One of My Biggest Financial Mistakes…

Several years ago my husband and I decided to go into business together. The idea was to set up a restaurant in the area where we were then living, in southern Spain.

If you’ve ever been there, you know that the Spanish province of Malaga is quite a touristy area. It is a preferred destination for sun starved northern Europeans and golfers, as a weekend away and/or summer holiday.

Ours wasn’t a spur of the moment decision, but something we had been researching for a while. We weren´t void of experience, either. I had worked in the industry before, and my partner — who is a professional chef — had decades of experience.

So when the opportunity came up, we grabbed it.

Tourism was booming and the decision made sense, at the time.

Our first year in the business was great.

Let me tell you, restaurants are a tough business. Competition is fierce and you only have a short window of time to sell your products.

But soon enough, we had repeat customers and word was spreading. Families on holiday and groups of golfers would come two, three, four times during their short stays.

In a short time, we had recouped much of our initial investment.

But our second year turned out to be a very different affair.

In the first few months, we noticed a significant slowdown.

By the time summer came around, there were less tourists around, regulars and vacationers were still dining with us, but less often.

That summer was a letdown.

With a long winter ahead of us, we had a couple of options.

We could either try to hold on to our investment or we could cut our losses and close the business.

Authorities in the media were adamant there was no slowdown. But our numbers were telling a different story.

To be honest, the sharp slowdown worried me. It was clear to me that the trend was turning. That credit was tightening and people had less disposable income.

It was a tough decision, but in August we closed the doors.

Years of extensive post mortem have shown we made plenty of mistakes in setting up our first business. But in saying that, I think timing was also a big factor.

You see, we had opened in early 2007.

To this day, I still think we made the right call in closing when we did.

A few weeks after we closed the doors in 2008, Lehman brothers collapsed.

The years that followed were tough for the restaurant business.

I watched as many of our competitors held on, only to close years later riddled with debt. Things got so bad that Michelin restaurants were offering cheap menu deals to stay alive.

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The whole system is based in confidence

I don’t regret the experience, it made me who I am. I do wish though that it had been a cheaper lesson. Still, it could have been a lot worse.

If you have been reading my stuff for a while, you’ll know that I like to look at signals and indicators in everyday life. Mainly because by the time economic data gets to the public in reports, it is already old.

My point here is that we can look at things like restaurants, retail or travel for some leading indications on when things are slowing. They are some of the first things that people cut out when things start to get tough and have less disposable income.

My ears pricked up this week as I read a large number of renowned Sydney restaurants are closing. Or to hear that chains like Subway, Burger King and Starbucks, are closing a number of restaurants.

It could be a sign that things are slowing, that we are nearing the end of the cycle.

At the end of the cycle, credit tightens and people take more care of their hard earned dollars.

The US Federal Reserve suggested this week that they could be cutting rates soon.

I mean, this is quite interesting. The Fed is talking about cutting rates even though unemployment is at the lowest in 50 years. Even though the recent job reports was better than expected.

Keeping confidence up is everything, the whole system is based in confidence.

In Australia, we have seen two rate cuts and now the tax office is working overtime to get people their returns.

What will people do with that extra money? Will they buy new TVs and washing machines, like the government expects them to? Like they did in 2009?

Or will they use that money to pay down debt?

Time will tell.

But it’s something that’s been occupying my mind this week. How will all this new added stimulus will affect the economy? We have seen a lot of stimulus in recent years and overtime, its losses and its effectiveness.

It could be why central banks are stocking up on gold.

By the way, if you haven’t checked out Greg’s research on the gold market, and why he thinks we could see massive developments in this space, you can do so here.

We are going to lower rates, even negative.

The problem with low interest rates is that it gives you less choice. It makes having your savings parked in the bank less attractive. It pushes investors into assets and into more risk.

We are also seeing stagnant wages and higher debt. Consumers are getting poorer and we could see less spending. Less spending will affect companies and their earnings.

Make no mistake, lower interest rates is a sign that things aren’t well.


Selva Freigedo,
Editor, The Rum Rebellion

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Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

The Rum Rebellion