Preparing For The Next Economic Winter

[INTRODUCTION] Welcome to “Christian Financial Perspectives”, where you’re invited to gain insight, wisdom and knowledge about how Christians integrate their faith, life and finances with a Biblical Worldview. Here’s your host Christian Investment Advisor, Financial Planner, and Coach, Bob Barber. [EPISODE] Bob: Welcome everyone. Welcome to our 101st podcast for Christian Financial Perspectives. In our last podcast, we went into a detailed history lesson of major economic booms and busts and what caused them. We started with the rise and fall of the Roman empire over a thousand years ago. And then we looked at four other examples of economic booms and busts that have happened in just the last 4 years. So, Shawn, would you go over those four examples again, not in the detail that we did last week, of course, but some of those four examples that we talked about last week. Shawn: Yeah. So as Bob just said, the economic booms and busts that occurred in the last four years, what we meant was the last 100 years. Bob: Oh, did I say that? Yeah, that’s right. Okay. Shawn: So the first, additional one we looked at was the roaring 1920s here in America, followed by the Great Depression of the 1930s. Then we covered Japan’s massive economic boom during the 1980s, followed by a huge bust in their economy during the 1990s. Then we covered our own stock market for the internet bubble leading up to the summer of the year of 2000, just 21 years ago, followed by a major crash in the markets from March of 2000 until 2003. And lastly, just 13 years ago, the 2008 real estate and stock market bubble followed by a major crash in the markets that did not recoup fully until 2013. Bob: You say “The” because that was your first year in the financial business. Shawn: It was. I remember that one very clearly as a welcome to investing 101. Bob: It’s interesting when we said just 13 years ago, speaking of the year 2013, I’m going to tell you something that most people don’t realize that the S&P 500, the Fortune 500, did you realize that it only gained 3% to 4% in total price appreciation from March of 2000 when the internet, right at the peak of the internet bubble, it only gained 3-4% in total price appreciation from March of 2000 through March of 2013, 13 years. Shawn: 13 years with a total price difference of 3% to 4%. Bob: Wow. Yeah. Most people I think, well, wait a second. Don’t you average 10% in the stock market. Cause you’ve heard that by certain very well-known people say, well, you’re going to make 10% on average if you stay in the market, but during those 13 years, if you had to put money in in just March of 2000 and then 13 years later, you’d only be up 3% or 4% if it was just the S&P 500 index. Yeah. But get this? Since March of 2013 until August the end of August in 2021, the S&P 500 has increased 200%. So you’ve got eight years that increased 200%, 13 years only to did 3-4%. So you think it might be time for a little breather? Shawn: I would say so. That brings us to today’s podcast where we’re going to talk about preparing for the next economic winter. Bob, I believe you have a disclaimer for. Bob: I do have a disclaimer, because while we’re talking about preparing for the next economic winter, I want to make it clear that we’re not saying that a major economic winter is coming tomorrow or even next year, because no one can really pinpoint the next economic winter that’s going to come about. But I do say this. Economic winters are normal and they come every so often, but so many people, they become forgetful. Shawn: Yes, sir. So Bob, it’s been a long time since we had a real recession, like the 2008 real estate bust, the 2000 internet bubble bust, or even the 1920s economic bust. The market downturn we had, for example, from COVID 19 pandemic last year, only lasted about three to four months before it recovered back to previous levels. So we’re not counting it for today’s podcast because I mean, I dunno if I’d really call that a winter as much as I call it as a temporary snowstorm. Bob: They say it’s the shortest economic downturn we’ve ever had because it was so short lived. Shawn: Nearly every time there are economic booms, they are followed by economic winters because markets follow cycles. Bob: Exactly. It’s very normal, Shawn. And it’s to be expected that the longer you have an economic boom, also the more out of touch people become with an economic winter. And it’s because people enjoy the good times and believe me, I like them too. But now that the markets have been up for more than eight years from the rebound 2013, or 12 years since the market bottomed out, I just think we could be due for another one. Shawn: Yeah. So you think people get out of touch? Is it, would you call it, complacency or would we say it’s just more of, we just tend towards, well, if this is