Preparing for the next recession

[AxelHeyst]

There are effects of nodes/node clusters in my WoG that are related/have first/second+ order effects of "recession resilience". Some of those node/clusters are:

• 3-7yrs ~cash buffer: 1+ years in completely liquid, the rest in stuff like CD ladders or iBonds etc. (3yrs is the floor - if I go below this it triggers focused attention to remedy. 7yrs is the overflow threshold - income above 7yrs goes to portfolio allocation, alpha, skillz training buckets, etc).
• There are almost no ongoing expenses that I couldn't stop within a day of deciding to: no mortgage, leases, car payments, etc.
• My main indulgence expense right now is my motorcycle insurance and reg, which I could suspend at any moment. I do still plan on snipping the moto node of my wog, towards the end of the year.
• MH is also debt-free with fairly low operating expenses and an adequate cash buffer, same goes with all of my immediate family, so no concerns there. Gratitude for that.

For the sake of the exercise I'll assume that the recession would dramatically reduce the amount of revenue my business is bringing in (not a given). I would take some time to put some finishing touches on some of the assets and maybe do some spec/marketing projects I've had on the back burner (making show-off videos of my stuff), but otherwise I'd be fine to just do other things. It's *possible* that in the right kind of recession, one of our service offerings would actually become more attractive, and if that worked out I might just switch to doing that to more or less continue that cluster as it is now. But if not I wouldn't try to force it to work.

Assuming then that my business hours/wk go down, I'd ramp up my writing and podcasting hours, solarpunkDIY projects (the ones that don't involve spending capx), bikepacking/dirtbagging, possibly go climb more, do skill (re)acquisition on a few skills I'm interested in picking up for digital design, etc. None of these other nodes would necessarily bring in income, but a) they might and b) they don't have to because cash buffer.

One of the ways my other clusters could lead to remuneration is by having more time available to say yes to DIY/solarpunk build for others, like the PV projects I did for neighbors in 23/24. A little bit of this and a little bit of that could lead to no drawdown of cash buffer.

I see a potential opportunity in how a recession would generally increase overall population motivation/interest in post-consumer praxis. People could be met where they are at and introduced to the positive benefits of ERE praxis regardless of current economic conditions, and the community could experience an influx of new ideas, thoughts, perspectives, backgrounds, etc (perhaps similar to the vibe 'round here in the early days of the forum). Possible opportunities for both online and IRL collaborations, webs of relationships, howlieball games , etc.

It appears that a recession would have to be significantly worse than the Great Depression to seriously affect my life system. It remains to be seen how a major decrease in my stash size would affect my ability to sleep well at night.

[TrailMix]

On cash savings: I struggle with holding cash, even when it is in a fixed income vehicle. The opportunity cost of cash is clear, whereas the cost of not holding enough cash and dipping into investments is less clear. But I know the latter is a true cost. I remember the stories of people running out of their commonly advised 6 month to 1 year cash savings during the pandemic. Then the subsequent inflation and stock boom afterwards seemed to erase that lesson.

I haven't held any investments through a recession and only witnessed GFC and the pandemic recession. GFC was just a collection of sad memories. I bought my first stock during March 2020 after hearing that they were "on sale". If stocks go down +25%, I think I would be tempted to do what I did during the pandemic and buy the dip.

Do I need to set up an automatic CD ladder and hide it in an account where I will never see it? Keep the opportunity cost out of sight and out of mind?

As of this post, projected Q1 GDP is -2.8%

[sky]

https://www.atlantafed.org/cqer/research/gdpnow

https://www.atlantafed.org/-/media/Imag ... lution.gif

This is bizarre. It seems to be real and not fake news. ???

[theanimal]

It is real. My understanding is that the drop is primarily driven by the merchandise trading import statistic which was extremely low for the month of January. That number can increase as early as next monthw which would bring the GDP now number back up. Imports have been much larger than normal over the past few months as companies are and have been uncertain about the effects of tarrifs. The same was true in March of 2022 with the start of the war in Ukraine. So either the tarrifs are enacted and imports drop, or companies reduce the number of imports as they become content with what they have on hand, either way the statistic goes back to more normal numbers and GDP now moderates/goes up.

[Ego]

The recent WSJ OpEd about the default rate on FHA loans and the systemic delay in foreclosures got my attention.

https://archive.ph/TOxl7

About 7.05% of FHA mortgages issued last year went seriously delinquent—90 or more days past when a payment is due—within 12 months. That’s more than at the 2008 peak of the subprime bubble (7.02%).

Under the guise of Covid relief, the Biden administration masked the growing troubles in the housing market by paying off borrowers and mortgage servicers to prevent foreclosures. Of the 52,531 FHA loans last year that went seriously delinquent within their first year, only nine resulted in foreclosure.

