

Ask YC: How bad is the economy? - sown

Any finance hackers here?<p>I'm very scared of what is going on. I have decent savings (about a year's worth) and a good job with Cisco (company got acquired recently) but I'm afraid of what is going to happen.<p>What can I do to protect myself?
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bootload
_"... I'm very scared of what is going on. I have decent savings (about a
year's worth) and a good job with Cisco (company got acquired recently) but
I'm afraid of what is going to happen. ..."_

Haven't lived through a recession before?

The most important things to remember: Reduce debt at all costs, make your
objective to be debt free. Cash is king. With cash you can bargain. Live
frugally while you have debt. If you have a job, train for the next one. If
you have a job stick with it. If you are finding progression at work slow and
thinking of another job, think before you leap. Probably the most important
thing to remember is like booms, recessions end.

 _"... What can I do to protect myself? ..."_

Don't spend what you can't pay in cash. As for protection, you can try but
sometimes individuals are swept about like leaves on a stormy winters day.
Adapt.

~~~
sant0sk1
During WW2 people in Germany would take wheel barrows of cash to the grocery
store to buy bread and milk. The value of German currency dropped so low that
people would steal your wheel barrow and dump out the cash.

While I agree with your sentiment that you should only buy what you can pay
for today, I wouldn't put too much trust in your (US) cash being worth
tomorrow what it is today.

Investing in foreign currencies can build a nice hedge in times like these.

~~~
bokonist
Almost every foreign currency has at least an informal peg to the dollar. The
European and Chinese Central Banks are working hard to make sure that the
dollar does not fall too much. The only truly foreign currency is gold. But
the potential for a dollar crash is already factored into the price, so buying
gold too is very risky. The safest place to put money would seem to be a
combination of FDIC insured CD's, dividend paying stocks ( as opposed to non-
dividend, purely speculative stocks), and gold.

~~~
thwarted
I don't follow how CDs, FDIC insured or not, wouldn't be affected by inflation
in exactly the same way cash would be. Say you buy a $10 CD that pays 10%
after 12 months. Within that year, the dollar is devalued by 50%, but your CD
still only pays out $11, even though you'd need $22 to have the same
purchasing power.

------
truebosko
This is kind of on topic but I was listening to a podcast earlier this week
and one piece of advice given was:

If you are part of a small company, or if you have a growing small
startup/business, this is the time to grow. The big guys are going to be
hurting by the downturn in the economy. Get your product out there, stabilize
it, and use these years to get a level of safety for it.

As for your assets. Like others said, reduce your debts, keep saving as you
are now and you will be fine. If most of your assets are in ACTUAL CASH (i.e:
money stored in a savings account) then you will be fine.

~~~
calvin
Having hordes of actual cash won't protect you from inflation if it starts to
become a problem. There's a reason gold is trading incredibly high right now.

~~~
truebosko
Oh I understand this, but for most people doing any kind of trading is just
out of their league. I'm sure most people will be happy to know the $50k they
have in their ING Account will be safe from most things while the economy
levels back up again over the years.

~~~
palish
I truly hope so. I have $15k to wade through this thing, so I doubt I can last
very many years. Luckily I don't have to travel much, so the rising cost of
fuel doesn't affect my burn rate terribly. Health insurance is a different
story though.

------
furiouslol
In McCain's words, "the economy is sound".

In my words, the economy is heading for a long-drawn recession due to a much
needed deleveraging, albeit a drastic one. The world was too flush with credit
in the past decade. The financial system is currently fubar with the credit
market virtually frozen at this moment. Banks don't trust each other. The
Chinese government has instructed their banks to stop lending to US financial
institutions. The Feds are currently keeping the financial system on life
support. Expect the side effects of the credit contraction to trickle down to
the real economy very soon. More company failures, more layoffs, higher
unemployment rate etc. Buffett wasn't exaggerating when he said this is an
economic pearl harbor. Which is why the Paulson bailout plan will prove to be
very crucial.

~~~
jpcx01
Don't be an idiot. He said "while the fundamentals are sound..." as part of a
warning on a possible downturn.

What do you want him to say? "The fundamentals are crap! Don't invest in
USA!". There are several states in the country, right now, that are booming.
If you don't think so, visit Austin and see how "depressed" it is.

~~~
jon_dahl
I agree, but lay off the name-calling.