the way it’s been going, why wouldn’t it continue? Bob: I think it’s a combination of the two. You get complacent and you just think, wait a second. Why wouldn’t this continue? Shawn: So essentially the longer a bull market lasts, the less concern most people get about a market pull back. Bob: That’s exactly right. Yeah. And it’s been a long time now. I mean, it’s been 13 years where the normal time that something would have that downturn would be every seven or eight. So it’s been a long time. And like I say, it’s just human nature, at no fault of anyone, that you want the good times to keep on going and going. I mean, I know I do. Shawn: Me too. Bob: Yeah, exactly. So what we’re going to do in preparing for the economic winter, I thought today, we’re going to be bringing in several biblical examples and we’re going to use scripture because this is Christian Financial Perspectives. And we’re going to start off first with the sixth chapter of Proverbs. And I love Proverbs. And we’ve talked about some of these scriptures, but we’re going to bring them in into looking at these, about using these scriptures to prepare for that economic winter. So we’ve got the sixth chapter of Proverbs and there’s verses six through 11. It’s about ants. Shawn: Not aunts and uncles. Bob’s talking about the pesky little things that show up at our picnics and campsite. Bob: Exactly. Exactly. So Shawn, if you wouldn’t mind, open up God’s word there and let’s look at 6 through 11 of Proverbs 6. Shawn: So starting with verse six, “Go to the ant you sluggard, consider its ways and be wise. It has no commander, no overseer or ruler. Yet it stores its provisions in summer and gathers its food at harvest. How long will you lie there, you sluggard? When will you get up from your sleep? A little sleep, a little slumber, a little folding of the hands to rest and poverty will come at you like a thief and scarcity like an armed man.” Bob: Those scriptures are pretty tough, aren’t they? It’s got “you sluggard” written in there. It’s like, how long are you going to lie there? Get up. Do something with your life. I mean, a little slumber, poverty is going to come on you. It’s a pretty tough scripture. Shawn: Proverbs hits you pretty hard sometimes. It doesn’t pull any punches. Bob: Shawn, what do you think, in this example, what is the ant doing during the summer months and those good economic times. Let’s think of it that way. Like we’ve had over the last seven to eight years, what’s that ant been doing in this example? Shawn: Well, it’s saving up for the possible economic winter ahead because it knows the provisions during the good times may not be there in the bad times. Bob: Exactly. That’s exactly right. So, how can we know? There’s always going to be good times, but there’s always gonna be bad times, too. I mean, how do we know that? It was a scripture we went over last week, and I think it would be good to bring that scripture back. Shawn: Once again, scripture has an answer for it. In Ecclesiastes 3:1-8, “There is a special time for everything. There is a time for everything that happens under heaven. There’s a time to be born and a time to die, a time to plant and a time to pick what is planted. There’s a time to kill and a time to heal. A time to break down at a time to build up. There’s a time to cry and a time to laugh. A time to have sorrow and a time to dance. There’s a time to throw stones and a time to gather stones. A time to kiss, a time to turn from kissing. There is a time to try to find and a time to lose. A time to keep and a time to throw away. There is a time to tear apart and a time to sew together, a time to be quiet and a time to speak. And finally, there is a time to love and a time to hate. A time for war and a time for peace.” Bob: It never gets old reading that scripture because God’s word never gets old because it applies to everything. And I like what these scriptures say, because they really point out that there is natural peaks and valleys in life. Naturally, there’s going to be good times and bad times. There’s going to be good economic times and there’s going to be those economic winters, which is what we’re talking about today. I love going to birthday parties. And when I was a kid, I always loved balloons. And I’d blow in those balloons and I think, okay, that makes that balloon come to life, right? When you have that little bitty balloon and you blow into it and it comes to life. It can be really pretty. I just thought, wow, these are all these neat colors when I was a kid. But if you keep putting air into the balloon without any constraints, what’s it eventually going to do? It’s going to pop. It’s going to blow up, and it’s going to blow up into tiny pieces, you know? And there’s some good wisdom in that. Shawn: Yes, there is Bob. Wisdom is enjoying the good times, but also preparing for the