Enjoy your life, no matter the economic situation. If you do, then you’ll always be winning. The key is to recognize reality and take appropriate action.
The Fed hiked another another 0.25% on March 23, 2023 to 4.75% – 5%. Despite multiple consecutive lower-than-expected monthly CPI numbers, a blowing up of regional banks and Credit Suisse, the Fed indicated it will hike to a terminal rate of 5.25% or thereabouts. Most investors were hoping the Fed would stop at 5%.
Meanwhile, the 10-year bond yield is only at 3.4%, meaning there is a huge yield curve inversion. It’s the largest inversion in over 40 years. The bond market is screaming for the Fed to stop hiking, but it just won’t listen. Even with the bank run at Silicon Valley Bank, the Fed won’t stop.
As a result, the United States will likely go into a recession again in 2023 thanks to the Fed’s overly aggressive tightening. Over a million people will lose their jobs, banks will go bust, and trillions of wealth will evaporate. Instead of expecting inflation in 2023, we should start worrying about deflation again.
All the good done by governments to support billions of people during the pandemic will have been for nothing. Can you imagine struggling through a pandemic for three years, finally coming up for air only to be run over by a speedboat driven by a rich central banker?
When you are worth ~$100 million, as Fed Chair Jerome Powell most certainly is, you may not care as much about the middle class as you do about your legacy. Instead, you want the history books to emphasize how you were tough on inflation and gloss over the human suffering caused by your decisions.
The Fed Is Turning Into The Enemy
What Jerome Powell, Neel Kashkari, and other central bankers fail to realize is they are quickly turning into public enemy #1. You can’t say things like, “We are seeing almost no evidence that underlying inflation is coming down,” when real-time evidence says otherwise.
In the beginning, the rich and mass affluent class will object to an overly aggressive Fed as they see their investments lose value. But nobody cares how the rich feel. The key is the middle class.
Mass layoffs always come after stocks collapse. The average person can stomach paying higher food prices. But they have a tougher time accepting being laid off while their central bankers are still gainfully employed and worth eight and nine figures.
Smart employees will get ahead of the curve and try to negotiate a severance before mass layoffs begin. After all, the first people to get laid off tend to have the best severance packages. Further, the sooner you get a severance, the sooner you can get in line to do something new.
The Fed Is Toying With Us
Let’s imagine Fed governors are sipping cognac and eating caviar on a balcony at Jerome’s mega-mansion. After all, they sold before the bear market began.
They’re having a merry good time while looking down upon us peasants. Jerome nudges Lael who nudges Michael who nudges Neel to play “Hoops.”
Jerome says, “Whoever can throw an hors d’oeuvre into one of the beggars’ bowls below gets a point! Everybody else has to take a shot of XO. First to five points wins!” Everybody cackles and cheers with glee.
Please don’t depend on politicians or central bankers to help you. They spent and cut way too much in 2020 and 2021, and now they are going to constrict and hike way too much now. To enjoy your life, you must look out for yourself!
How To Enjoy Your Life During A Global Recession
I used to think the Fed would pivot before getting to 5% on the Fed Funds rate. At the very least, the Fed would acknowledge the signs of moderating inflation by year-end 2022. The signs are obvious, especially after the latest Series I Bond rate offer declined by 2.7%.
But after the December 2022 Fed meeting, the Fed is now determined to tank the economy.
Therefore, it’s worth thinking about what you would do in terrible times so you can be better prepared. On the off chance an unfortunate situation occurs, you won’t be surprised.
This is typical premortem planning. You write out the three things to do in case of a car accident so that if you do get into one, you know what to do. The shock doesn’t completely override your brain.
The main thing you must decide during a global recession is whether to work harder or enjoy life more. You might want to work harder to increase your chances of keeping your job. Or you might want to coast because the return on your effort is no longer there. I believe the latter is the wiser move.
Here are my thoughts on how to enjoy life more in a situation of imprudent monetary policy according to the U.N. Given it will be much harder to make money in 2023, it’s best to enjoy life more!
1) Quiet Quit Harder And Be A Middle-50% Performer
Although a global recession sounds scary, usually only the bottom 10 percent of performers are let go. But the media will amplify the doom and gloom stories of those being laid off. As a result, you may feel more at risk than you actually are.
In October 2009, the unemployment rate peaked at about 10 percent. It has since steadily fallen to about 3.5 percent today. Worst case, the unemployment rate could surge back to 10 percent by 2024.
You don’t have to outrun a bear. You just need to outrun the slowest person in the crowd.
Hence, do enough at work to be in the middle 40 – 60 percent of performers. If you want to really take a gamble, you can try to be in the 11 – 20 percent of performers. But I don’t recommend it. Those who work only 40 hours a week or less and complain why they can’t get ahead are most at risk.
During a global recession your return on effort is low. Therefore, the logical move is to work less since performance isn’t rewarded. You could bust your ass working 60 hours a week only to get paid less. Be careful of making the second biggest financial mistake and feel entitled to always make more. During a Fed-induced crisis, your company’s share price is likely to lose value.
