Before the Wave Crashes

March 24, 2020

My Dear Reader,
Unfortunately, economically speaking, I believe that we have a long way to go, before we can say we’ve recovered from this virus. I was speaking with a client this morning, and he told me that he felt like his 401k was more like a 201k. Aside from what I found to be a very humorous joke, He spoke to a basic reality that we’re all going to have to face possibly later this year or next. While this lockdown has stalled the economy and forced it into a tailspin, that isn’t even the worst of it. It is true in the meantime that stocks will continue to plummet and three years of gain will be washed away in about 3 weeks, but this will also increase the access to Consumer Debt. The Fed made sure of that. This will undoubtedly increase the potential for defaults and bankruptcies on a personal level, but should also be a warning sign for commercial loans.

Part of the problem with the 2008 meltdown wasn’t necessarily the fact that the subprime market had a number of personal defaults, but rather companies who were over-leveraged were heavily invested in that market. That created a chain reaction which busted many companies financial strategies and in turn forced many layoffs and additional personal bankruptcies. This spread like a disease across many different Industries and helped create the greatest financial meltdown in the 21st century. Similarly, we may see a rise in commercial and personal defaults in the wake of the forced economic shutdown, which could have another chain reaction. This is in part due to larger companies exposure to derivatives and volatile investments. On the bright side, perhaps the deregulation of the economy in 2017 will help the rebound once the lockdown is lifted. This could avoid the catastrophic potential of the Fed’s injections. However, the experts that I subscribe to, remain doubtful.

Tomorrow, we’ll look at some personal solutions to this problem that will save us from the potential chaos at hand.

To your creation and potential,
Kevin Prendiville