bad ones that will eventually come to fruition. Bob: That is wisdom. I want them to enjoy the good times. We should all enjoy the good times, but don’t forget about the second part of that. Right? What you said there was preparing for the bad times as well. Proverbs 1:2-7 talks about wisdom, “For gaining wisdom and instruction, for understanding words of insight, for receiving instruction and prudent behavior, for doing what is right and just and fair, for giving prudence again to those who are simple, knowledge and discretion to the young, let the wise listen and add to their learning and let the discerning guidance for understanding Proverbs and parables, the sayings and riddles of the wise, the fear of the Lord is the beginning of knowledge, but fools despise wisdom and instruction.” And we’re really talking about wisdom today. Shawn: Proverbs 1:7. That is definitely one of my favorite verses if I can say that again, “The fear of the Lord is the beginning of knowledge, but fools despise wisdom and instruction.” Yeah. So we’ve looked at several examples of wisely preparing from the ants in Proverbs six for preparing for an economic winter. So there’s a time for everything in the third chapter of Ecclesiastes, and from these scriptures we can be assured that there will always be economic winters, just like there will always be economic good times or summers. Bob: So there’s another scripture we’re going to look at. And this is a pretty long scripture. It’s one of the greatest stories I know about what to do during good economic times like we’ve been having, and how to prepare for those economic downturns and winters, which according to scripture, we’re always going to have, right? And so we’re going to look at the 41st chapter of Genesis, but I want to give you some background first. What we’re going to look at in Genesis is the story of Pharaoh and Joseph in the Old Testament. I don’t want you to confuse that with the Joseph of the New Testament, husband of Mary, mother of Jesus. Joseph in the Old Testament, he was thrown into jail for falsely being accused of fooling around with his master’s wife. But while Joseph was in jail, they found that he could interpret dreams of those he was under. So let’s look at the story and pick it up from there, knowing that Joseph can interpret dreams. Shawn: I’m glad we’re covering this one because every time we talk about market cycles and our last episode, we talked about the cycle of the markets and how you don’t just go straight up a hill or straight down a hill. Whether you’re going up, whether you’re going down, we go through these cycles. We go through some ups and downs. And every time when I think of that, I think of what happened here in this story with Joseph and how God used Joseph to be able to prepare not just Egypt at the time, but all of the surrounding countries that because of Egypt preparation, that other countries were actually able to survive the famine that inevitably came. So starting with Genesis 41:1, “When two full years had passed, Pharaoh had a dream. He was standing by the Nile, when out of the river there came up seven cows, sleek and fat. And they grazed among the reeds. After them, seven other cows, ugly and gaunt, came up out of the Nile and stood beside those on the riverbank and the cows that were ugly and gaunt ate up the seven sleek fat cows. Then Pharaoh woke up. He then fell asleep again and had a second dream, seven heads of grain, healthy and good, were growing on a single stock. After them, seven other heads of grains, sprouted thin and scorched by the east wind. The thin heads of grain swallowed up the seven healthy, full heads. Then Pharaoh woke up. It had been a dream. In the morning, his mind was troubled. So he sent for all the magicians and wise men of Egypt. Pharaoh told them his dreams, but no one could interpret them for him.” Bob: “Then the chief cup bearer said to Pharoah, ‘Today I’m reminded of my shortcomings. Pharaoh was once angry with the servants and he imprisoned me and the chief baker in the house of the captain of the guard. Each of us had a dream the same night and each dream had a meaning of its own. Now a young Hebrew….’” And that was Joseph, “‘Was there with us, a servant of the captain of the guard. We told him our dreams and Joseph interpreted them for us, giving each man the interpretation of his dreams and things turned out exactly as he interpreted them to us. I was restored to my position and the other man was impaled.’ So Pharoah sent for Joseph, and he quickly brought him from the dungeon. When he had shaved and changed his clothes, he came before Pharaoh.” Shawn: “Pharaoh said to Joseph, ‘I had a dream and no one can interpret it, but I have heard it said of you that when you hear dreams, you can interpret it.’ ‘I cannot do it,’ Joseph replied to Pharaoh, ‘but God will give Pharaoh the answer he desires.’ Then Pharaoh said to Joseph, ‘In my dream, I was standing on the bank of the Nile, when out of the river there came up seven cows, fat and sleek and they grazed among the reeds. After them, seven other cows came up, scrawny and very ugly and lean. I had never seen such ugly cows in all the land of Egypt. The lean ugly cows ate up the seven fat cows that came up first. But even after they ate them, no one could tell that they had done so. They looked just as ugly as before. Then, I woke up. In my dream, I saw seven heads of grain, full and good, growing on a single stock. After them, seven other heads sprouted, withered and thin and scorched by the east wind. The thin heads of grain swallowed up the seven good heads. I told this to the magicians, but none of them could explain it to me.’” Bob: All right. So here comes verse 25. This is when Joseph is going to tell what’s going on. Shawn: Through God’s power, Joseph’s about to drop the mic. Bob: “‘The dreams are one in the same. God has revealed to Pharaoh what he is about to do. The seven good cows are seven years and the seven good heads of grain are seven years. It is one in the same dream. The seven lean ugly cows that came up afterwards are seven years and so are the seven worthless heads of grain scorched by the east wind. They are seven years of famine. It is just as I said to Pharaoh, God has shown for what is about to do. Seven years of great abundance are coming to the land of Egypt, but seven years of famine will follow. Then all the abundance in Egypt will be forgotten and the famine will ravage the land. The abundance in the land will not be remembered because the famine that follows it will be so severe. The reason the dream was given to Pharaoh in two forms is that the matter has been firmly decided by God and God will do it soon. And let Pharaoh look for a discerning and wise man and put him in charge of the land of Egypt.’” Shawn: “‘Let Pharaoh appoint commissioners over the land to take a fifth of the harvest of Egypt during the seven years of abundance. They should collect all the food of these good years that are coming and store up the grain under the authority of Pharaoh to be kept in the cities for food. This food should be held in reserve for the country to be used during the seven years of famine that will come upon Egypt so that the country may not be ruined by the famine.’” Bob: That last part was the most important part. Shawn: It is one of the most powerful scriptures about economic booms and busts. Bob: It really is. And so what happened was Pharaoh was told to save up one fifth of the harvest, and one fifth is 20%. And to do that for up to seven years and to store it for the bad times, or economic winter, that’s to follow. So using this biblical example that we’ve just looked at and applying math to it, here are four examples of what you should be saving during the good times when the markets and economy are booming based on your household income. So we’re going to give a real simple example first, and then we’re going to try to put yourself somewhere in these categories. Shawn: For every $10,000 of annual income your household is making during the good times, you should be saving $2,000 per year Bob: Because that’s 20% of 10,000. That’s right. Shawn: So for a $100,000 annual household income, that’s $20,000 per year for seven years, which equals $140,000 for cash reserves by using this biblical example. Bob: Just stop right there. I want to let that sink in. So if you’re making $100,000 income based on this example that we’ve just looked at in scripture, you should be saving $20,000 per year for up to seven years, which equals $140,000. Now you may be thinking I’m crazy, but this is the biblical example that we’re looking at here. It’s the Bible. Don’t look at me if you’re thinking that. What about a $200,000 income? Shawn: Well, for $200,000, that’s a savings of $40,000 a year, which adds up to $280,000 of cash reserves after seven years. I’ll do two more examples to help us wrap our head around this. For a $400,000 income, you’d be saving $80,000 per year, which brings you up to $560,000 in cash reserves at the end of the seven years. And finally, for a $500,000 income, that is a $100,000 a year savings or $700,000 in cash reserves after seven years. Bob: Do you find yourself fitting anywhere in there and thinking, wait a second, I have never heard this before. Maybe you and your spouse have a great income, and you’re making a hundred or $200,000 a year. Are you putting that kind of money away? 20% of that, even on up to seven years for those seven – the good years, we’re talking about during the good years – that is this biblical example. I just don’t think, Shawn, most people never realize from scripture what you need to have in cash reserves, but it’s very clear to us right here in Genesis 