What To Do If The Economy Collapses

Foreign.

Hey, fastlaners, this is Ryan Daniel Moran. Welcome to Freedom fastlane. Today I'm going to be talking to you about the economy. This is something that I track like a nerd, because that's what I am. And I studied economics in college. And what was interesting about my experience studying economics in college was I was learning about economics during the collapse of 2007 and 9, and it was a fascinating time to be an economics student. And this podcast episode is very timely because I have been tracking some things that I just feel like I should announce or warn some of you about. Just because from my perspective, I'm starting to see some warning signs, red flags, some things that if we were sitting over coffee right now, would want to warn you about, if we were friends. There were things that, that I feel like my audience should know about. Just because if you value my opinion, which in a second I'll tell you why you probably should not, but if you value my opinion on this topic, then I would, I would want to talk about some things that I, I feel like are coming down the pike. I feel like are starting to create sort of a perfect, perfect storm, if you will. And that sounds all alarmist of me, and forgive me, I'm not one of those alarmists. I'm not even all that bearish on the market. But I see some things lining up and kind of taking shape that I don't know. If I had an outsider's opinion and this person saw that this was going on, I would want them to tell me. And I'm gonna talk about what you should do or at least what my plan is when the economy crashes. Now, let's talk about something about myself for a second. Why the heck should you listen to me on this topic? The truth is, you probably shouldn't. Look, yes, I studied economics in college. That's about as good as toilet paper in my opinion, because everybody has an opinion on the economy. And there's plenty of people who have studied the economy much longer than I have and have a completely different opinion than me. And the fact of the matter is, since about 2010, I've been dead wrong on the economy. Now, this is very dangerous to make predictions on the economy, but I kind of thought we were going to go into a double dip recession. I didn't think we were going to have a recovery. I didn't think that the jobs market was going to return. I didn't see the fundamentals there. And I was wrong. The stock market hit new highs, unemployment fell below 6%, and the real Estate market has recovered some and these are all things that I did not think were going to happen. The one thing that I did get right was I said if there was going to be recovery, it would take until 2013 and then there would be another crash. I was right on the rise. I was wrong on the crash. So you probably don't even want to listen to my opinion because I've been wrong up until this point. But I would. I'd be remiss. And if nothing else, it's kind of fun to make predictions and then to see if you're right moving forward or not. And I would love to hear if you agree, disagree, and you can hold me accountable to the predictions, if you want to call them that, that I'm about to make in this episode on the comments page over@freedomfastlane.com but let's take a look. Let's take an inventory right now at where we are. And actually before we do that, let me make the comment. The reason I do this is because there are always opportunities. There are always opportunities. If the economy is soaring, if the economy is crashing, if the economy is flat, the there are always opportunities. So it's sexy to talk about market crashes. It's sexy to talk about the economy soaring. The fact of the matter is that none of it is important unless you do something with it. Unless you are on the right side of opportunities. It was a good idea to buy lots and lots of real estate in 2009 and 10 when the market was way, way down. I did that. Kudos to me. I took advantage of an opportunity of buying real estate between 2010, 11 to 2014, 15. It was a really good time to purchase. Yay for me. I did it. There are things going on right now that create a different set of opportunities and if you're right on those, that puts you in a good position to benefit from whatever the economy is going to do. I think a lot of people are making some really boneheaded decisions at the moment because most people wait until peaks to get in and they wait until valleys to get out. So most people sell when you should be buying and they buy when you should be selling. And so I bring all of this up because I just see certain economic fundamentals that I would want to be aware of if I wasn't a nerd like I am who studies the economy all the time. All right, so let's look at the state of things right now as it is right now. I'm recording this in June 2015. My baby girl is going to be born at any moment. We're on high alert baby watch, waiting for Esther Vivian Moran to show up at any moment. That has nothing to do with the economy. Maybe my personal bank account, but.

Not the economy at large. Unless she uses a lot, a lot of diapers, that could spike the stock market, who knows? But anyway, the market as it stands, the Dow Jones is at 18,000, real estate prices have climbed significantly in the last couple of years, the unemployment rate is below 6% and the economy at least looks and feels fairly stable. I won't say healthy because the underlying pieces of data that are coming out I think make it look more unhealthy than most people see on the surface. Back in 2009 and 10, as a stupid young college student, when the stimulus plans were being passed, when there were stimuli and government intervention coming into the market, the way that I interpreted that was that we would have a very slow recovery that would be less robust than if the government had stayed out of it. If the government had stayed out of it, we would have come roaring back to life. But the government got involved. So we would have a slow recovery and we wouldn't feel the negative effects of the collapse because the government was keeping what we call malinvestment in the economy. They're keeping, they're keeping things at an artificially high rate. And I'm nerding out on you and please forgive me, but I think that I called that fairly accurately. And as a result we have got to this point at which the economy is at what seems to be.

