakshman Achuthan warns the coronavirus pandemic is hitting the U.S. economy harder than the financial crisis. “This is a brutal recession… extraordinarily deep. Already, you’ve got 22 million people filing for jobless claims compared to 8.7 million jobs lost during the Great Recession.

“This recession could end up being among the shortest on record,” he said. “Just a partial re-opening of the economy would lift activity off the extreme lows.” Here is a direct video link.