when the Great Recession officially ended the expansion is the longest on
record when times get tough the inclination is to slash budgets and
marketing is usually one of the first to go but this is a mistake as you’d be
cutting off the very programs that generate demand at a time when your
business needs it most the biggest risk when investing is not
investing at all in fear of a recession now the chances are that the Federal
Reserve will not want to impose such extreme negative interest rates so the
second option they have is printing money quantitative easing exactly what
they did in the years following 2008 now the problem we want to typically see is
that as we print more money your dollar loses value this is an extreme risk for
anybody especially the middle of lower classes who own most of their assets in
cash in a bank welcome to the inside Forbes Counsel’s podcast
each episode shares transformative insights and advice for members of
Forbes councils a group of invitation-only communities for
successful executives and entrepreneurs today’s topic how to prepare your
business and personal wealth for recession we’ll hear from Forbes
councils members Roxana Madhavi of Steel Peak Wealth Management
Nathalie Nathanson of magnitude consulting jian rostam a body of hawk
media and Felix Hartmann of Hartmann capital first and foremost we must point
out that nothing in this episode should be construed as investing advice the
opinions expressed in this podcast are the participants and are current through
the date of the broadcast these views are subject to change at any time based
on market or other current conditions and no forecasts can be guaranteed it’s
been 10 years since the Great Recession and while there have been some stock
market scares along the way whether due to sovereign debt concerns or brexit we
have not had a recession since are we overdue for one is it inevitable can
should you prepare after the Great Recession of Oh 809 it’s hard to not
have a fear of a similar scenario playing out again my first job out of
college was actually at Lehman Brothers which started just months before Lehman
Brothers filed for bankruptcy and the 2008 recession was in full swing I
thought I was going to this awesome high paying Wall Street job in just a few
months after I started there filing for the biggest bankruptcy in history
everyone I worked with was losing their jobs in their retirement money and these
weren’t even the high paid trader types I’m talking about people with small
salaries working on operations roles that relied on each paycheck send their
kids to school I learned a lot from that experience and have made studying the
markets and recessions a big part of my life since then that’s Ruksana Madhavi a
financial advisor at steele peak wealth management in california it’s possible
that a recession is on the horizon but it really shouldn’t matter what I think
or what anyone else thinks most everyone is wrong about this question over and
over again CEOs Wall Street analysts and economists
have been predicting a recession for years just to give you a few examples in
December of 2015 JP Morgan put out a piece predicting a
76 percent chance of recession within three years here we are four years later
and the global markets have rallied 54% since that report came out in January of
2016 Citigroup put out a report predicting a
65% chance of a recession global markets are up 23% since that report came out
happened again with Deutsche Bank in September of 2017 their CEO made an
announcement the most asset classes in the Western world are potentially
overbought meaning the potential bubbles exists in certain markets world markets
have rallied 23% since that common as well these people are smart and at the
time the indicators were there for a recession but the economy and markets
move in ways that we sometimes can’t predict or prepare for but there are
signs of a recession right so the first kind of indicator I see is that our
economy began expansion in June 2009 when the Great Recession officially
ended the expansion is the longest on record
that’s jian rostam a body vice president of marketing at hawk media which is an
outsource CMO consultancy so often times expansions end in recession start
because some sort of major shock right this could be a political crisis from an
oil Jacque but it could also be caused by
collective loss of confidence because people will think that things won’t be
so hot so soon so people decide to stop investing
hiring and investing in their businesses and building them because they’re
worried that everyone else is going to stop doing the same things so in today’s
case you can actually imagine this collective loss of confidence somebody
can be due to the president trade wars and fears of further escalation but also
because of what’s happening below Glee such as brexit China slowdown etc there
are three red flags that is signalling the beginning of the end of this current
bull market first is that the current bull market has been tall longest bull
run in American history and as we all know nothing lasts forever
it is never wise to bet on extremes as at the end of the day most trends always
returned to the mean that’s Felix Hartman managing partner and chief
investment officer at Hartman capital and Hartman digital asset funds secondly
we saw an inversion of the yield curves for the first time since 2007 right
before the big economic recession of 2008 we saw an inverted yield curve of
the two and ten-year Treasuries now this generally only occurs about 18 to 24
months before an economic recession or downturn we saw this happen in 2007 we
saw this happen in the 2000s and we saw this happen in the 1980s every single
time being foreshadowing of hard times to come and a third and final red flag