I am not sure what percentage of mortgages are FHA loans, but I believe it is a small minority. Are there similar mechanisms in non-FHA systems that allow owners to avoid foreclosure?

[NewBlood]

either way the statistic goes back to more normal numbers and GDP now moderates/goes up.

What would be the impact of a 50% "Reduction In Force" in the federal govt on GDP though?
1 million people all losing their job at the same time isn't gonna prop up the economy.

[jennypenny]

Some imports were also expedited because of the threat of a dock strike (twice). The numbers are going to look wonky.

I am not sure what percentage of mortgages are FHA loans, but I believe it is a small minority.

It's actually up over 15%. The key statistic (to my mind) is that conventional mortgage delinquencies are decreasing while FHA and VA mortgage delinquencies are increasing. The wealth gap continues to widen ...

[sky]

In 2008, I remember talking to a guy and we decided there was no place to hide, everything was going down. Real estate was down, equities were down, even my money market account went down, which I thought was a safe place to park my money. I don't recall what bonds were doing, they might have been a good strategy in recession. The best strategy would probably have been to hold cash and take the inflation hit. He was buying ghetto houses for about $20k and he probably made a lot of money over the next decade. I parked a lot of my money in a money market account and waited. It is tough to know when to jump back in, there were a lot of false rallies. I suppose equity buy and hold will work if you can wait 2 to 3 years.

[Stasher]

> I moved from a 10% to a 30% of my AA this week into my bond index this week
> I am still building up my savings account and want to reach a minimum of 6 months spending with greater goal of 12 months.
> I sold every dollar I had in my US Index and moved all of it into VIU global equity this week (I'm Canadian and the the trade war against us is why)
> I am working on my Buy Nothing Month of March to get a new baseline of core spending, tracking my spending, and hopefully continuing on a low spend year. Doing this to keep putting more into my bond index and savings account.

[delay]

Do I need to set up an automatic CD ladder and hide it in an account where I will never see it? Keep the opportunity cost out of sight and out of mind?

My cash is in a certificate of deposit "ladder", in the sense of one expiring every year. Not sure what you mean by automatic. I look at my CDs when they expire, which is once per year, and then I start a new one. Not frequent enough to automate.

It is hidden in the sense that I only look at it once per year. Doesn't matter as you can't withdraw from a CD before it expires.

I look at my investments once every quarter (usually less as I can't be bothered.) Probably not optimal from an investing point of view, but it certainly helps with peace of mind.

[TrailMix]

@delay My brokerage has auto-rollover. It automatically reinvests the principal in the maturity term equal to ladder length until I cancel the instructions. I would set the maturity every quarter so I could access it relatively quickly if I need it.

As of this post, projected Q1 GDP is -2.8%

I should have put more context with that. Here is a comparison of Atlanta's GDPNow projection and the BEA's advance estimate of GDP from St. Louis. A second and third estimate follow the advance estimate not shown on the graph. BEA advanced estimates exclude yearly patterns, like winter weather, holidays, and factory production schedules. To my knowledge GDPnow makes no adjustments and it is not an official forecast of GDP. BEA advanced estimate of Q1 2025 will be out April 30th.

[Ego]

The key statistic (to my mind) is that conventional mortgage delinquencies are decreasing while FHA and VA mortgage delinquencies are increasing. The wealth gap continues to widen ...

Freddie Mac and Fannie Mae loans make up about 70% of all mortgages in the U.S.. Freddie and Fannie have a program called Flex Modification that does the same thing as the FHA program I mentioned above. It allows homeowners to delay foreclosure if they fail to make payments. Flex Modification adds the unpaid amount to the loan and can extend the life of the loan out to 40 years. The idea is that the borrower will get back on their feet and be able to begin paying their loan again. Late last year they stopped reporting the data on these mortgage modification programs and at the same time expanded the programs.

These programs mask defaults, which may explain @JP's point about conventional mortgage delinquencies decreasing. It also flattens the natural market cycles which benefits Boomers but harms young people who are patiently waiting for the housing correction to buy a home.

ETA: The FHA program, which began as a Covid-era protection, was due to expire April, but during the election chaos it was extended until 1 Feb 2026.

[bostonimproper]

https://www.atlantafed.org/-/media/Imag ... lution.gif

This is bizarre. It seems to be real and not fake news. ???

To add to the animal’s post above, gold imports in particular have significantly skewed the Atlanta GDPNow tracker. Excluding gold you are closer to ~0% GDP growth for the quarter (which is a significant drop, but not yet a contraction). Source: https://www.ft.com/content/1f58f6ac-fa3 ... 5097838654

[TrailMix]

2025 Q1 Advanced is -0.3%.

The model is now adjusted for gold imports.