Quiet quit harder. Ask to work from home more. Take longer lunch breaks. Leave earlier to pick up your kids from school. Refuse to travel when Zoom meetings will suffice.
The name of the game is to focus on more important or fun things while you wait out the recession. If you really want to do something new, try and negotiate a severance and explore the world.
The opportunity cost of not working during a recession is much lower. Conversely, when the economy is going gangbusters, you want to try and capture as much financial upside as possible.
Just make sure you’re not too obvious about taking things easier!
How I plan to enjoy life more if the recession gets worse:
Given I don’t have a day job, I can’t get fired from one. But I can do things to simplify life.
The first thing I will do is cut my posting frequency down from three to two a week. Then I will reduce my weekly newsletter to once every two weeks. I’ll might drop my podcasting to twice a month, although podcasting is fun and easy.
The frequencies should still be enough to keep readers, listeners, and myself engaged. But it will help reduce self-imposed pressure as I return to re-retirement. I told myself I would publish three times a week for 10 years starting in July 2009. So I already achieved my goal long in 2019 and just kept going.
Online revenue is a nice bonus. But if the economy really starts to tank, then I should probably maintain my online income buffer. Here are thoughts on making money online since 2009.
Another thing I might do is shut off the comments section completely for a while. Even though it’s always interesting to read different perspectives, there is a ton of spam I have to wade through every day. Then there are the occasional hateful comments or irrelevant comments. Shutting down comments saves time and reduces stress.
Complete Big Goals
Finally, what helped get me through the first two years of the pandemic was writing Buy This, Not That. Having a big goal to accomplish was a defiant way of not letting a terrible situation defeat me. Hence, if bad times are here for another 12-18 months, I could write another book to keep me busy.
You don’t get rich writing a book. But you do stay occupied and have a triumphant reward once it’s published. Financial Samurai was born out of the global financial crisis. It’s always nice to make lemonade during difficult times.
Heck, I may even get into the best shape of my life! Nah.
2) Spend More Time With Family
For those with children, one of the best things to have come out of the pandemic was the ability to spend more time at home with your children. Plenty of adult children moved back in with their parents as well.
From all the feedback I’ve gotten since 2020, nobody has told me they regret spending more time with their parents, siblings, or kids. Instead, the regrets come from those who didn’t take advantage of the situation to relocate closer to parents or adult children.
Even though 2020 and 2021 were difficult times, I will always appreciate our family’s local outings. We went on so many great nature walks. Homeschooling accelerated learning and provided for better accommodations. I also learned to be a better parent.
Once you have a basic amount of financial security… money, career, and status are unimportant when compared to family.
How I plan to enjoy life more if the recession gets worse:
If I reduce my Financial Samurai work from 20 hours a week to 15 hours a week, I will dedicate 70% of the free time to my kids.
My daughter turns three in December 2022, which means it’ll be go time for me to be more present. Three is when memories really begin to stick. It was also the age my son consistently began to warm up to me. I’m hoping the same will happen with my daughter.
It’s easy to put everything you’ve got into your first child and slowly not spend as much time with every subsequent child. I’m sure I haven’t spent as much time with my daughter as I did my son at the same age. Therefore, I plan to course correct.
My biggest goals are to teach my kids how to ride a bike, scooter, and swim. At six years old, I remember the moment when I realized I was riding my bike on my own without anybody pushing me. Magical! I can’t wait for my kids to experience the same thing.
A deepening global recession will help improve our family relationships because it will reduce the temptation to spend time making money. The problem with money is there is an endless amount of money to make. It’s often hard to quit even if you have enough.
3) Make Better Friends Or Find New Love
If you find new love, the sting of losing so much money in a global recession will fade away. Remember the feeling of meeting someone you like for the first time? So wonderful!
If you’ve already found the love of your life, work on improving existing or new friendships. If misery loves company, then building better relationships during a financial crisis should be easier.
You don’t have to be lonely if you don’t want to. Make the effort!
How I plan to enjoy life more if the recession gets worse:
Given I already have my wife, I’m good to go on the life partner front. However, it would be nice to have another close friend or two.
I tried softball, but the demographic was a little off (most were much younger than me). Tennis is the easiest avenue since I play for a couple of league teams. I’m also playing a lot more Pickleball now, which has opened up a new community of cool friends.
The next way to find adult friends is through fellow parents at my son’s school. The trick is giving my son time to find consistent friends and then arranging playdates with their parents. I also went to another kindergarten dad’s night at Spin the other other night, a ping pong bar. Very fun.
Ideally, our families get along so well that we go on family vacations together. Finding such relationships takes effort, which is why we’re committed to going to every school-related event.
4) Travel More To Enjoy Life
A good thing about a global recession is declining flight and hotel prices. With the pandemic winding down, there’s no time like now to travel everywhere. If you are earning U.S. dollars, it is at its strongest level in decades, making international travel even more affordable.
Given it’s tough to make money at work or with your business, you might as well take all your vacation days to see the world. Go see the ancient temples in Angkor Wat, Cambodia. Visit the pyramids in Egypt. Travel to Paris for the French Open. You won’t regret it!
