Rumors about Crisis: What We Do Know for Sure
The rumors about crisis have started to take shape: Romania might enter a recession – “technical” for the time being, that is two quarters without economic growth – in the second part of next year or in 2020, according to the chief economist for Central and East Europe with Unicredit, Dan Bucșa (Source: Agerpres). Here is my take on several consequences of the so-called technical recession.
What Technical Recession Means
The unanimously accepted definition refers to two successive quarters of economic contraction. Since the contraction is measured on the Gross Domestic Product (GDP), we may say that economic recession is just a first signal that a growth cycle of an economy is about to end. More somber terms, such as depression or crisis, refer to the subsequent effects: increase in the unemployment rate, inflation, decline in the purchase power, then production and so on. History shows that economic crises are frequent, but they differ in respect of severity. Experts say that growth is the natural tendency of economy, but sometimes a peak followed by a decline happens. For instance, since the year 2000 we have already had two global crises. The best known and most severe one, of 2007-2009 (followed by recession), but also the Dot Com Bubble at the beginning of the ‘00s, when many Internet companies imploded. The “breaking of the online bubble” at the time affected Romania very little, as compared to the 2007 crisis. 11 years ago, the real estate global meltdown was more noticeable in Romania, as the country was already in a local real estate bubble.
In other words, the economic statisticians can predict with a rather high degree of precision the decrease of GDP for two successive quarters, but the effects deriving from here are less predictable, especially from the point of view of severity and duration.
The Global Background and Romania’s Specificity
Besides the recent news regarding the decline on the stock exchanges, in principle, Romania’s economy is, first of all, interdependent with the other economies of the European Union and the forecasts are pointing at a slower growth in these economies. Most analysts have raised red flags because Romania’s surplus of a few good years was spent on state wages and other similar expenses, and this leads to a decrease in the efficiency of the economy on a medium term. Here is how Unicredit Chief Economist explains these things: “If Europe grows by 1%, it is likely that we will avoid recession. If, however, it grows by less than 1%, then chances are that a recession will follow. Our forecasts indicate a slower pace of the economy in 2020 by about 2%.”
As usual, the official sources are far more optimistic in respect of the years 2019 and 2020. Still, the global slowing of the economy is not a fact that can be denied or ascertained from Bucharest.
What Effects We Will Feel on a Personal Basis
Once again, according to this forecast, recession will be felt in business and in the pockets of each of us only by means of its consequences. If a safe workplace or the negotiation in Euro of the contracts/salaries is precautions within anybody’s grasp, it is more interesting to see what happens with the personal surplus of money. Forbes publishes an article that includes two recommendations worth noting:
- Avoid emotional behavior. The most common advice “buy cheap, sell expensive” is very difficult to apply in investments. This is proven by the fact that the assets of the American investors have increased over the last 20 years by only 2.5%. To give another example, without a massive demand, cryptocurrencies would not have increased in value so much until 2017, only to decrease dramatically over the last few months. Somebody invested and subsequently lost that money, contrary to the axiom “buy cheap, sell expensive”.
Paradoxically, this means that in a recession or crisis, there are plenty of bargains/understated assets. However, these are difficult to identify and profited from.
- Make several personal sub-pools, according to age and plans. If you are still active, a “safety net” comprising an amount sufficient to secure your lifestyle from three to six months should be enough. If you are about to retire from professional life, safe investments will have to provide a sufficient amount for many years. Optimistically speaking, at such point in time, the accrued surplus is higher, which means that other sub-pools, more risky, could be well represented.
In a nutshell, both personally and businesswise, the latest rumors suggest prudence, but they are not at all a reason to panic. Most of us went through our crisis apprenticeship ten years ago, which means that we will know how to behave logically and non-emotionally in the following recession, no matter when it might come and how severe it might be.
It used to be the case that one would have some money, and they would go to an advisor who would then, in turn, research different markets and make a recommendation. That person would charge their client a fee for managing the money and a success fee should the placement of funds generate a profit. While the former would vary from, generally, 0.5% to 2% (with the rule being that you pay less when you place more money), the latter could go to up to 20% of your profits. And while, in the old days, one would pay for the work the advisor does behind the scenes to research and get top-notch information in a market, the alternatives nowadays no longer justify paying such high prices to place one’s money. The advisor is slowly being replaced by a user’s own research, online investment management companies, or even Artificial Intelligence.
The price for investing your money has also gone dramatically down, with the rise of more and more digital companies using advanced software to analyse data and generate attractive portfolios.
Stock market investments are also an attractive alternative. However, without experience in the field or a fee-hungry advisor, this can prove to be a problematic choice. The issue is two-fold: on the one side, picking the stocks to “bet” on can be extremely difficult, as it takes serious market research to identify the potential long-term champions; and then, of course, there is the approach that some companies might skyrocket when they are launching new products or tapping into a new market. However, this comes with significant risk, as overnight success is rare, and massive failures have been generating headlines since before we can remember.
One could think that actively investing one's own money is a bold move, but the old-fashioned “keep your money in the bank” option is now a money-losing option.
It’s been 12 years since the modern financial sector started to show its weaknesses, and 11 since the sequence of events that started with Lehman Brothers collapsing nearly destroyed the world economy. The new reality is one of lack of trust in the banks from the younger generation, and of negative interest rates. Yes, in many countries it actually costs you money to have banks take your placements.
As such, it is no wonder that it actually makes sense to find alternative ways to protect and expand one’s wealth. However, there is one significant risk that one should always consider: while not being tied to big institutions such as banks is what has made these alternatives attractive to younger generations in the first place, the downside to that is that, if anything were to happen to them, they will not have an entity behind them to bail them out, which poses an increased risk to customers. As such, research and caution are highly desirable.
