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New Realities
Our photo this week is your author sitting on the top of Africa. Before I was ever a competitive athlete, I used to collect mountains. Fortunately, my hobby didn't kill me! Consider what we have witnessed over the last 18 months:
The interest rate thing, I REALLY got wrong. I was convinced that rates would need to head up, eventually, to counteract the massive inflation that we'd witnessed in asset values. I was applying an algorithm of raise rates to reduce inflation. Most parties didn't consider asset inflation to be "real" inflation. I got things wrong because reality fell outside of my field of experience. None of us have lived through a debt-deflationary period. Depression is a word that strikes fear in people's hearts -- I don't make great decisions when I'm fearful. So let's stick with the Great Unwinding or a deflationary economy. I need to expand my experience base! If you have read any good books about the US in the 30s or Japan in the 90s then use the comments feature to let me know the titles. The Conversation Here are mine: a long healthy life with meaning and personal freedom. Nothing in there about portfolio returns, but I do have a strong preference for low personal leverage and expense management. The changing economic environment presents us with a new reality. We can accept that reality and move forward, or we can resist. A reader sent me an article that talked about The Conversation -- while that's normally about the birds & the bees... these days many families are talking about finances. Our new reality means that there will be changes with how money is spent/allocated. Last year we set up a "house" bank account and started running all our core expenses through a single checkbook. It had the desired effect, when Monica and I sat down in January, she knew every dollar that we were spending on our core expenses. We sat down and took 40% out of our personal expenditure -- more than the act of cutting -- what was valuable was the open and honest conversation about our new reality. Current income and expenditure is a fact, it's the same whether you discuss it, or not. Come to think of it, I'm willing to bet that athletes that experience a lot of race anxiety are probably not great at managing personal expenditure. There could be mental skills transfer between sport and personal finances. "Cutting" I could call these actions "leadership" but in reality it is the easy way out! Any perception of leadership is a fringe benefit of doing the right thing. Cut costs by 90%... how? That's an article in its own right and I want to wait until I've recovered my start-up capital before summing up! As a finance guy, my skills are highly compensated, if I am in the right situation. When that is happening my personal cost per hour goes up, a lot. I have a very good idea what my time is worth (you should too). With my financial life shrinking in 2009, I took everything in house. Instead of paying people to work for me, I pay them to teach me. Over the last six months I completely changed my way of doing business. No doubt, many of your have done this for years. There are a lot of soon-to-be former finance guys that will need your help. To make this change, I had to adjust my perception of the work that I was sub-contracting. In certain fields, success comes by shedding the distractions that prevent you from being able to focus on what matters. So the focus becomes constantly shedding, stripping away. A client-focused business is the exact opposite. At EC we want to have many different pathways between athletes in our network. It improves the quality of the EC experience and enhances the trust between team members. As we build trust, we can share our collective experience (the Forum is a bit gordo heavy right now!). Cut training by 60%... while I have opened up the 40-44 AG for my competitors, (I'll be back), the extra training doesn't add anything to my life, if it is done at a cost to being the husband that I want to be. The fact that I have complete freedom to set my own standards goes a long way towards my personal happiness. To make rapid progress in one area of my life, I need to dial down all the other areas. Our current times indicate that a focus on creating a stable business income is time well-spent. To be clear, the highest quality of financial wealth is going to be stable earnings/income. A search for reliable yield will drive the next wave of financial innovation. Even if you are comfortably employed, putting a little extra effort in for the next six months is wise. All the signs are indicating that the next 18 months are going to be just as challenging as the last 18. I also think that the next phase of the Great Unwinding is going to be contracting consumer spending and bankruptcies. How many months can your business last if sales contract sharply? What happens if your largest customer goes bust? If you can't live with the consequences then find out what it costs to insure against them. I'm guessing that 2009 will see most families make the adjustments that I mentioned above - as a society, we don't talk a lot of specifics about finances (perhaps ladies talk more?). If we muddle through then we're probably looking at a deep recession. My view is that we're facing a situation that will become a lot tougher. I have the personal plan to cope but am holding off on implementation as it would be somewhat disruptive. For those of you with material exposure to equities -- the key fundamental analysis that I recommend is a review of the forward PE ratios for your companies/stocks. Sensitize them for a low-growth outlook for the medium term. Even if you choose to ignore that analysis it is worth reviewing the figures. Personally, I have no understanding of what's supporting the stock market right now. I don't see the fundamental value and wonder who is buying. Hope for an improvement and make sure that you can sustain a severe retrenchment. Eating As Dad
Good to read that I am not the only Dad who's training less this year. Remember that we never retire... we just take a break! While my output has probably dropped an average of 1,750 kcal per day, I certainly don't feel like I am eating way less. How is that? Here's what I do if I want to manage my weight gradually down:
If I do the above then I can lose weight with an average of 20 minutes of cardio per day (I shoot for 60 min per day). Right now, I want to hold weight. So some modifications:
Looking at it... that's not a whole lot of variation! :-) High Carb - Low Carb // I think the discussion is skewed by the fact that our society is on a high carb, mainly processed, diet. So any shift in nutritional selection towards real food will appear to be low carb. There are plenty of carbs in real food (we lasted quite a few years before the processed food industry arrived) and you can easily bump up/down by adjusting the energy dense food choices you make in parallel to your core diet. The sensation of craving is due to the blood sugar spikes -- coming down from big training, the addiction to the sugar is something that a lot of folks report. I'm sure that reducing our annual sugar intake by half a million calories won't be damaging our long-term prospects! It's no accident that the anti-cancer diets look a lot like real food diets. Global Liquidity I think we are being misled about the nature of the banking crisis. The most charitable explanation is that the government doesn't understand the true nature of the situation. Bankers love to lend money. Right now, if you have money to lend the competition is low and your fees/margins are high. Plenty of borrowers need new loans. Why aren't the banks lending money? It's not that they don't want to. I believe that banks aren't lending money because they know the true value of their loan portfolios as well as the assets that support them. Global property and corporate values have fallen -- you can decide by how much (20%, 30%, 40%), the exact figure doesn't matter. As we recapitalize our banking sectors, our bankers are going to pull credit lines from insolvent borrowers, rather than extend new loans. The next (essential) step in this crisis is a wave of insolvencies, the step after restructuring is renewed lending. Our governments want to go straight to renewed lending without the massive restructuring (via insolvency) that is going to be required to make large segments of our economies viable. Think General Motors on a grand scale -- how long do you think we can keep pouring in cash? Do you think we have enough cash to bailout our collective insolvency? I hope they let Biden keep talking -- his candor is refreshing. Obama seems to believe that stimulus is the way to go. It appears to be the lowest risk strategy for a politician... if it works (golden)... if it doesn't work (imagine what would have happened if we did nothing). It's a win:win as the New Guy. Back next week,
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