------
trickjarrett
Times will get rough but anyone who isn't a moron will come out alright.
Recessions are necessary periods of self repair for economies. This one is a
backlash from too many people getting too much stupid debt and financial
institutions not being responsible.

~~~
thomasmallen
Are you one of those people who thinks the poor are stupid? Sometimes it's out
of your hands.

------
dobrekone
... why reduce debt? Nothing is better for devaluing your debt as inflation.
It makes it worthless. The question is whether there will be a significant
inflation at all. I doubt it, since lot of assets were burned recently in the
market drop so there is actually missing liquidity. US could easily face the
problem of deflation rather then inflation in the near future. A well balanced
portfolio of your investments is the best what you can do in long term. It is
hard (if impossible) to time the markets. A well balanced portfolio generally
means: 60% equity, 30% bonds, 10% alternatives (including gold).

~~~
kingkongrevenge
This only works out if there is WAGE inflation. It is very possible for
inflation to run rampant while nominal wage growth trails far behind. This is
probably the most likely scenario. Have fun paying off your devalued debts
with an income of $0, because you're unemployed.

In the intermediate term, asset deflation will probably be the dominant force,
even if consumer staples continue to inflate somewhat. The very high general
inflation is in store for later.

------
corentin
Don't panic.

Despite what the media say (their job is to tell doom stories, after all),
it's not the end of the world as you know it. If you don't know anything
particular about finance, just follow your guts, keep your savings account and
listen to the experts telling you to invest in _whatever_ with a grain of
salt. Don't try to act differently. We're not always rational economic actors
in the first place, and panic only makes things much worse. Simply follow the
prices, as you would usually (e.g. if you see a bargain at the supermarket, go
for it if it's something you would usually do).

------
noodle
you'll be fine. put money into your retirement account, save money in a good
high-yield FDIC account and wait this thing out. don't do anything stupid, but
don't do anything you think is smart, either, because its probably also stupid
in an uncertain market.

this is just a part of the business cycle. we're just seeing an extra big down
because some jerks love money more than ethics. it will go back up, and by
investing in your retirement still, you'll be buying some good deals on stocks
while they're down.

------
biohacker42
A lot of people say that things could get as bad as the great depression.

That is true in the absolute sense, but wrong in the relative.

What I mean is that we are today much richer then people were just before the
great depression.

If the economy dives deeper and stays down longer we would still be much
better of then people were during the great depression.

That's not my opinion, that's fact, because it is what happened in Japan.

Japan had a cheap money, stock and real estate fueled boom and then a true
depression which was deeper and longer then the great depression.

But because they were much, much, much better of to start with, their bottom
was still far above the great depression's bottom.

The same principle would apply to America.

As other people have mentioned cash is king in a recession/depression.

Keep in mind cash can lose its value if the fed is trying to stimulate
spending by inflating the currency.

Gold is a good hedge but gold is taxed at very high rates (22%, not sure) but
government bonds are tax free.

It's probably a good idea to hold both.

And if the fed is attempting to save us by printing money, debt IS a good
thing to have.