Over the last 2-3 years, the shared economy model, championed by the likes of Uber, has been adopted in more and more industries, including the financial one.
More and more platforms are offering the option for people to create portfolios using small amounts of money, relying on the power of the crowd to create strength when put together.
So, here are a few of the options that are out there, and a bit on how they work:
- FinTech is always an exciting field. Have a look at players such as Robinhood and Sofi.com, which offer lending, mortgages and investment to categories of people who would not always qualify for support from a traditional bank.
- Peer-to-peer lending (P2P) uses marketplaces or platforms to match borrowers (people) lenders (also people) - see Mintos, Grupeer, Peerberry, Lendermarket. Those interested can “buy” a share of a loan on the platforms.
- Startups: new and exciting startups are in the news almost daily. Two of the ones that have piqued my interest are forgeglobal.com, seedrs.com. If you have a more serious amount of money to invest, getting “in on the action” at ground level can be incredibly rewarding, both in terms of supporting an entrepreneur who’s just starting out, as well as potentially getting a significant return for your investment. But, as with everything, make sure you do your due diligence and ample research in the space you are about to invest in.
- If you want to go industry-specific, there are now marketplaces for investments in real estate. Don’t have enough money to buy and flip a piece of real estate? That’s okay. You can pair up with other investors, crowdfund and get involved that way. Crowd Estate, for example, promises 17% annual returns.
Please note that I am an investor in some of the companies I have mentioned in this article. This article is not meant to provide investment advice, it is merely an investor’s perspective on alternative investments available. Capital at risk.
If you’re a startup or scale up founder, or if you are working up to launching your idea, events can be useful to see how others do or dit it. It’s useful to see what worked and what didn’t for successful entrepreneurs, how they think, their approach to business.
It can take a lot of time and energy to attend business events, and the gains aren’t always immediate, but success doesn’t happen in isolation – entrepreneurs need a certain vibe and energy to keep going, they need networks, need to be connected to their markets, their competitors and their peers.
I go to a few events every year, and I choose those where I am likely to see new ideas put into action, meet smart people and explore different sectors. I do focus on my key areas (property, fintech and medtech), but I keep my eyes open for what’s going on outside of there areas too. So here is what’s on my list currently.
- Central European Startup Awards – happening this week in Bucharest!
Conflicting agendas mean that unfortunately I’m not going, but I’ll follow it with interest.
This is a regional program run by the Global Startup Awards. In Romania they’ve partnered with Impact Hub, one of the biggest co-working spaces and entrepreneur networking platforms. Annually, they select and award startups in tech / web industries. After the national phase of Central European Startup Awards competition, the winners of each of the 10 countries (Austria, Poland, Czech Republic, Slovakia, Romania, Bulgaria, Serbia, Croatia, Slovenia and Hungary) participate in a regional competition, whose winners are announced on November 21st in Bucharest.
2. Disrupt Berlin – 11-12 December, Berlin, Germany
Organised by TechCrunch, Disrupt Berlin showcases emerging trends in the business of technology and is a great place to meet or find information about game-changing founders, startups and technologies.
There are a multitude of conferences, workshops, networking opportunities and companies from all aspects of tech, but focused in on several category tracks. I'm looking this year at Artificial Intelligence/Machine Learning, BioTech/HealthTech, Blockchain and FinTech, but there are a few others.
3. Bucharest Tech Week – May 2020, Bucharest, Romania
5 days of conferences hosting international & local speakers, and a B2C gadgets and tech expo. Conferences are focused on innovation (seems to be an umbrella theme, which can fit anything these days though), HR, some coding conferences but also Fintech.
4. Wearable Europe - 13 - 14 May 2020, Berlin, Germany
Conference and exhibition focusing on wearable technologies, applications, and their commercialisation progress. The conference is part of the IDTechEx Show, a series of synergistic events on Printed Electronics, wearable, sensors, IoT, graphene & 2D materials, energy storage, electric vehicles.
5. EU-Startups Summit – 28-29 May, Barcelona, Spain
Some of Europe’s hottest startups and successful European entrepreneurs - over 1,500 founders, startup enthusiasts, corporates, angel investors, VCs, and media from across Europe. The two-day event is a great opportunity for networking, and a meeting point for aspiring entrepreneurs and investors who are aiming to build international tech companies.
6. London Tech Week - 8-12 June 2020, London, UK
A 5 day technology and innovation marathon, with events on connecting global markets, cybersecurity, digital transformation and innovation, for startups and scaleups.
7. Webit Festival Europe - 17-20 June 2020, Valencia, Spain
A huge event, Webit is a B2B and B2C festival and tech fiesta: 15.000 delegates, 450 speakers, 1,500 selected startups, 500 investors, international media.
With specialised summits for many verticals, I particularly am interested in the summits for health, fintech and blockchain. Other summits focus on cybersecurity, mobility, growth, future of food, or digital entertainment & media.
8. Techsylvania – 20-23 June 2020, Cluj, Romania
One of the biggest tech events in CEE, Techsylvania has tens of events, workshops, keynote speakers and panels. It can be very informative and great for networking and for benchmarking ideas, because it has almost 4.000 attendees - engineers, founders, investors, executives and CEOs of IT & digital companies, banks and startups.
There is a startup competition at Techsylvania too, Startup Avalanche, for early-stage startups, which get to meet international VCs and investors as they compete for the Grand Prize – €100,000 investment.