A stable place on the surface. But from what I think there are underlying economic points that make it much weaker. And mostly it is a trend thing. The market is at about 18,000. The economy or the stock market is about 18,000, which is for all intents and purposes a record high. But it's flat over the last six months. So for the last six months we've been flat. Since the beginning of the year we are mostly flat. We're up a couple hundred points over a six month period, which following two years of incredible growth in the market is a major slowdown. So the market is mostly flat over the last six months. But here's what's even more interesting. Historically the strongest months in the stock market are January through June. And then people tend to sell and the market goes down typically historically from June to December or July through December and especially September through December. Historically you have a big run up in the first part of the year and then a floating back to earth in the second half of the year. And I'm oversimplifying this. If you're a nerd like me, you don't have to call me on all the little nuances of this. But on a grand macro scale, things tend to go up the first half of the year and down the second half of the year. But we've been mostly flat the first half of the year. And because of that, after it's following a major run up over the last two years, we have pretty much flattened out in a time where we should be roaring back to life. So what does that tell you about what might happen next? If you have a run up and then you go flat, where is the next place that the market and the economy could go? Well, I would interpret that as saying that it's probably going to go down next and probably fairly significantly, if I'm looking from the outsider's perspective. Now we have more pieces of data that are coming out that are suggesting that the overall economy is slowing. We have growth is slowing in the market, incomes are flat, corporate profits are down. If you believe the reports that are put out by publicly traded companies, that corporate profits are down. But here is the thing that really scares me. This is the red flag for me. The economy is being completely determined right now, not by fundamentals but by the activity of the Federal Reserve. This is scary to me because, for example, there was a piece of data that came out a couple of weeks ago that was a jobs report and the market soared on this jobs report even though it failed to meet expectations because the jobs report was tepid enough to not cause the Fed to want to raise rates. Now, if you don't follow the economy and these terms are confusing to me, please forgive me for nerding out on you. I'll simplify this for a second. Basically, the jobs report came out and it wasn't that great, but it was a little bit better than what it had been previously, but not nearly what they thought the improvement would be. But because it was such a, it was not that great of a jobs report, which would normally be bad news, the interpretation was, oh, since this isn't a very good jobs report, the Fed probably won't raise rates and they'll keep them artificially low. So great we can have cheap money for a little bit longer so the market goes up. That's a red flag to me. When you see things like the stock market going up in spite of bad data because of what the policymakers might do about it. Now we are in speculative territory. Now we are not Buying on value. We're buying for speculation. And if you listen to what I've talked about before, I think that speculation is gambling. And that is a red flag for me about the overall macro health of the economy.

Basically what it means is that the health that we appear to see on the surface is really due to fairy tales. It's really due to the ideas that people make up about what the Federal Reserve will do. Now the reality of the situation is the Federal Reserve is going to raise rates. They have to at some point. But the overall impact of the rates going up, of interest rates going up is fairly nominal. They're going to raise rates fairly slowly. It won't have a significant.

A big immediate impact in the overall economy. But the reaction to that news is fairly scary because we live in an economy that is based on ideas and it's really built on a house of cards because if you have a sudden downturn in the people freak out and it is then an emotional roller coaster from there. It's based on consumer sentiment that is basically what the market and a lot of what the economy is built on, which isn't real data. What that means is that there are certain opportunities that you should avoid and certain opportunities that will open up over the next year or so. And what those opportunities are will be completely dependent upon the theories that you believe. Some people say that the economy is about to collapse, that the dollar is going to completely plummet, that gold and silver prices will rise because we're built on basically a phony currency. I don't tend to share that sentiment. I don't think that there will be that, that much of a collapse in the economy. There are other people who say the economy is healthy, fundamentals are there and it's going to continue to go up. I also don't fall into that camp. I more fall into the next camp which is that the economy is going to flatten and then float down. And if there is a collapse coming, I think it will come later, a year or two from now. But I think we are going to see flat, flat economy for the next while and probably start to float down. Now the last time we were in a situation like we are now, where the data on the surface started, it looked good, but it was flattening out and people were starting to say, hmm, the data below the surface is a bit of a warning sign. The last time we were in a situation like this was eight years ago at the peak of the run up in 2007. What was also interesting about that time is it was the beginning of an election cycle. You have an election coming, you have a changing of the guard coming or changing of the guards coming. You have a war of ideas about to begin. And so theories start to float about what are the next policies going to be, what changes are going to happen, but also.

