Are You Prepared for the Recession That is to Come Soon?
This is to clarify a few things.
I have been quite silent on my blog since mid-January.
The reason for my silence was NOT that I had Covid-19. That one was easy.
The reason was that I was not in the mood of writing. For various reasons.
You will understand that when you continue to read on. Probably you went through something similar.
Three (3) Major Aspects That Have Changed in My Life over the past Five (5) Months
First, there was a technology shift in my own patent attorney firm. We have now turned both the Singapore office and the Munich office into a fully cloud-based organization, and I have reserved the first five months of 2020 for that. Moving our Munich office to the cloud turned out to be a major challenge because there was much resistance to overcome, as compared with the same project in Singapore. The virus made that project much easier because people now see a personal benefit from being able to work from home. Preparing the Munich office for that technology shift to be initiated took two months from my life time, almost 24/7.
Second, the lock-down also required a shift of my attention. During the first days of the lock-down, beginning in March, it was not clear whether we have to stay at home for a few weeks or a for a longer period of time. I prepared for the worst which means that I also calculated in that there will be shortages in consumable goods that are essential for my daily work, such as maintenance services spare parts for my car, or spare light bulbs for my video recording equipment. I was not worried of the future supply of toilet paper and instant noodles, but more about the ripples that the world-wide lockdowns would have on the international supply chains. In this world, everything stands and falls with these just-in-time supply chains, and my guess still is that this can bite us a few months down the road from now.
Third, this shift of attention triggered a very different behaviour. That started at the daily work rhythm, over to purchase habits, and ends with works that need to be done when battening the hatches. Suddenly, night and weekend working hours are widely accepted even by the most stubborn co-workers. In order to not appear as a hoarder, I had to do more shopping trips than before for replenishing our food storage. Some of these items suddenly become difficult to get, such as canned thuna fish, potato mash powder, or bread flour, because many started to buy these items in bulk. That reminded me very much to a short stint as a student in socialist East Germany of the eighties of the last century.
There is More to Come. A Recession lies at Hand
It is now pretty clear to everyone that we are heading right away into a recession. There is not much time left to batten down the hatches. And this recession will not be over in a few months, such as the short recession in 2008/2009.
When the recession hits, as it will inevitably do, people who believe today that the worst is over will find out that the worst is not over.
The intensity of the recession of 2008 and 2009 was already great and I am assuming that the next recession will be worse. The recession of 2008-2009 was simply a down payment on the next one. The world’s governments and central banks have very soon reached their natural limits in terms of the expansion of the monetary base and expansion of deficits. It will simply be more of the same next time. And it may well last 5 years or even longer.
Some of the people next to me remember the 2008/2009 recession, but almost nobody remembers the 2001 – 2003 recession that followed the burst of the dot-com bubble, not to speak of the recessions before that. Some people will remember that central banks just barely got us out of the 2008/2009 recession, and it will be clear in the coming recession that central banks have pretty much shot their wads. Central bankers will face this problem: the public will finally realize that central bank policies did not solve the problems of the recession of 2008/2009. They will conclude what should be obvious: central bank policies will not solve the next recession, either. The recovery will take longer. It will be more shallow. Unemployment is going to stay high for a lot longer than it did in 2009.
Life was grim in 2009, but things will look grimmer in the coming recession. People will lose hope that the central banks can coordinate their policies and restore the economy.
If you don`t believe me now, you will do so in November 2020. John Maynard Keynes once said, “In the long run we are all dead”, and very soon we will see the “in the long run” right under our noses.
That also means that we have not much time left for battening the hatches. It will from now on mostly be about preparing yourself for what is to come.
How Emotional Life is During a Recession
I have seen national recessions such as the 1993 recession in Germany where it was impossible to get a job as a freshly graduated engineer. I remember that because I graduated in 1993, and one of two job opportunities that I had was to become a patent engineer. And that after sending out a slew of 500 job applications.