our interest cuts again for the first time since 2007 we’ve seen interest
rates being cut every single time of the last few recessions we saw interest
rates being cut in advance of the recession why is that you might ask as
the Federal Reserve starts realizing that the economic growth is slowing that
they are trying to spur this growth to keep it going by reducing the interest
rates the reason this works is that businesses individuals
we’ll be incentivized to keep investing and to keep spending as their savings
are not paying them as much as they used to this of course is only a short-term
solution as interest rates can only be cut so much when recession does hit and
most economists agree it will eventually even if the timetable is wrong consumer
discretionary businesses are often the hardest hit I think the first thing is
you can really just outsource this day mean Jian rostam Abadi of hawk media
again so one of the things I’ve seen as an example is that a lot of e-commerce
companies a lot of digital companies that have a need for digital marketing
how do a lot of email marketers and these email marketers especially where
I’m at right now are making significantly more than they did a year
or two ago so I think a lot of times what you can do is really outsource to
stay weaned when either a recession is happening whether it’s looming just
because a lot of times when there’s a recession the first thing to go is
marketing right obviously you need operations you need services you’re
gonna have your overhead cost and you need a sales team or a customer service
or support team so it just makes sense to kind of outsource a lot of times
marketing is a luxury for growth a lot of times it’s difficult to justify just
because you can’t attribute every sale to one single touch point but it’s also
not binary there’s a customer journey and there’s multiple touch points that
happen so a lot of times you know great marketing really addresses demand and it
creates it even when consumers are less likely to spend so that doesn’t
necessarily mean you should be frugal about your marketing budget in
particular during the economic downturn but in terms of staffing and resourcing
you want to look for those sort of lean and agile solutions that allow you to
keep the marketing machine on without paying an annual salary and without
incurring those costs I think the second thing you can really do is keep tabs on
your overhead right when there’s economic expansion it’s really tempting
to make major hires and build out a team it’s really you know smart in some cases
to invest in the building or buying a warehouse but on the other hand right
your overheads still gonna remain fixed wherever whether your products are
selling it or not whether consumers are spending those costs don’t really go
away so if you still have expensive creative director or a CFO or
this giant warehouse that you’re leasing and you still have to pay those bills
month over month or year over a year you’re just gonna create blow with your
overhead and you know a lot of those companies are come to first to drown
during recession right so you want to increase or sorry you want to decrease
your overhead costs and create stronger margins for your business I’d say the
next thing is just make sure you have you know within your marketing and
marketing communications just a really strong brand differentiator right really
laser focus on your new selling points right why are you different from your
competitors and why do you do your consumers need your product right it’s
not just about the product itself but how you communicate it because marketing
is all about communicating delivering value and exchange relationships right a
lot of the things that slow down when a recession hits are big companies right
so when you communicate how your products are you’re better than those
household names you can stand out especially if you’re a low-cost product
and maybe an inferior good so that way you can kind of take that market share
back when times get tough the inclination is to slash budgets and
marketing is usually one of the first to go that’s Natalie Nathanson president
and founder of magnitude consulting and she agrees that cutting marketing
spending during a recession may not be the best advice this is a mistake as
you’d be cutting off the very programs that generate demand at a time when your
business needs it most instead spend smarter rather than not spending at all
focusing on the programs that generate the best ROI put your marketing dollars
towards needs rather than once and finally consider optimizing your
headcount which may include outsourcing some of your marketing function rather
than hiring and working with a marketing partner that can quickly adapt and pivot
to changing needs so if you’re not cutting marketing which is often seen as
a cost center what can businesses do prepare your mission critical value
propositions resist the me to type messages that cause you to blend in with
the crowd don’t forget that during an economic downturn your customers and
prospects are facing the same tight budgets
and strapped head counts as you focus your value propositions on something
that not only makes you unique but also helps your customer lay the foundation
of success for years to come the third piece of advice we give about
marketing during economic decline is to diversify your customer base where
possible in other words don’t put all your eggs in one basket concentrating
your marketing efforts on fewer verticals or segments to streamline your
go-to-market efforts can be effective when the economy is drunk but during a
slowdown it further concentrates your risk instead examine how your current
customer segments are likely to perform as times get tough and consider
