Feb 152016
 

I’ve been sucked down an endless rabbit hole of analysis, speculation and opinion on the current state of China, it’s society, it’s government, its environmental destruction and, most of all, it’s declining economy and the associated impact on the rest of us.

While no two analysts agree in full it’s clear there is a large and looming correction both currently on the go and likely to extend well toward the end of the present decade. With the world economies so tightly coupled even we here on the southern tip of the Dark Continent will not escape the escalation of the current trauma. Ours is a mining-based economy and when China sneezes we live with the cold.

Besides the slump in resource prices and lower volumes, we are also having to contend with an absolutely diabolical exchange rate, the worst drought in living memory and government corruption and ineptitude which is off the charts.

No matter what anyone says it’s going to be a tough 4-6 years ahead. Food prices are already noticeably higher (despite the drop in the diesel price), sub-standard municipal services continue to cost more and wage increases are likely to fall far below inflation as they have since 2007/2008.

The worst possible thing for the man in the street right now is to be in over his head in debt and have his only source of income, his job, at risk. And in the South Africa of 2016, if that’s the case and on top of that he happens to be white, then heaven help him over the next few years.

On the personal front one often asks the question “How is it possible to cut back further monthly spend?” After all, I need the car (with the resulting payment) so I can’t possibly cut back further (one of several examples….car, house, yacht, two homes etc).

The real problem is not whether it’s possible to scale back further. The real problem is that it’s not yet a real and tangible emergency.

There is still this thought that “I’ll lose too much by selling¬†now. Its not too bad yet, lets try and maintain the current lifestyle. Better to carry on while I still have the income and while the doom, whatever the real probability, is still somewhere off in the future”.

Now I’m totally not qualified to judge and make decisions for Joe-Average. All I know is, if I didn’t personally have a plan and 4-6 months F-you money in a fund, I’d be very very nervous right now.

Should I by some strange chance be asked what to do, I’d respond; “If you cannot survive being kicked to the curb right now (something i believe is a very real and present danger) then you probably need to go into survival mode and jettison your anchors and reduce your upside-down debt situation as much and as fast as possible, no matter what!” And that’s a difficult ask of anyone so I fear many will suffer the consequences of a lifetime of spending to the limit without too much thought for the future.

Us personally, I think we will survive. We may wish to extract some cash because the F-You fund is currently in a unit trust and taking a beating. But for sure, now is probably not the best time to be buying that Ferrari on terms (or perhaps borrowing to move a yacht to the coast or going further into debt to fund children’s educations) ?

There is undoubtedly doom ahead in the gloom. Just how much remains to be seen!

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