It’s commonly said (erroneously, it turns out) that the Chinese use the same word for both ‘crisis’ and ‘opportunity.’ That may not be true in fact, but I agree with the sentiment behind it: moments of crisis present opportunities for those patience and prescient enough to wait out the storm. On this week’s show, I applied this idea to our current economic situation and showed how individuals who take a little initiative now will be steps ahead of their peers when the economy ultimately recovers.
During times of crisis or uncertainty, our natural impulse is to hunker down and wait out the storm. When things look bleak, it is of course unwise to pursue bold and risky ventures. Too often, however, this prudence quickly becomes idleness, and people will have wasted an entire downturn being unproductive. It’s commonly said that you should make hay while the sun is shining; the corollary is that you should sell your hay and plan your next sowing when it isn’t. You may not see instant returns for your efforts, but you will see returns when the economy recovers. But if you remain idle, you will someday regret not having invested your time and effort when conditions were conducive for disciplined planning.
Opportunities are all around if you know where to look. As business shut down and liquidated, they unloaded vast amounts of capital and productive equipment that can now be re-purchased at great discounts. Commercial real estate is still depressed. Rents are cheap. Residential properties offer great investment opportunities. The sad fact is that most of the economy is still reeling from the recession.
The Fed’s QE policies have only worked to inflate asset classes like stocks, leaving the rest of the economy tremendously depressed. These other, depressed assets are where the best investment opportunities can be found. Often, the best opportunities aren’t so much in what they are as in what they can replace. For example, your dream job—whether at a different firm or at a firm you start yourself. Economic downturns are perfect times to assess your employment situation and make drastic—though prudent!—changes.
When times are good, people will stay with a job they hate because it pays well. But when employers have universally cut hours, postponed raises, and reduced perks and incentives, you’ll find other more ideal jobs are competitive with your current wages. It becomes less of a financial sacrifice to pursue a new job or career when the economy is depressed. And with so many Americans unemployed or under-employed, better prospects are available to those with the initiative and foresight to look for jobs now rather than waiting for the economy to recover.
As regular listeners know, I predict another six years of poor economic performance. Many people will spend this time being idle, never considering the abundance of opportunities out there. Paradoxically, the absence of opportunities creates its own opportunities. For example, because of low interest rates, a 15 year mortgage today costs the same each month as a 30 year mortgage did in 2006. Imagine that: Someone getting a 15 year mortgage today will be no worse off than their friends who got a 30 year mortgage in 2006, but will be 15 years and a tens of thousands of dollars ahead by the time they pay off their mortgage!
Examples like this abound if you know where to look. If you spent the last six years being idle, now is the time to start engaging with the opportunities out there and planning for life once the economy recovers. Those who take initiative now will be immeasurably better off than those who don’t.
10-18-2014 Gaining Strength from Weakness: Quantitative Easing (QE)