Some people who are in power who have been having their hands in the economy, influencing the economy in a way to serve their political ideals. That is about to change. And eight years ago, George W. Bush was about to leave office. He had had a massive run up in the economy and then it flattened right about eight years ago. And as changing of the guard happened, right before it happened, the collapse happened and there was a lot of government influence. We all remember what happened in 2008 and then there was a changing of the guard. That exact same scenario is happening now. We've had a huge run up as a result of what I would say is purely government driven. And now it's flattened. People are starting to talk about the underlying data doesn't look so good.

And now we're entering an election year and the possibility exists, at least to me, if I was making a bet. It looks to me like it's all setting up to be flat for a while and then have a stark decline, a stark pullback in the market. Now once again, I have been wrong in the past plenty of times, but this is the way that I see it from the outside.

So what do you do about this? Because, because plenty could happen here. The market could go way up, the market could go way down, the market could be flat. Who knows who's right? I have my pieces of data that I look at. Some other nerd who does podcasts is looking at another set of data. Who's right? Who knows. What's important is what you do about it. So let's, let's recap what I say. My personal finance recommendations are this. Step one, own a business so you can have tax write offs so you can control own profits so that you are in control of your income. Step one, own a business. Profits are better than wages. Step two, invest 10% of your salary into dividend growth. You have heard me talk about this many times. Putting 10% of your salary into increasing dividends. If you want more on that goal, listen to either the podcast called how to make and Keep a Million Dollars in Two Years or How to Invest for Long Term Growth and Cash Flow. And then step three on my wealth triad is to put the profits of your business into cash flowing investments. Cash flowing investments that have High yield and low risk. Now, none of this wealth triad changes during a growing economy or during a shrinking economy. This strategy stays the same. What changes is the opportunities that we pursue. Because when things are going up, certain opportunities look good. When things are going down, certain opportunities look good. I am becoming a little bit more opportunistic in what I see coming. And what that really means to me is that I am becoming a little bit more protective of the investments that I have. And I am waiting to see what the market and the economy does overall before I pursue other opportunities. Let's break this down a little bit further. Let me give you an example. About a year ago, you may remember that there was a big fiasco over at Target. Target had a big Visa credit card leak, and a bunch of hackers got some data from people who used Visa cards at Target. And Target looked horrible for this, and they absolutely got slaughtered in the media. How could a major company allow credit card data to get leaked? This did not look good for Target. Now, sales weren't affected. The company overall wasn't affected. It was a temporary piece of bad pr. They recovered just fine. But as a result, the Stock fell about 30% on the bad news. Now, Target is one of those companies that releases a very healthy dividend. They release a very healthy dividend that goes up over time. They have raised their dividend every year for the last 10 years or more. So when the price fell very significantly, that dividend looked very attractive. And you knew that it was going to be raised even further year over year. So when the stock fell, the dividend that was being paid in comparison to the stock price went over 4%, which for me is a buying signal. When things hit 4%, that means that I go and I buy it, assuming that it's a stock that has increased its dividend over the long term. Now, the stock, as a result, started to come back up when more data came out. When people got over the big credit card leak. This stock recovered in value, and it ended up being a phenomenal investment for me because the stock went way up in price. I bought in at a time when the dividend would be very healthy. I now enjoy very strong cash flow on that position. Plus it's gone way up in value. It's been a great buy for me. I'm not buying any more of that stock because it's no longer at my price target. It's now more expensive than my price target. Now, I would sell this stock now if I didn't care about the dividend. But I'M holding onto the dividend because that's part of my long term strategy. I know I'm getting all geeky and nerdy on you. Stick with me. The lesson from this story is that you buy in times of opportunity and you either hold or you sell when things look really good. So you want to buy during times of opportunity, when there's blood in the streets, when things don't look so good and you want to sell when everything looks rosy. That is. That is smart investing. What most people do is they do the opposite and they sell when things look bad and they buy when things look good. So they buy high and sell low. Not exactly the best strategy. So right now, in terms of the stock market, for example, I don't see a whole lot of opportunity because things on the surface look really good. But in the event that something collapses, if there is a big falling of stock prices, that is the time to get excited because that is when dividend yields go up. That is when the potential for returns go way up. That is the best time to be buying. So as a freedom fastlaner, the best thing you can be doing right now is waiting to look at what opportunities are about to come. Now, I do see certain opportunities right now. I am not buying any more growth stocks. I'm not buying the the stocks that I hope go up in value. I'm not even buying a lot of dividend stocks right now because things are so high. The market's at 18,000. It's crazy. What I am buying a lot of right now is the income stocks that not a lot of people talk about. I talk about them. I talk about real estate investment trusts. They've gotten lots of bad press lately. They're super cheap. Their dividend yields are super high. People keep knocking them and I keep buying them because the price is coming down. I say, great. Cash flow is on sale. I'll take as many as I can. I'm buying lots and lots of real estate investment trusts right now because their price has come down, their dividend yield is up. Things look great. From my opinion, people are beating them up in the media. I say, great, keep beating them up because I'm going to keep buying them. And I buy opportunistic stocks. Like I mentioned with Target, when it has a major come down, I wouldn't buy it now, but if it comes way down in value, if it falls 30%, you better believe I'm buying it because I want that dividend. My buddy Travis Sago puts it as like a goose that lays a Golden egg. If the price of the geese comes down, great, I'll buy as many as I can because all I really want is the golden egg. So I'll buy as many of those as possible when it's opportunistic to do so. I'm also buying cash flowing real estate as much as possible in strategic areas. In a lot of areas now, price of real estate has gone way up and I'm not buying anymore. I live in Austin, Texas. I think it's kind of silly that people are buying so much real estate in Austin, Texas because we see the same thing happening to housing prices that you see happening in the stock market. You've had a huge run up. Austin's a booming city. 100 people move here a day. It's exploding. Real estate prices have doubled in the last five years. A bunch of tech moves here. I mean, it's the fastest growing city in the country. It's, it's exploding. But you had this huge run up in real estate prices. Now they've peaked. Houses are staying on the market longer. People are now moving outside the city in order to chase value, to try and find bigger houses with yards and views and be a little bit outside of traffic and noise. So what's happening is the outside areas are booming and the city itself is starting to fall ever so slightly. That's what you call a red flag. Same thing happening in the stock market. So I would not touch real estate in my hometown in Austin, Texas right now. But I'm buying a lot in other areas that are increasing or have stayed flat over the last couple of years. The whole point here of being an opportunistic purchasing.