I have also seen worldwide recessions such as the 2001 – 2003 recession and the 2008/2009 recession. Worldwide recessions are really bad. Not only hear you bad local news but also from all over the world. I remember a report in TV news in 2009 about the rising number of layoffs in China. It said that half of the toy factories in China had closed. This was incredible at that time. The export of toys to the West before Christmas had collapsed. The laid-off workers were scared. There was no unemployment insurance in China. The job market was tightening. These workers had very few economic reserves. They were in cities. They were just barely getting by month to month. These people had never heard of a recession before. The 2008/2009 recession was their first.
And I even went through hyperinflation. My very first job as a junior engineer after “Vordiplom” (equivalent to a B.Eng.) in 1989 lead me to Brazil, and it was in Rio de Janeiro where I paid twice as much for a regular bus ticket at the end of the month of December 1989, as compared with the price at the beginning of the month. I saw the US-Dollar being used as the second currency for accounting purposes, and a suburb house being bartered for a video camera set plus US$ 10,000.
I do not think that we will even by far see such bad hyperinflation in a 1st-world country. But I know that young families all over the world have not seen what is to come in the next recession. Their employers will have to let them go. They will have no choice. This is going to be a fearful experience.
Most people will not be fired, but the fear of losing jobs will affect the entire economy. The stories of layoffs will create a sense of foreboding.
This is what I have seen happening right before me: companies can increase the number of hours that their employees work for the same salary. The threat of being fired will scare employees into accepting the new terms of employment. The fear of going out of business will scare senior managers into implementing the new programs. Part of this is because most people are not going to go in and say that they are willing to take a 10% pay cut. Companies don’t impose across-the-board pay cuts as a survival strategy. So, instead of cutting expenses by cutting everybody’s pay at a fixed percentage, they fire some people and increase the workload on those who survived the winnowing process.
I have been through all this. I started my own patent and trademarks firm in 1996.
It was down to very little money in February 2003. This was a recovery year. Then the economy began to revive in March 2003. It was nip and tuck for a while.
What I can see now is that we must begin to prepare ourselves for the effect of a recession that lasts longer than any other recession before.
What I also saw myself is that in such times of darkness, investors get bargains. This is because everyone is in paralysis mode. Only If you have paid attention to your job and if you have made yourself fireproof before the recession will you be in a mental position to take advantage of buying opportunities, small and big. It is now time to start looking for a piece of real-estate or for that expensive piece of equipment that you can later pick up for very little money. You can also start looking into buying stocks.
And there is more to do. Begin to prepare for the recession the way that an athlete prepares for a race. Even if the preparation fails, you will know that you did your best when you had an opportunity to do so. That will help you deal with emotional depression
Here is what you can start doing today.
Prepare Against the Looming Wave of Bad Information
What I have been doing since January 2020 is to prepare myself psychologically for a stream of bad economic news that will seem to be endless in a year from now.
Again, there is now no time left to secure your existing income stream and try to gain another, if you have not yet done so. I have minimized my investment of money into new businesses, and I have invested time instead.
I have systematically cut our expenses since 2017. The saved money has been set aside. This is needed for psychological protection. This is a fall-back position. It will help me from becoming mentally frantic as this recession takes hold of the whole world.
The good news is this: I will probably not lose my job. Most people won’t. But I may live under a shadow. I went through that before.
The problem comes, above all, to an employee of a firm that begins firing its employees. The fear of being fired, which accelerates dramatically, is the product of people who have actually been fired. If it happens to somebody you know, you think it may happen to you.
This attitude is not present in the months prior to the recession. People today are not afraid of being fired. One year into the next recession, they will be. Two years into it, and the fear will be widespread.
What I Will Do in Order to Not Become Mad During a Recession
I will become more active here on my website.
I am about to set up a help group. I don’t mean a misery group; I mean a help group. Prayer groups in churches are good. So are charitable committees in service organizations.
And I will develop my handy skills further and will do things such as recording that Smith-Diagram and Impedance matching online course or writing that mosquito fighting book. And much more.
Create a list of things that you might want to do if you have more time.
I find that in a recession it is of utmost importance to have the sense of doing something to counter the effects of the recession.
If this works for me, it may also work for you. Limiting social networks and Netflix will help to get access to extra hours that you will need to deal with contraction. Time is money. And you have free time as a kind of bank account. It’s time to draw down that account.