When you travel internationally, time seems to stand still. All the stress and responsibility back home seems to melt away. Back before we had kids, I dreamt of being a travel blogger. It was one of my favorite ways to enjoy life.
How I plan to enjoy life more if the recession gets worse:
For the summer vacation of 2023, we may travel to Taiwan. Taiwan, like many other Asian countries, has finally dropped its quarantine policy for international travelers. No more do we have to isolate in a hotel room for one-to-two weeks.
Taiwan is an affordable country with friendly people and fantastic food. I think it would be a great experience for our kids to learn more Mandarin. I grew up there from first to fourth grade and have fond memories.
The great thing about traveling in June 2023 is that my kids should be old enough to remember. They will be 6.5 and 3.5. What a shame to travel to a faraway place only to not remember. The best time to travel abroad with kids is after they turn five.
Living Abroad During Grade School
I also have this grand plan of living in various cities for years at a time until our kids hit high school. I grew up in Manila, Lusaka, Kobe, Taipei, and Kuala Lumpur until the eighth grade and loved the experiences. But it was gut-wrenching to leave my friends behind in middle school.
Hence, we would probably stay in one place from seventh grade until high school graduation. We have the ability to live anywhere. The question is whether we will have the motivation to live exciting lives.
Here’s a picture of reader Steve with best-seller Buy This, Not That (Amazon link) at Lake Atitlán in Guatemala. His career enables him to live abroad and help countries develop. What a fantastic combo!
Reading more great books during a global recession is one of my absolute favorite activities.
Thank The Fed For Gaining Back Your Life
Without going through the global financial crisis, I wouldn’t have started Financial Samurai. I would probably still be working at my boring job with a lot more stress and health problems today. If that was the case, I’m sure I would be constantly wondering whether there was more to life.
But instead, the global financial crisis pushed me to change. It spurred me to finally propose to my girlfriend, start this site, and figure a way out through a severance negotiation. Despite having less money, I was happier due to having more freedom.
So let’s look forward to a Fed-induced economic meltdown! It will finally spur us to do things we’ve been putting off for too long. Because once the water of money recedes, you’re left focusing on what’s most important.
Related: The Upside Once The Fed Destroys The Middle Class
How Do You Plan To Enjoy Life More?
Readers, how do you plan to enjoy life more after the Fed ruins the world? Besides loading up on short-term Treasury bonds to make more passive income, all ideas welcome! Does a global financial recession reduce your temptation to make money? Or are you working harder to try and not lose as much money?
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Sam, what are your thoughts of risk vs. return. If you can receive 4.5% from Treasury bonds/bills what level of return would you need to see/expect from Real Estate or Stocks to invest new money? I’m thinking at least 4% and 8% respectively more than the risk free rate, which I don’t see happening in 2023. Even with this good start to the year. I personally think the best place currently for new money is short term treasury bills.
I would expect 8 to 12% returns for stocks and real estate before buying. Hence, things feel highly uncertain now with risk assets.
You can get a one year treasury bond for 4.7%. To me, that’s a Home run no-brainer given I’m just looking for conservative returns as a fake retiree.
The Fed needs to redefine an acceptable inflation rate from the 2% that Powell quotes all the time to something more reasonable, post-Covid. I have a feeling that years from now the Fed will look back and say that 2% was not achievable and will have to accept something of a higher rate (maybe 3%-4%).
Sam, you sound just like Cathy Wood. I am not too sure about the call for deflation right now. It is simply too early to know that. We still have a very low unemployment rate, which will probably go above 4.5% before a real recession hits, so long way to go. I also don’t think 12.5bps (terminal rate of 5.125% vs. 5%) will really make that big a difference at the end of the day.
Sam,
Can you please help me understand the mechanism behind your statement that “Mass layoffs always come after stocks collapse” please?
Aren’t these companies still profitable despite collapse of stock prices? If so, why the lay offs?
Thank you so much!
Sure. Executives are largely compensated with stock options. They have the incentive to keep the share price as high as possible. When the stock price collapse, executives and shareholders want to take action. One action is to cut costs and get rid of excess employment fat. Do more with less people = increase productivity.
Executives have to show shareholders they are doing something to support the share price. Laying people off is one of the most straightforward ways to cut costs. Otherwise, management tends to get fired.
Thank you so much for this explanation. It makes sense.
So does this strategy of “mass layoffs” usually work to raise the share price? To play devil’s advocate, couldn’t retail investors view the mass layoffs as a sign of an unhealthy company?
Yes. Only time will tell. But doing nothing to cut costs when revenue is down or coming down would make investors bail.
LOL, I spit out my coffee when I read the line about the speedboat. That sure paints a picture. What a circus! Thanks for the article and sentiments I agree with you 100%. We often do these things to ourselves just sad a bunch of out of touch people have so much influence.
It is impressive how one man has the ability to create or destroy trillions in wealth and create or destroy millions in jobs. Maybe we shouldn’t let one man have so much power.
In the mean time, let’s not fight the Fed!