I buy some precious metals. I bought oil when it collapsed, what was it, three, four months ago when the price of oil fell from $100 a barrel to $40 a barrel. I bought a bunch of oil stocks. That's what you call opportunistic investing. Now it's going to slowly climb back up.

It may or may not hit $100 a barrel, but I don't care. I'm buying it at $40 a barrel. I know it's going to go up slowly. You're not going to hear about it in the news. You hear about the big run ups and the big crashes. You want to buy after the big crashes. And that's why I tell you about all of this now. Because if we are in the point where a major crash is coming, don't look at it as bad news. All that means is that everything that you want to be in long term anyway, is about to be on sale. I have friends. Heck, I live in Texas, people. So I have friends who are preppers, people who have bomb shelters in their houses, who have lots of firearms, who own physical gold and silver because they are convinced that the US economy is about to collapse, that the US dollar is going to collapse, that we are not going to be a viable currency anymore, and that there's going to be a zombie. I can't even say it. Zombie apocalypse. So we're going to be living in bomb shelters with firearms, eating food that we grow in our backyard. I'm not one of those people, but.

I am a opportunistic investor. Which means that even if there is one of these crazy meltdowns that one of my friends thinks is going to happen, I am looking at every opportunity I can to buy what I want to hold long term anyway. And that is real estate. It's apartment buildings. It's long term companies that I want to own anyway. It's companies that have increased their dividend every year for the past 10 years, even during economic collapses. Why? Because long term, that is going to make you a very, very wealthy person.

Now, we're heading into an election year and during that year you are going to hear a lot of negativity. You're going to hear about how the other side is going to ruin everything and how the economy is going to rise and fall at the decisions of whoever is in power.