expansion into other segments to diversify your customer base
particularly as some verticals are more or less aligned to the overall economy
than others also ensure that you do not have too much revenue concentration and
your largest clients ask yourself what would happen to your business if your
largest customer left you unexpectedly and start developing your fallback plan
accordingly fourth you want to be sure that you’re
placing a heavy focus on nurturing your existing customer relationships don’t
forget that they will likely be facing some of the same financial pressures as
you you want to ensure that your solution is a must-have when they’re
looking to make budget cuts and also that you have relationships with as many
internal stakeholders as possible a fifth element to consider is right
sizing your offerings there’s a number of different ways to do this including
offering discounts to lock in clients for longer terms or designing a
lightweight version of your product or service with limited functionality at a
lower price point our sixth and final recommendation is to build a
recession-proof ecosystem this means looking beyond your direct sales force
and examining your partner and channel relationship
look at whether and how these relationships will serve you during
difficult economic times you may want to consider adding alternate partnerships
or diversifying your partnerships whether that be geographic expansion
industry sector or different types of partners altogether what happens if you
do prepare for a recession maybe you listen to an analyst who forecasted a
recession what happened three years ago and then it didn’t is it a wasted effort
unless a recession doesn’t happen I don’t believe that effort is wasted Jian
Rustom Abadi again you’re still establishing a stronger brand a position
you’re still increasing your customer lifetime value by using life cycle
marketing and content and you’re also collecting data that should translate to
insights and learnings that are gonna drive future growth through your
business and improve your strategies across the board when it comes to
marketing and sales efforts so what are the numbers here what’s the risk of not
preparing how much is really at stake to be honest the best way to prepare for
recession is to have a long term plan that’s nicely diversified recessions can
affect some markets more than others so having different types of companies and
different sectors and markets is key Roxana madhavi again also it’s really
important to prepare yourself emotionally as human beings we can’t
help it we act on emotion sometimes without seeing the bigger picture the
most dangerous investment behavior of experiences when clients call me on a
bad day in the market asking to sell their holdings typically in those cases
the markets rebounded just a few days later average investors make three point
eight percent a year in the stock market while the S&P annualized is eleven
percent that’s a huge discrepancy that all comes from human emotion over
investing the biggest risk on investing is not investing at all in fear of a
recession if your preparation involves being fearful and staying on the
sidelines instead of investing then yeah it’s a wasted effort being fearful is
really dangerous for investors when they adjust their investment behavior usually
by pulling out of the markets or switching to a very conservative
portfolio in fear of an impending recession they wind up missing out on
bull markets and rebounds over time even through recessions markets tend to
rebound really quickly and with more vigor than when they pulled back the
biggest risk is pulling and not getting those rebounds look
being invested in 2008 was not pretty the market was down 38% and it seems
like the end of our economy as we knew it but if you Steve invested even
through the worst points of the recession you very likely recovered all
of your losses within one year this past December is another example of how fears
of recession can cause us to miss a rebound the markets pulled back 9% in
December of 2018 alone within just a few weeks everyone is crying recession on
the horizon if investors pull out in fear of a recession they would have lost
out on a rebound of 23% since that low historically bull markets at last bear
markets bull markets last an average of 47 months in bear markets last an
average of 13 months mercury rebounds also at last declines the stock market
has experienced so many pull backs throughout its history but investors has
seen investment have been invested have been able to catch up when the markets
rebounds at the end of the day markets have recovered from the attack on Pearl
Harbor within a year the Cuban Missile Crisis within a month and September 11th
within a month markets recovered from the brig’s an announcement within a
month and when the SMP downgraded US debt also within a month no one knows
when the next recession is coming and to think – you know as a fool’s errand the
world keeps changing there unforeseen circumstances and markets don’t always
act the way they’re supposed to a recession is part of a normal market
cycle and should be treated in your portfolio as a period of time within a
long term strategy don’t let the fear of a recession control you or guide your
long-term investment strategy I’ll leave you with this last stat but $10,000
investment in the US economy in 1949 is worth over 17 million dollars as of the
end of last year in the week of 11 downturns that exceeded 10% any
discussion on recession and hedging investment risk today would be
incomplete without at least touching on crypto currencies I want to discuss the
three reasons why Bitcoin may just be the ultimate hedge against the coming