Inflation is the debtor's friend.

~~~
thomasmallen
Is that a poem?

------
thomasmallen
Let me put it this way: I woke up at 6 this morning to the words "biggest bank
failure in US history," and immediately thought to myself, "Well, I woke up to
the depression." After listening for a little while, I realized it was the
same WaMu news from last night, so not a big deal. But things are going
downhill and it's due a a fundamentally flawed economy woefully dependent on
credit.

I expect tough times ahead, but I'm not too concerned. I have real, technical
skills that should keep me working through whatever may come. One thing that
I'm doing is brushing up on my DBA abilities, because I figure that no matter
how bad things get, maintaining databases will not be an option: They're part
of the infrastructure now.

Call me RMS, but now is the time to make sure that your skills with open
source software are top-notch. If things go down the toilet, you can bet that
businesses will be hesitant to use expensive Microsoft products when free
alternatives are around. Now, Microsoft would hopefully adjust to the decrease
in demand, but I'll take the almost guaranteed increase in demand any day over
that gamble.

------
ernan
America is the greatest democracy since Greece. There is a lot of nay sayers
rigth now, as there always is in hard times: These guys used to have placards
on their backs and fronts saying it is the end of the world, now the internet
has given them a wider voice. We should rejoce in this fact and to be honest I
love it and read all of these blogs every day. This is freedom of the press
and democracy at its finest. I work at a finance company that went burst (Bear
Stearns) so what some people lost some jobs, some rich people lost alot of
money. Come on I was also in the DOT com burst. Look be smart, the start
looking for the next bubble and getting on board as you should be.

Just listen to what these gobshites are saying: it is the end of america, it
is the end of the super power. I have heard this crap quite a few times over
the last while, gimmie a break. Listen stop being part of the problem: 1\.
Start looking for a profit in this. 2\. Start looking at how America can
change to be better from this. 3\. The crinimals that currently run the
country should be held accountable if they actually manage to rob the taxpayer
of this 700B. 4\. The fed should be nationalized.

America is the greatest country in the world, I truly, truly believe this all
we need is a bit of leadershio to guide us out of this crises. The unfortunate
thing right now is that both parties have tried to politicise this crises.

FUCK them all no matter what happens tomorrow we will still be american and we
will be stronger better and harder.

Stop listening to the fags and start working on solutions to the problem.

That is what america is about, somewhere we lost a bit of this, it is time for
some new ideas some hard work and some real leadership.

Believe me the problems we are facing are big but if we work togehter as a
nation we will dispatch this problem in a quater, turn this nation around
regain our pride and show the world why America is the only super power.

Ernan

------
steveplace
Protect yourself from what, exactly?

Your savings is protected by the FDIC up to 100k per acct.

I honestly don't believe that the tech/info sector is going to lose that many
jobs. If Cisco does consolidate, it (hopefully) will be non-core resources,
such as HR, and internal operations.

If you have a 401k, you're screwed either way since you have very few options
on where to invest.

If you have an IRA, you can hedge risk by selling calls against your assets...
but that's as far as I will go in terms of specific advice.

~~~
hugh
Anyone know exactly how the FDIC thing works?

Supposing my bank goes under (which I sure as hell hope it won't, cuz it's
Bank of America), I'm guessing it'll take some time for them to get their act
together and I might not be able to access money in the short term. Is this
correct? Or can they swing into action immediately to keep the money coming
out of the ATMs?

In that case it might make sense to have stashes of cash in multiple banks,
just in case (and hell, a thousand bucks under your pillow).

~~~
tptacek
No, it does not make sense to stash a thousand bucks under your pillow.

~~~
kingkongrevenge
I haven't done this, but I actually think it's a good idea to have $1K in
fives hidden somewhere. If the power goes out for a week in a region that
would be a great thing to have.

~~~
nostrademons
Yeah, my sister stocked up on $20s before Hurricane Ike, and it saved her
butt. Houston is only _now_ getting power back, so everything was cash-only
for a week or so.

Also - pasta salad is apparently a lifesaver. It serves like 10, can be eaten
cold, and doesn't go bad all that easily.

~~~
DabAsteroid
It is even better to stock up on $1s.

------
josephl
I have a related question. Do you guys think it is a good time to invest in
real estate. I live in Southern CA, so property is pretty expensive as it is.
Right now, I'm looking at places for approx. $300k that were approx. $500k two
years ago. Given that fact that interest rates are not bad either (5.5-7%), it
does not seem like a bad time (given that I will have no problems making the
payments). This would be my first home purchase, so I'm pretty new at this
stuff.

~~~
jon_dahl
Are you looking to own your own home, or make money investing in real estate?
If you're talking the former, and you can afford it (20% down-payment, non-
ARM, comfortable monthly payment), then I'd probably do it personally.

If you're doing it as an investment, I'd hold off unless you have a lot of
money invested already and are looking to diversify. "They" are saying that
home prices may slide for another year or two at least. Of course, "they" are
often wrong...

~~~
josephl
I'm looking to own my own home. I've got 10% down, non-ARM and semi-
conformable monthly payment (relies on two incomes).

------
13ren
A problem is an opportunity.

 _Mr. Market suffers from some rather incurable emotional problems; you see,
he is very temperamental. When Mr. Market is overcome by boundless optimism or
bottomless pessimism, he will quote you a price that seems to you a little
short of silly._

Warning: you can only tell if the price of a particular stock is silly if you
have some idea of what its price should be (with a margin of safety).

------
jon_dahl
My thoughts: [http://blog.9assets.com/post/51250904/the-sleep-test-
lessons...](http://blog.9assets.com/post/51250904/the-sleep-test-lessons-from-
a-bear-market#disqus_thread)

I recommend that you don't panic and ride it out. But if you can't, then
permanently decrease your risk exposure (not just for this downturn).