I don't listen to any of that. I just look at what opportunities are coming. Because opportunities are constantly slapping you in the face. Constantly. Even now, even now when the market is at record highs, there are opportunities in other areas that have gotten beat up or companies that have gotten beat up that are going to go up over the long term anyway. That is the only smart investment to make. I buy a lot of real estate in Cleveland, Ohio, because there's. They've collapsed all that they can collapse. It's a market that I know and the numbers look strong when you buy on cash flow, regardless of if it goes up or down in value. That's what everybody talks about, things that go up or down in value. But what you really want is the golden egg that an investment is going to give you. If something is not giving you a golden egg, why would you want to own it? At that point, you're speculating. So if you buy a stock or you buy a house or you buy whatever, hoping that it goes up in value, you're toast because you're owning it for the wrong reasons. That is why you hear so much negativity during a market that collapses, or you hear so much positivity during a market like the last two years that has soared in value because people's paper value has gone up. What really you need to think about as a fastlaner is what is the reason you're holding it in the first place? Are you holding a piece of real estate because it's paying you money? Are you holding a dividend stock because it's paying you money? If the answer is no, then you're probably in it for the wrong reasons. And it's times like now when there's probably going to be some sort of a major change in the economy, whether it soars or whether it collapses, I think it's going to stay flat for a bit and then fall significantly. It's times like these when you're at a peak where it's important to reassess where you're at. And if you want to be in a cash position to go after the next opportunities, which is what I recommend is taking advantage of the profits you've probably made in the last couple of years selling, take your cash and get ready for the next opportunities. Now, if I am wrong.

Okay, I missed out on some opportunities over the next year, but there are going to be opportunities a year from now anyway. There are always opportunities. Always. Let's compare this to business. You've heard me talk about consolidations over the past few months because one of the businesses I'm in, where I have companies that take a lot of sales on Amazon, Amazon.com as a channel consolidating, people are starting to get squeezed out of that market. It's getting harder and harder to compete in that marketplace. So there is a peak of opportunity. You then have diminishing returns, and then there's going to be a pullback. All that means that there is going to be other opportunities that open up. I've talked about what some of those are here on the podcast. So opportunities are cyclical. When you hear people talk about market collapses, what they're really talking about is the paper value of things going up or down. What you should be concerned about is the golden eggs that those investments are giving you in the first place. So the way that I am hedging myself against what I think is coming, which is a market decline, I won't call it a collapse, but I see a market decline coming for the next couple of years is I am protecting the positions that I have and I'm moving more into cash and getting ready to invest into those next opportunities, particularly cash flowing real estate. Apartment buildings, single family homes in good areas that are always going to be good to own no matter what the economy is doing. The best decisions that you can make in any economy are what do you feel good holding regardless of what the market is doing. If more people took investment decisions like that, we would all be better off and everybody would be wealthier. If you made decisions based on what Just a good thing to hold on to regardless of what the paper value looks like. Real estate's a great example. If you have real estate that cash flows regardless of what happens to the value of that house or piece of real estate, it's a good thing to own. If something pays a really strong dividend, then it's good to hold onto regardless of if the value of the underlying stock is going up or down because you're getting paid to hold onto it. If a business is cash flowing, then it's a good thing to have regardless of what the price or the value of the business is on the open market. And the opposite is true.

If you are holding on to a business that's not producing cash flow because you hope to sell it. Like during the run up, there were all these companies that went public thinking that's where all the money was, but they had no profits. That's not a good business to be in or to invest in. If you have a a piece of real estate that loses money because the rents don't pay for the expenses, that is not a good thing to hold on to regardless of what the economy is doing. It's just not a good investment. You are speculating and that's what I want you to take away from this episode. We are probably in some in for some changes in the economy over the next couple of years. The best thing you can do is to take advantage of the opportunities. Sell anything that you would not want to hold on to during an up or a down economy. What if things are flat for the next two years? Do you want to be holding on to what you hold on to? If the answer is no, you shouldn't be in that investment in the first place. Good investing is good investing regardless of what the market is doing. So my macro plan doesn't change much. It just changes what opportunities I look at next. So what opportunities are you looking into? Does that need to change? If the market goes way down over the next couple years, as we enter into election cycles, as we come down off the highs that we seem to be struggling to break through here over the next six to 12 months. This is a good time for you to reassess your strategies and get ready to pursue the next opportunity so you're are in a position to go after them when they become opportunistic. I hope this was helpful for you. Thanks for sticking with me as I nerd out with you. I'd love to hear your thoughts over at the show notes@freedomfastlane.com. as always, thank you for listening and I will see you on the next show.