41. Isn’t this a great example that we should follow? Shawn: Absolutely. Bob: I think that it is. I mean, I look at it like this because we’ve had such a good 7, 8, 9 years of an economic prosperity and things going great. Good times are not just about buying new cars and trucks and boats and second homes and more stuff, but it’s also using and applying God’s wisdom to prepare for economic winters that naturally follow boom times and bull markets like we’ve been in because scripture says it. Shawn: I like how this next scripture really speaks into all the new stuff you may be seeing people getting today when the economy is doing so well. So Proverbs 13:7, “One person pretends to be rich, yet has nothing. Another pretends to be poor, yet has great wealth.” Bob: And I’ve seen this many times. All those new cars and trucks and boats and toys and second homes and stuff you might be seeing someone else getting, it could just be a big facade with nothing to really back it up. Shawn: Yeah. Yes, absolutely. And the thing that I’ve seen just in my time, and I know I haven’t been around 30 years like you have Bob doing this, but just in the time that I’ve been an advisor and seeing people over and over not saving enough that they they’re investing, but no matter how good your money manager might be, they can’t save you from saving. And when you look at the look at these scriptures, it supports it. You need to be both saving and investing together and spending everything that you earn, whether you’re earning a $100,000 or $500,000 a year, if you aren’t putting some of that aside, it’s going to be a sticker shock when you try to retire and you can’t live on even a fraction of what you’ve been used to. Bob: And all those boats and toys and things during those good times, you gotta be real careful that it’s not being all bought on debt as well without cash reserves to back it up. Proverbs 22 tells us, “The rich rule over the poor, but the borrower is slave to the lender.” Shawn: So there you have it. We’ve given many scriptural examples today for our podcast preparing for the next economic winter. It’s not a matter of if an economic winter will happen, but when will it happen? And those that do not learn from history are likely to repeat it. Bob: I know that’s one of your favorite sayings. We want to say this. No one of us can really accurately predict when the next economic winter is going to hit us. But I can tell you this, there are many indicators that an economic winter could arrive sooner than later. So be prepared and watch out for many of the human behaviors that are always exhibited before a major burst hits. We talked about this last week, and I’ve got to again today, the chart that we’ve been using for many years called the “cycle of human emotions”. I mentioned it in our last podcast. I want to mention it again today. When people are buying, buying, buying in reckless abandonment of using wise principles no matter what the price is and they just want in. That’s happening a lot. I see it with real estate. You need to see this chart because many times that’s when we’re at the peak just about to go down. So in finishing today’s podcast, just be prepared. Shawn: And if you haven’t started saving yet for the economic winter that’s eventually coming, why not start now and get as far as you can before the next one hits. If we can make any recommendation, maybe you can’t do the 20% right now, but what you should do as quickly as possible before you even consider additional investments is you should be building up your cash reserves for your six months of expenses. Bob: Absolutely. That’s kind of the norm. And then with today’s scripture, we talked about quite a bit more than that. I want you to remember something, too. The markets can be irrational a whole lot longer than you would ever think, and they could keep going up and rise way beyond what is mathematically feasible or logical before it bursts. Shawn: Thank you, Bob. Well, that’s all for today’s podcast. If you would like to learn more about getting Christian financial advice, then please visit Christianfinancialadvisors.com on the web. Or you can call us at (830) 609-6986. We’re available Monday through Friday from 8:00 AM to 5:00 PM Central Standard Time. [CONCLUSION] That’s all for now. We invite you to listen to all of our past episodes covering many financial topics from a Christian Perspective. To make sure you don’t miss any of Bob’s upcoming episodes you can subscribe to Christian Financial Perspectives on iTunes, Google Play Music, Spotify, or Stitcher. To learn more about integrating your faith with your finances, visit ciswealth.com or call 830-609-6986. [DISCLOSURES] Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors®, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors® believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.