How to Prepare for the Next Crash
Jun. 6th, 2021 03:27 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
ndrosenI have explained why we have the boom/bust cycle, which to reiterate, is more accurately described as “the real estate cycle” than as “the business cycle,” and I have set forth how the next major bust can be expected in 2026, give or take a little. Now, what can you, personally, do to prepare? I will provide advice to people in different circumstances.
For people without much money: Try to put aside a few dollars each month, and have a cushion of savings against emergencies. You may lose your job, or your own small business may fail, or at least not have much revenue, so try to have something in the bank, enabling you to keep on eating and paying the rent or mortgage. It might also be wise to keep a stock of canned foods and other goods you can use. The government may try to help, but I don’t know who will be in power in five years, or what policies will be followed; also, given current deficit spending and signs of inflation, the United States may be unable to keep borrowing, and face a hyperinflationary spiral. In a country that elected Donald Trump, events that currently seem melodramatic and implausible may yet occur.
For people thinking of buying a house or other real estate: If you want to buy a house to live in, you may do so. If you’re thinking of building wealth by owning a home, it isn’t likely to work that way if you buy near the top of the real estate boom, so if housing prices are going up and up, and at least some pundits are proclaiming that This Time It’s Different, keep in mind that it won’t be different (different in detail, yes, but somehow, sooner or later, the bubble will be punctured). If you want to use your understanding of Georgist economics to make money, and you have a cool head, you may want to buy now, and sell in early 2025 or so; if you time it right, you may succeed in making a substantial capital gain. If you do, I’d be pleased if you donate some of it to a Georgist organization.
For people with other investments: If you own stocks directly, or have a 401(k) plan or IRA, I advise shifting from stocks to bonds and/or cash before the next big bust. You might want to have a discussion with your broker, if you have one, “Assuming a major recession, and in particular, the bursting of the real estate bubble, what companies and sectors are likely to be badly hurt, and what companies and sectors will probably still be pretty much OK?” Before the crash, it would be a good idea to move money out of the stock market, which is already at a historically very high price to earnings ratio. I can’t give exact dates, so you might want to do this in installments: Sell some shares of stock in late 2024, some more in the first half of 2025, more in the the second half of 2025, and if stock and housing prices are still rising in 2026, sell some more shares. I don’t say that you need to get out of the stock market altogether, but I do advise shifting a large part of your holdings from stocks, especially vulnerable stocks, to bonds and cash. Assuming we avoid complete collapse, you should be able to buy back your shares more cheaply after the bubble bursts.
For people without much money: Try to put aside a few dollars each month, and have a cushion of savings against emergencies. You may lose your job, or your own small business may fail, or at least not have much revenue, so try to have something in the bank, enabling you to keep on eating and paying the rent or mortgage. It might also be wise to keep a stock of canned foods and other goods you can use. The government may try to help, but I don’t know who will be in power in five years, or what policies will be followed; also, given current deficit spending and signs of inflation, the United States may be unable to keep borrowing, and face a hyperinflationary spiral. In a country that elected Donald Trump, events that currently seem melodramatic and implausible may yet occur.
For people thinking of buying a house or other real estate: If you want to buy a house to live in, you may do so. If you’re thinking of building wealth by owning a home, it isn’t likely to work that way if you buy near the top of the real estate boom, so if housing prices are going up and up, and at least some pundits are proclaiming that This Time It’s Different, keep in mind that it won’t be different (different in detail, yes, but somehow, sooner or later, the bubble will be punctured). If you want to use your understanding of Georgist economics to make money, and you have a cool head, you may want to buy now, and sell in early 2025 or so; if you time it right, you may succeed in making a substantial capital gain. If you do, I’d be pleased if you donate some of it to a Georgist organization.
For people with other investments: If you own stocks directly, or have a 401(k) plan or IRA, I advise shifting from stocks to bonds and/or cash before the next big bust. You might want to have a discussion with your broker, if you have one, “Assuming a major recession, and in particular, the bursting of the real estate bubble, what companies and sectors are likely to be badly hurt, and what companies and sectors will probably still be pretty much OK?” Before the crash, it would be a good idea to move money out of the stock market, which is already at a historically very high price to earnings ratio. I can’t give exact dates, so you might want to do this in installments: Sell some shares of stock in late 2024, some more in the first half of 2025, more in the the second half of 2025, and if stock and housing prices are still rising in 2026, sell some more shares. I don’t say that you need to get out of the stock market altogether, but I do advise shifting a large part of your holdings from stocks, especially vulnerable stocks, to bonds and cash. Assuming we avoid complete collapse, you should be able to buy back your shares more cheaply after the bubble bursts.