recession that’s Felix Hartman again with Bitcoin there are no negative
interest rates no will there ever be because you are your own bank so when
the time comes that interest rates are getting cut so low the
we’re being charged one two three four percent a year for owning our own money
people will look for an exit and that accid is Bitcoin the second reason why
bacon will be the ultimate hedge for this coming recession is inflation
the first monetary policy of course that we discussed that the Federal Reserve
and central banks love to use in order to keep a recession at bay is interest
rate cuts but historically that those interest rate cards are only about five
to six percent the problem is we are already at only 2.25 percent in the US
which means that such an interest rate cut would put us at deep negative
numbers now the chances are that the Federal Reserve will not want to impose
such extreme negative industries so the second option they have is printing
money quantitative easing exactly what they did in the years following 2008 now
the problem with quantitative easing is that as we print more money your dollar
loses value your purchasing power is crippled year after year
this is why you might realize that maybe 10 years ago maybe 20 years ago a gallon
of milk costs a lot less maybe a tank of gas costs a lot less and all the other
things you buy on a yearly basis this is an extreme risk for anybody especially
the middle and lower classes who own most of their assets in cash in a bank
this cannot happen with Bitcoin because with Bitcoin we know the exact supply of
bitcoins that are in circulation at any given point of time there only will ever
be 21 million Bitcoin and we know exactly how many new ones are being
released every single day every single 10-minute period this preset supply
schedule ensures that there isn’t inflation but in fact in a few years
there may actually be deflation as more coins or being lost than are being
minted this of course sets the stage for a very attractive store value that will
appreciate over time just as Gold has over the past few thousands of
years now the difference to gold is that with gold we know that there are many
many more tones of gold in space and in the oceans and in the Earth’s core then
are currently in circulation an advance of technology could lead the gold supply
to become increasingly inflated while with Bitcoin with mathematical scarcity
we know the algorithm anybody can audit the algorithm and anybody knows how the
monitor policy of Bitcoin is changing over time now the third and final reason
why Bitcoin is that ultimate hedge is that capital levy has been used in
several prior recessions where governments having built up so much debt
grabbed into this citizens bank accounts in order to pay off their debts this has
happened in many countries such as Cyprus where people were losing as much
as 10 to 50% of their savings because the from one day to the next the
government crapped into the bank accounts in order to pay off their debts
this is an issue because some families save their whole lives for that money
perhaps that we’re about to buy a house perhaps they were about to pay for their
kids college tuition while others were squandering the money away so it goes
against our basic liberties that the government will unannounced garnish your
money the beauty is that bacon can’t be victim of such capital levy because only
you control the keys only you have access to your vault when the next
recession has just like in the past people like to have perhaps 10% of their
investments in gold as protection as a hedge it may be a smart idea to have
five to ten percent of your assets in Bitcoin as a protection let’s assume the
inverse of it that the economy keeps thriving and Bitcoin drops you would
lose no more than you invested if you only invested five to ten percent that
is what you would lose however in the event that the economy faces a
significant collapse such as we saw the Argentine
peso collapse in August such as we saw the Turkish lira in 2018 lose 40% of its
value in a single month such as you saw the hyperinflation of both the currency
in Zimbabwe and Venezuela currency collapse are becoming more common and
common because of the practices by central banks and governments so if you
want to protect yourself Bitcoin might just be that option because with Bitcoin
only you have access to the asses with baked-on nobody can charge you negative
interest rates and with Bitcoin no central bank can start running the
printing press in order to bail out the big companies on your dime Bitcoin was
created in the aftermath of the 2008 recession bacon was built for exactly
this and now is a time when it will be put to the test do your own research but
don’t wait until the economy starts crumbling the takeaways based on historical trends
we are overdue for a recession but financial experts have for years been
calling for a downturn that doesn’t come timing the market is a difficult game
but you can take steps to safeguard your personal wealth and your business to
prepare for an eventual downturn and odds are taking some of these steps may
be a good idea anyway and when the recession does come
historically speaking you’re better off weathering the storm
I’d like to thank our contributors today Roxana Madhavi of Steel Peak wealth
management Nathalie Nathanson of magnitude consulting Gian rostam a body
of hoc media and Felix Hartmann of Hartmann capital well that’s all we have
time for today if you’re not a member of one of Forbes councils and are
interested in joining go to the forbes councils comm website to see if you
qualify thanks for listening please be sure to subscribe and we’ll see you on
the next episode

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