There is Also Some Mental Resilience Needed
People who live in fear of being fired are under a great deal of pressure. So are the people who have hired them and who have to keep the company’s doors open. Everybody is under tremendous pressure. This pressure can last for years. The turnaround comes slowly. People think that they are going to have to live under this pressure on a permanent basis.
One of the burdens of living under these conditions is a form of emotional depression. People look at their new circumstances, and they conclude in some way, they are to blame. I have seen that this attitude afflicts people in an economic downturn. They become convinced that if they had only done things differently, they would not be in this situation. They hear about the fact that others are suffering similar setbacks in their lives, but they still tend to blame themselves for the fact that their careers have been upended. Their plans have gone awry. They don’t have a fallback position financially. When you lose your job, you’re on the wrong side of an all-or-nothing transaction.
I’m writing this now because I have seen this affliction several times and I want you to be aware of this affliction. If you know about it in advance, you may not suffer quite so badly when the condition arrives in your life.
And I want to list some mental strategies that may help you cope with emotional depression. I am now 55 years old, and I have seen so much in my life. Let me share my experiences with you so that you may benefit from what I have seen.
Seven Steps to Prepare Yourself Mentally for A Recession
When times are booming, most people assume that they are going to continue what they are doing. But they know that there will be a setback at some point in time. But they operate on the assumption that the setbacks will take place only in the lives of other people. They don’t come to grips emotionally with the fact that they are going to go through the wringer along with most other people.
There are a few steps that you can do in order to increase the chance of not falling into a depression during a recession.
The first step is to not blame yourself. Repeat that after me: “It is not my fault.”
The whole economy is in decline, not only you. And it is not just your company. It is not true that everybody is in the same boat, but most people are. I realize that – in theory – we all know this, but coping with it emotionally is something very different.
Second step, and more important: do not define yourself by your job. I can understand that people define themselves by their callings. Their callings are the most important thing they can do in which they would be most difficult to replace. One reason why they are difficult to replace is not that they are so intelligent or unique that only they can do that job. The reason is that that not many other people want to do it. Another reason is that nobody else is going to pay them to do it. They pay for that job themselves. So, the supply for people with a calling is limited.
A job is different. A job is how you put food on the table. Husbands are supposed to put food on the table. At least that is what men have done in the past. This is why unemployment is a tremendous burden for men. If we lose our jobs, we feel that we have failed our families. It is unlikely that our wives and children will blame us. Wives and children know that husbands are under this pressure. They understand that it’s not their husbands’ fault that they’re out of work.
I have earlier written an article about the difference between a job and a calling, here https://ip-lawyer-tools.com/the-pursuit-of-happiness-versus-a-day-job-plus-a-calling/
Third step: re-define your definition of success, if you have not yet done so. This is because people who get fired have to scramble to get a replacement job, and they are not used to do this. They have not had to do this in years. When they did have to do it, they were younger. They were more resilient. Maybe they didn’t have as many responsibilities. The load they are carrying is larger today, and then their ability to carry this load is taken away from them.
Under these circumstances, a man has to keep moving forward even if there is no sign that he is moving forward. He has to keep looking for a job, and maybe for one that pays significantly less than the one he had before.
Now here comes your definition of success into play. If you define success as a technician from the result, this is a guaranteed ticket into depression. There will be one hundred failed attempts before you will have your first success. Don`t do this.
Coach John Wooden has developed a definition of success that I can fully endorse and that reflects what I went through in my life:
Success is peace of mind that is the direct result of self-satisfaction in knowing you did your best to become the best that you are capable of becoming.
When it comes to a job interview, this means nothing less than you have to know that you are doing your best to get the job.
Step four: Develop a personal network. You must be able to avoid the hiring algorithm, and this is only possible over personal contacts that you have developed in the boom phase. The hiring algorithm screens out virtually all job applicants. Even before Covid-19, larger companies did not pay attention to job applications at all. Everything was done by headhunters. This is going to be even worse when they have ceased hiring during the recession.
If you systematically begin to gain contacts today, this will help you when the recession hits. If you develop name identification online by means of a specialized blog that deals with your niche, then you have a fighting chance. If you develop your public speaking skills now, you have an edge. If you do these things, and you still get fired, you will not be kicking yourself retroactively. You will be able to say to yourself that you did the best you could when you had the opportunity. This is another way to strengthen your psychological armor against emotional depression.
