Brent Davies

 I was listening to the local news last week and the headlines gave me this feeling of doom. Companies closing, job layoffs, foreclosures and the stock market crashing. No political scandals or crazy celebrities to take my mind off the bad economy. I flashed back to the last big recession in my life; the 1980′s in Alberta. 

I was born in the late 1950′s and missed the Great Depression that my parents talked about. I was 25 years old when the recession of the 1980′s hit. I lived through the 80′s down turn as one of the victims, and I survived.  Albertans referred to the recession of the 1980′s as “Trudeau’s Rape of the West”, caused by the National Energy Program (NEP), intended only for the benefit of the east. Oil had gone from $3 per barrel in 1973 to $35 in 1981 and projected to be $70 by 1985. Additional taxes were placed  on oil to benefit the poor easterners who bought expensive foreign oil instead of domestic oil and those taxes were not totally removed until the Mulroney era 7 years later. 

Albertan appear to have conveniently forgoten that the price of oil peaked at $37 per barrel in 1982 and dropped to $10 per barrel by 1986. The oil industry was destroyed! The United States was in recession from 1980 to 1983. Chrysler was bailed out by the US government. Inflation, fueled by the rapid increase in oil prices was 11.5% in 1982. Canadian 1 year mortgage rate interest rates peaked at 18% in 1982.  
 For many Albertans, the 1980′s recession broke many good people, including people within my Father’s circle of friends, and it has taken many of them 15-20 years to recover from those dark days. Bankrupcty was one way out. Suicide was another, but I don’t know of anyone who took that route. 

In 1982, I was a 4th year apprentice carpenter running a $5 million job with 100 trades on site. In 1983 I was reduced to searching the carpenters union job board with 2,000 guys in line ahead of me. That was one of many reasons I made the move from construction to the property management industry.  

During the first half of the 80′s house prices had dropped, and many were worth less than the mortgage owing, leading to some interesting slang: dollar dealers, jingle mail, capped buildings and see-through buildings. 

• Dollars dealers were buying houses for $1 and renting them out until the bank took over. 
• Banks were the proud recipients of jingle mail when the keys were returned to the bank in the mail. 
• Capped buildings were new construction projects just canceled, and the doors were locked and the site abandoned. 
• See-through buildings were newly completed buildings, and you could see right through the building, because no tenants had moved in. 

It was a good time to be a receiver-manager. 

Nu West Developments, Texaco Oil, Dome Petroleum,  Gulf Oil, WW Arcade, Imperial Lumber, Woodward’s Department Stores, Northwest Trust and Continental Bank, are but a few old established companies that disappeared from Alberta. 

Hospitals, schools, government, grocery stores, funeral homes and pawn shops proved to be recession proof jobs. (I’ve never met a teacher who has been laid off.) 

I learned a number of lessons from the recession. Here are 11 of them:

1. The Sun will rise up tomorrow, and the day after, and the day after that. Life goes on. People are born, live and die, regardless of the economy.
2. Personal guarantees can come back to bite you on the ass. Asset protection is critical.
3. Any interest rate under 10% is heavenly and the banker’s secret to avoid foreclosure.
4. Cash flow is critical. Undeveloped land is does generate any money in rent.
5. Residential rentals are always in demand. (Unless you are in a one industry town)
6. Rental turnover can drain your cash reserves.
7. Fantastic deals become available. That very expensive lake lot sold at 1\3 of the old price. Be prepared to jump on the bargains.
8. Don’t drive your new BMW to the wage negotiations. 
9. The market will return to normal. You just have to be patent.
10. Stop looking and brooding over your net worth statement or balance sheet. If you can breathe, you have  the ability to change your life and situation.
11. The strong survive, the weak die. It better to be the strong guy than the dead guy.

  In my next few posts I will go over some strategies for today’s recession that will help you through the rough spots that are coming.