For the next 18 months we’d strongly recommend that you begin mastering the art of “smiling, nodding and agreeing”. At this point, many people have seen their net worth drop by 10-30%. While most just focus on the stock market, the cash flows for a lot of individuals went negative or to zero. Imagine paying $10K a month in rent for a local Bar owner, and suddenly you have to pay the rent while getting $0 in revenue for 2-4 months. That’s a massive negative margin hit and has to be funded by cash you have on hand. You have to pay employees or fire them, pay the rent and utilities and pay your own bills while getting $0. This is a massive massive hit to any cash you have. The only solution here is to “smile, nod and agree” a lot more particularly if you’re benefitting from the downturn.
Smile, Nod and Agree Basics: If you want to get far in life without burning a lot of time, you’re going to “smile, nod and agree”. Most are familiar with this concept (if they have followed us for a few years), but for the newer readers it means that you’re not going to voice any opinion. You simply smile at the person, nod and agree with the point they are making.
Why would you do this? It saves you a lot of time. So when people bring up the main time wasters: politics, gossip about someone else and sex/religion you just agree. If you don’t agree… you agree anyway. You’ve saved yourself from a long argument where no one will change their mind. No one gets into an argument about any major topic like that with the following conclusion: “Great discussion you’ve really changed my mind”. Does not occur despite what people will tell you. They just go back and stew on the topic and solidify their current view.
You’d think that this is an easy skill to master. It isn’t. It’s a life long skill like sales. Even if you think you’ve got it down pat, there are some people that will prod and prod and prod trying to get info out of you. Do your best. You can usually avoid these types of conflicts for 5-6 hours or so (usually enough to avoid any debates). No need to take down their phone numbers and you’re set.
Economic Impact of 2020: With the main premise out of the way, it’s time to apply this to finances. No matter what, you should no longer disclose how much you’re making and you should *no longer guess* how well the other person is doing. This is a huge change from what we’ve said in the past.
In normal economic times, you are free to “lie down” and say you make about 80% of whatever the other person makes. It is fine to do this in normal economies because the chances of being wrong is quite low. When employment is high, you get an idea of what the person does, you can easily just lie to the downside. This creates no animosity and they feel like you’re still in their “economic class”.
This is out the window in 2020. You will now run into people who are actually up this year and you’ll run into people who are at zero, went negative or worse. Better to avoid the topic all together at this point. When people try to prod just make blanket statements such as “This COVID thing really negatively impacted my life”. Don’t need to say anything else beyond that. They will fill in the blanks by themselves and you won’t have to get into an uncomfortable conversation about making money. In fact, they will avoid that topic out of “courtesy”.
Personal Impact of 2020: The second one we’re seeing is significant personal life changes. You do not want to ask questions about where a person is living, where they were living before etc. This is a standard topic of conversation when you meet new people at a particular social setting. Where you’re from what you’re doing now etc.
Why do you want to avoid this? Their personal lives may be uprooted entirely and you might hit a bad nerve. It’s a big one to be aware of (very big). If someone gets laid off and decides to move abroad for a bit… when they come back it’s unlikely the same. Life just doesn’t work that way. Some people may have to go back home as their family members are getting crushed by the pandemic. The list of potential issues is long.
As a point of emphasis, this only applies to new people. No need to be a psychopath with no emotions for your friends/family. We’re referring to new people you meet for the next 18 months. As you know, first impressions are incredibly impactful so you don’t want to leave a negative feeling behind. The same rule of life applies:
People do not remember what you said they only remember the way you made them feel.
This is common knowledge yet it is frequently forgotten. If you think you might be steering the conversation in the wrong direction, always choose the smile, nod and agree approach… and cap it off with something positive for extra safety. You do not want to trip an emotional trigger in the current economic environment.
Socioeconomic Impact: This one is going to get very very ugly. We usually don’t type in that fashion “very very” and other wasted words/content. That said… it is going to get very, very, very, very ugly. This is because the haves and have nots have split quite dramatically over the last 3-4 months. Anyone who was able to maintain their income was able to get ahead, anyone who lost their income fell back dramatically (can’t even interview to replace their old jobs/careers) and anyone who made more money just put a year long gap between them and their peers.
The math is simple. If you usually make $10K in a month and spend $5K (again keeping it easy), then you’re saving $5K. Now if person A runs a small business that goes negative, his cash flows are -$20K for four months. Person B who somehow made more money, say $14K… Also saw spending go down (due to closures) and has saved $10K per month for four months. So one person is + $40K while the other is minus $20K creating a $60K spread… which is equal to $5K multiplied by 12 (a full year)
There is no easy solution here. We’ve talked about a few: 1) variable consumption tax – tax rates on a Honda Civic should be way lower than a Ferrari, while taxes paid on a $250K home should be way less than a $10M mega mansion, 2) instead of using UBI – blank checks – we should have universal basic food and water to prevent the funneling of money into nefarious activities and 3) a change in executive incentives to avoid share price focus and instead drill down on head count growth, revenue growth and stable profits. This would cause spending to go from buybacks to R&D which creates jobs and also forces the Company to create value additive products at a faster rate.
While we love solutions, we stated up front that it’s not going to end well. There is no way we can suddenly change from the current structure to UBI, luxury taxes (not wealth taxes) and a complete overhaul of executive compensation. So the road to a better future is going to be long and arduous, we’d wager that it won’t be solved for at least 3-5 years. We’re praying some good solutions do come up… if a socialist takes the helm over the next 5 years or so we’re really out of luck as a Country.
Back to the point. You’re going to see an even steeper divide in the haves and have nots. CEOs have learned that a lot of their employees really weren’t adding anything and a lot of their employees were doing 2x their normal workload. This is the light bulb moment where income for the performers can go up and the non-performers can be removed… permanently. Since high-performers stay on the job, the remaining positions that open up (later) are going to be lower wage positions (need to prove value). So if you’re liked politically at your Company and you have a good paying position, don’t rock the boat. Keep collecting and working on your dreams at night since you’re working from home anyway (no commuting excuses anymore!).
General Social Unrest: This is obvious from the past month or so. Lots of social unrest. It has reached a point where people believe that “silence is violence”… Which means “you’re with us or against us”. When massive issues like this occur there are usually three options: 1) agree, 2) say nothing and 3) disagree. The people promoting the phrase “silence is violence” are saying that you only have one option: agree or disagree… with their opinion.
Now you see why you must smile and nod. If you find out someone is aggressively on one side or the other you *must* smile and nod. If you do not smile and nod, you’re going to get into an argument even if you have no opinion on the particular social issue. Play it safe.
More and more issues will arise over the next 2-3 years as industries transform rapidly. Some because they have to and others because they are forced to. Imagine having no online presence (any company) over the past 3-4 months. You’d see zero revenue and have high fixed costs. An absolute nightmare. In addition, imagine not having an emergency fund for 3-6 months. You’d end up in credit card debt due to the expenses incurred once savings are depleted. So on and so forth. As these companies evolve and change, the work functions shift to knowledge and production. The days of repetitive tasks are dying at a rapid rate.
As these issues ramp up, remember to smile and nod in all new environments. Take the time to come to your own conclusions and contribute in a way that you see as productive. Don’t let the masses decide for you. Simply agree with whoever you are talking to and contribute in a way you see fit. No reason to tell them what you are doing.