------
gtani
The advice here is good and well-intentioned, for the most part, but you need
to get recommendations form colleagues and friends for an accountant and fee-
based financial planner in your area that you trust, explain your tax, real
estate, financial holdings, and family situation, and work through different
scenarios.

------
coglethorpe
I'm currently looking for a new job. I've noticed that the demand for my
skills is as high as in 1999, but the market rate for those skills has dropped
nearly 20%.

~~~
menloparkbum
That's because you are old (I've experienced the same thing.) Salaries for
recent grads are higher than ever.

~~~
nostrademons
Do folks 3 years out of college count as "old" or "recent grads"?

~~~
menloparkbum
It depends on what you're doing. Raw details:

I've been at it for 10 years, half in california, half in boston. Just
interviewed at a bunch of startups and one big firm. Offers were all around
$95K + post series A equity. I made the same salary 18 months out of college.
College senior interns at the last "real job" I had got hired away for $86K
starting at Amazon, and I didn't think they were necessarily the cream of the
crop. I decided to keep contracting until the end of the year at $95/hr and
continue working on my improbable startup, even with the heinous economy. In
my experience engineering salaries plateau around $100K. Maybe more if you are
doing something hard (VMWare) or heinous ("web scaling expert") or are looking
to be an exec (VP Eng / CTO).

Age/Experience doesn't really translate into significantly more money unless
you're looking to move up the management chain. Best to make hay while you are
young. Although, I haven't had a model career - I usually make lateral moves
to work on something new and interesting, and have some employment gaps where
I decided to travel the world instead of slogging it out. 'Your mileage may
vary'

~~~
coglethorpe
> Age/Experience doesn't really translate into significantly more money unless
> you're looking to move up the management chain.

I'm actually looking at salaried positions that will pay close to what I'm at
now and have me one or two notches up the food chain. Wages have stagnated for
now at least.

------
tocomment
He probably means protection against hyper inflation. Any advice for that?

~~~
nostrademons
Guns & gold. You want enough gold to bribe your way out of the country, and
enough guns to ensure that the relevant people take the bribe.

Hyperinflation almost always leads to political unrest, rioting, the fall of
the current political regime, and usually war. There's no defense against
that: somebody will break into your house, kill you, and take everything you
own anyway. So if you honestly believe hyperinflation is going to occur, get
the hell out of dodge and quit worrying about your finances.

This, BTW, is why I don't think hyperinflation will occur. Since it always
leads to the toppling of the entrenched power elite, and the entrenched power
elite tends to do anything in their power to _stay_ in power, they'll make
sure it doesn't happen. Looking at history, every instance of hyperinflation I
could find resulted from one of two conditions:

1\. There was a large standing army who hadn't been paid in a while and was
getting antsy. Or, alternatively, a large rebel group that forcibly
appropriated resources from the citizenry and was getting antsy. (Rome 476,
Spain 1588, U.S. 1789, Confederate U.S 1865, Hungary 1946, ROC 1949, USSR
1992, Ukraine 1993)

2\. There is a large foreign debt, _denominated in foreign currency_ , that
the nation can't pay back. (Weimar Germany 1921, Argentina 1989, Argentina
2001.)

In both of these cases, the government is going to fall _anyway_. If you don't
pay the army, they have guns, they come in, and they oust you. If you don't
pay your foreign creditors, they have guns, they come in, and they oust you.
Printing money is a way to buy time; it never works in the long run, but
between dying now and dying later, most elites would rather die later.

The U.S. is not in either of these situations, though the rise of private
security forces (Blackstone) is worrying, as is their addiction to debt. If
the U.S. doesn't get its spending habits under control, it's just a matter of
time before it starts borrowing in RMB or Yen, and then an ordinary garden-
variety inflation isn't enough to erase its debt.

------
known
Very bad. Stay away from Stock Markets.

~~~
mrtron
Any time you hear that it is time to invest!

As painful as the current situation is for some, it certainly is a better
buying opportunity than a few months ago.

~~~
13ren
And watch Warren Buffett. Is he buying? Is he tap dancing?

~~~
hhm
What is he doing now?

~~~
13ren
Buying Goldman Sachs

[http://www.businessweek.com/investing/insights/blog/archives...](http://www.businessweek.com/investing/insights/blog/archives/2008/09/warren_buffett.html)

~~~
hhm
Thank you!

