Will America Soon Go into A Recession?

I was reading an article where some economist made the rather flamboyant statement that America will be heading into a recession. People have said this for years and as far as I remember this fear has been strong since the dot com crash of 2000. How accurate is this type of statement? What are the signs? Should we be worried? I won’t be substantiating my beliefs here with numbers nor hard statistics but I would like to share my views.

First, I think that article was typical Business Insider/Yahoo clickbait. The actual contents did not really show enough evidence pointing to an actual recession. Probably, the only aspect that might hint about a recession, according to the author, was that America changed presidents after a two term one. That really isn’t hard evidence but rather than observation without much substantial numbers.

Second, that article (or rather the author) was pretty heavy on investing into European banks since they supposedly are outperforming US ones. Usually, when someone tells you that one side is bad and to put your money elsewhere, especially in some place very specifically, there’s a hidden motive. Either that person has quite a bit of money invested in that entity (or entities) or they’re a tool propped up by the entity for which the person is making that claim.

Yet since we’re on the topic of recessions, I think it’s a good opportunity to dive into the subject as various others have been pining about such an event. In my peers’ situations, they have alluded to more substantial evidence that might indicate a true recession in America.

One friend has been observing what we call the Snapchat (or rather Snap) bubble that has surfaced over in West LA (namely around the Venice Beach area). Snapchat was considered the darling next generation idea for youth. However, at the core the company supposedly is at a massive loss. Their selling point, as with most social media, impinges upon users and user growth rather than actual revenue. While they do have some form of ad system, Snapchat does not supposedly have the targeting system of say Facebook. On top of that, Instagram’s re-emergence containing all the basic simple features of Snap have made it more appealing. Coupled with Facebook’s better targeting system and monetary backing, Instagram feels like a better deal that turns Snap irrelevant.

If that’s the case then Snapchat may very well be doomed as my friend has mentioned. The massive loss compared to their valuation could indicate that Snapchat is nothing more than a fraudulent company where the overhyped IPO was nothing more than a get rich scheme by the founders and investors. In fact, they’re apparently receiving a lawsuit as a result of their plummeting stock.

So what are the consequences of Snapchat failing? My friend hypothesizes that the gutting of such a widely known company will cause a massive ripple in confidence for investors, especially young investors who saw Snapchat as a worthy buy. Could social media sites like Twitter be the next to fall in the case of a massive snowball effect? Will other so-called technology sites connected and heavily dependent upon social media experience catastrophic repercussions? Will tech be submerged once again as in 2000 with waves of doubt from investors, who practically are the life blood? Is this Donald Trump’s fault?

The answer to all of this is: who cares? Well, since it’s bad to answer a question with a question, let me re-phrase a lot of this. First, I think that not all social media will suffer. Social media has a place in tech but not to the degree that has gotten out of control. Like the Amazon’s and eBays for ecommerce, some social media companies like a Facebook will survive because they have a place and utility. Also, companies like Facebook have converted from just being a pure sharing ad network to companies solving engineering problems and creating solutions that go beyond a “like” button.

Second, tech won’t stop growing. We need a future, plain and simple. The thing is that money simply moves around. Here, the money will move away from paradigms of sharing, analytics and vanity numbers into something else such as drones, self driving cars, vision and whatnot. In the case of Snapchat, what will ensure their survival will be moving away silly teenage dickpic sharing into engineering problems. Not just dealing with scale as many companies have solved that problem but perhaps vision and building tools that aren’t like a stupid pikura you’d find in Tokyo but something adds real value to the world.

Of course, the thing to realize is that a single company’s fall won’t drive a recession. Snapchat, should it go bankrupt, won’t be the stone that triggers the avalanche. However, my friend did point out that Snapchat not only is a money losing company but a heavy investor in real estate. Much of Venice Beach has become these pockets of offices for Snapchat. Should Snapchat close doors, what happens to that real estate, as my friend pontificates?

Real estate and cost of living in California have been outrageous for the past ten years. I’ve heard horror stories about how the Bay Area’s poverty or low income line now is defined at around $100k for a family of 4. That’s ridiculous! But it shows a larger problem of how the tech giants have created other bubbles that may lead to other unsustainable bubbles in California. The result is that companies are moving out of California like Toyota.

Food cost and gas are skyrocketing too. The average lunch probably cost around $10. But food trucks for a zone like Playa Vista can average around $15. It’s all artificial too because of how supply/demand works. I know though that presented the opportunity of leaving the state, many people would just on the cost of living alone.

So in my view, California itself could experience a recession. It might not be the US overall but the state itself. That could trigger other parts of the country to experience an imbalance since the state supplies a lot of high end jobs. But what about lower wage jobs? I’ve read reports on how the Bay Area’s high cost have made it prohibitive to be a teacher. I can’t imagine how people working in fast food or retail could even survive without handling 3+ jobs.

What is clear to me more than anything is that something has got to give. The government either has to step in and force some sort of rent control or limit on housing cost to start. I feel that the government is far too self-serving to do anything like that. Instead, it will wait until a disaster strikes since the government sees all this rising cost as money in its coffers. But companies like a Toyota will continue to leave in trying to find greener pastures where land, taxes, etc. are friendlier.

By this token I think we will have a recession based on low confidence levels. To me economics really is an emotional thing. It’s not about whether a single company’s stock tanks. It’s about whether people have confidence in their lives. That encompasses the government, state, job, cost of living, etc. I feel that confidence has been lost since 2000 and permanently damaged from 2007 when the financial companies collapsed. Now, people have been living in the shadow of the perpetual R word looming at all times.

Yet what I’ve learned over the years is not about having an impending recession. It’s about how one can deal with it. It’s really not hard either. Basically, make sure you have a nice nest egg stashed away where you can live out a year or two without a job. Also, use common sense in spending. Don’t overspend beyond your means. I mean if you want to purchase a house that’s fine because it’s an investment on top of an expense. But do so strategically. Make sure your company is stable and in a good spot.

You can figure out if your company can survive a recession by determining how necessary your company in relation to other companies. In other words, will it continue to make money during a recession? Will other companies or people depend upon it to do business?

Also, how important are you within the company? Are you replaceable? If your work can be outsourced or replaced by a cheaper solution, then you’re a goner. But do what you can to make good connections with people inside the company both in terms of coworkers and key management people. There’s a solid chance if you can prove close to irreplaceable or competent that the next company those people enter may be a spot where you can easily find a new job.

That said, you don’t have to go completely cheap and not spend a dime on anything. Stuff like health are things you never compromise on. But avoiding excess and creating a budget are what can see you through a recession. Learn what you really need in life and what you can do without. Like in my case, when I wasn’t working, I cut out numerous subscriptions to things like World of Warcraft or Netflix. Instead, I would use the time for those things to pick up new skills in preparation for my next job. Be productive and make sure you move forward. All these things will help you survive.

 

 

 

 

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