Again, you want to be in a situation in which you are not blaming yourself for being in it.
Step five: check if your current clients are recession-proof. Clients will stop sending you work unless they sell a recession-proof service or product.
Example: retail businesses are today already feeling the pressure from Amazon & Co. There are not many retail businesses that anybody really has to go to. People have to go to the supermarket. They don’t have to go to Target, Karstadt, or Cold Storage. They have to go to the doctor but they don’t have to go to a dentist. People will make their decisions in terms of what they really must spend. They will actively budget to make certain that they can pay their monthly bills for things that they really have to buy. This is what people do in recessions and companies do the same on a B2B level. Look carefully what business your clients are in.
Are there other clients that you could try to develop that would be less volatile in a recession? Probably this is something that you would not be able to do in a crisis. So consider spending time now for finding out what clients will be high performers during the recession, even though this is costing you time for knocking on doors. You invest time that cuts your income now, but for the sake of a more steady income later.
Step six: study contemporary history. Sit down and review what happened in the field of law in 2008 and 2009. If you are new to the field of law, find out from an old timer who did go through it. Talk with that person about what strategies worked for him during that downturn.
Seventh step: start fighting the future blindness at the margin and create a list of everything with which you are content today.
There is a psychological reality. When things are at the bottom, or close to it, we see mainly what is on the margin. What is on the margin is bad news. Bad news engulfs us. Bad news is everywhere. Bad news is what we buy. Bad news is what sells. Bad news is what gets us to check the same news website ten times per day.
I recommend that you sit down with a sheet of paper and start writing everything in life with which you are content today. Ignore anything that bothers you. Just focus on those areas of your life in which you are not interested in seeking out changes.
If you work at this, you will find that it is a long list. Count your blessings. Focus on all the things for which you should be thankful.
There’s a strategy behind this. The strategy here is to prepare ourselves for a time in which we will be inundated with bad news about the economy. If we look at a list of things in our lives about which we are contented, we will find that most of the list is still intact. We need perspective on this. We need to be able to see that, when times seemed good, the list of blessings was substantial. We need this for comparison. At the margin, the news will be bad. We will be tempted to impute the bad things around us to the good things we still have.
This is also why bad news is a threat to us at the bottom. We see only what we have lost, not what we still have.
In a recession, we will scratch off certain benefits on the list of benefits we enjoy today. There is no doubt that a recession forces changes on us. Bad news does hit.
The reason why you need the list of those things in your life with which your content is so that you can see that the impact of the bad news really is marginal. You will lose some nice things on that list. But you will not find that the list simply disappears as you check off some of the benefits you presently enjoy. In all likelihood, the biggest benefits will not be affected.
When times are good, we forget about this. When times are good, we take for granted all the good things we have. This is a mistake. We should be grateful in good times for the good things we have. But, on the other hand, when times are bad, and we stop taking for granted all the good things we still have, we should acknowledge all the good things we still have.
This is a simple exercise. It is simple to describe. It is not simple for most people to perform it. I know people committing suicide because they had had let the annoyances of their marriage and their job and house loan overwhelm their understanding of the benefits that they had. The annoyances were always front and center in their lifes, and they blinded them to the benefits that he had all along.
In the next recession, tremendous opportunities are going to be available. But if all you can see are problems in your life, you are not going to be able to take advantage of these opportunities.
Prepare yourself now, especially if you are still in lock-down mode, wherever that is.
Start looking for a piece of real-estate or for that expensive piece of equipment that you can later pick up for very little money. You can also look into buying stocks.
Prepare yourself against the Wave of Bad Information.
Create a list of things that you might want to do if you have more time in a recession, so that have the sense of doing something to counter the effects of the recession.
Train yourself regularly in the seven steps above in order to increase the chance of not falling into a depression during the upcoming recession.
Look at those areas of your life with which you are generally content. Write them down. Make a list. Keep the list in reserve somewhere. Add to it when you can. This will psychologically prepare you for the setbacks that you will inevitably face when the recession hits.
Finally, bookmark this article so that you find it again when you need it.
Martin “recession-proof” Schweiger