The 2008 crash was the most severe economic and financial meltdown since the Great Depression.
Millions of people lost their jobs, thousands of businesses declared bankruptcy, and the
stock market crashed so badly that it was the largest point drop in history.
Luckily for us, the economy recovered, and we experienced the longest economic expansion
in the history of the US.
The next financial crash on a horizon, but the fed did a good job of postponing it; however,
it's already here.
The economy is officially in a recession, and it seems like it's going to be long and
painful.
In order to figure out how to prepare for it, we have to understand a few things.
What makes this recession different?
Why is the stock market rising when dozens of millions lost their jobs?
And what can we do to prevent it from sliding into a depression?
Hi, Proactive thinkers!
Before we move on, a quick word from our sponsor Skillshare.
Skillshare is an online learning community for creatives, where millions come together
to take the next step in their creative journey.
Skillshare offers thousands of inspiring classes for creative and curious people, on topics
including illustration, design, photography, video, freelancing, and more.
Most classes are under 60 minutes with short lessons and each class has a class project
to test your knowledge.
This class on investing is so popular that 10K people have already taken it, including
me.
And it is taught by Business Casual ( the YouTube channel you probably know).
And all that is for less than dollars a month with annual subscription.
But because you guys are awesome, The first 1000 of you to click the link in
the description will get a 2 month free trial of Premium Membership so you can explore your
creativity.
By the way, you will be supporting the channel by signing out to Skillshare.
And now lets get back to the video.
A recession is when there is a decline in economic activity or negative economic growth
for two consecutive quarters or six months.
At the start of the year, when COVID 19 hit the world, US GDP fell by 5 percent.
Now, since we are done with half of the year, the National Bureau of economic research officially
called it a recession.
Many economist predict a double-digit decline, which we haven't experienced since the 1950s,
and if the year ends with double-digit negative growth, it's going to be a depression that
can be compared to the great depression of 1929 that lasted ten years.
In 2008, the housing market crashed because banks provided mortgages to people who did
not have strong enough credit scores.
At some point, they defaulted on their loans, which resulted in a crisis that took down
with it the rest of the economy.
The government intervened and bail out many companies, and out of sudden, the crises was
over in less than two years.
But What makes this crisis different from all other crises we have ever experienced
is that the modern economy depends on consumption to keep running.
The virus suddenly stopped everything.
Even if the government injects billions of dollars into the economy, the effect is going
to be limited since businesses had to close down.
- the stock market isn't the economy
What most people find strange is that why in the middle of this Chaos, when GDP is hitting
a record low, why on earth the stock market is rising?
Shouldn't it be declining with the rest of the economy?
The answer is simple!
NO!
The stock market isn't the economy.
Yes, of course, all these companies that are listed on the stock market are an essential
part of the economy.
Still, just because the economy is down doesn't mean the market should be down as well, and
here is why!
The stock market is determined by what investors think is going to happen in the future.
The economy can be in a horrible position now.
Millions can lose their jobs, but if investors believe that throwing their fortunes into
the stock market will keep their fortunes safe, then the market will be rising.
Let's say you are the head of a hedge fund manager that manages 50 billion dollars.
Like everyone else, you realize that the economy isn't in good shape.
A logical option would be to liquidate your assets and invest somewhere else or just hold
on to your cash, right?
But what if the government says "no matter what happens, we are going to bail out these
huge corporations as we did back in 2008".
All out of sudden, investing in the stock market becomes risk-free since someone out
there ( THE FED) with a printing press will print as much money as needed to prevent these
companies from collapsing.
Secondly, we already have a testable vaccine in the process.
It's only a matter of time before the vaccine against this virus will be ready.
It might take us another year, maybe 2, but eventually, we will get over it, and life
will get back to normal, at least to a certain degree, so the future is safe.
And thirdly, today, tech companies make up the largest portion of the stock market.
The top four 4 US companies each valued at over a trillion dollars are all tech companies,
alphabet, amazon, apple, and Microsoft.
And the current pandemic isn't an obstacle for them amazon took advantage of it and rose
even faster.
Just because there is a pandemic in the street, doesn't mean people will use google less.
On the other hand, if you take the total valuation of all airlines, it will amount to around
50 billion dollars, not even 1/10 of Microsoft.
So if the entire industry disappears overnight, it won't make a huge difference in the stock
market.
The cure isn't coming soon.
What we are all waiting for is a vaccine.
There is so much misinformation happening on the internet that its difficult to find
out when we are going to have one exactly.
Unfortunately, not anytime soon.
When the outbreak started, the world rushed to create a vaccine, and we beat the record
and created a vaccine in 62 days, which is mind-blowing.
But we cannot use it until its proven successful.
Typically the researchers start testing the vaccine on animals.
Once it proves to be safe after a wide range of testing on animals, we finally move to
stage two and start testing it on humans.
But before the public could use it, it must be tested on a large enough sample, people
from different age groups, genders, races, and so on to be confident that it is completely
safe.
If we end up making one mistake and some people will end up getting hurt as a result of the
vaccine, that will scare off people and end in a distrust of medical professions.
Let's say hypothetically we get it right by the end of the year.
The third stage is to produce it in large quantities and distribute it.
There are 7.8 billion of us on this planet.
It's a logistical nightmare to produce so many vaccines at a high quality.
It is going to take at least half a year, if not longer.
On top of that, we must educate the world on how to use the vaccine because each vaccine
is different, so that will take some time as well.
This means the crisis isn't going to end this year, and chances that GDP will be down by
a double-digit is possible, and that means a depression.
To restart the economy isn't going to be easy, but rather lengthy and painful.
the only thing that can save us
It doesn't matter if we are going into recession or depression; what everyone is concerned
about is how to get out of it.
There isn't a simple answer because every crisis is different, but there are a few things
we can do.
One way to prevent the collapse of the economy is by pumping cash into the economy so that
the economy keeps running even when everyone is locked down.
And that's what the fed has been doing since March.
They aimed to inject the economy with 2.6 trillion dollars to keep it running.
On top of that, The House of Representatives passed the $3 trillion Heroes Act.
In theory, these gigantic stimulus checks should keep the economy running; however,
in practice, their effects are minimal, and here is why.
In any crisis, the first victims are a small business.
I am talking about the little shop beside you house, the restaurant in the corner of
the block or the bakery in the neighbouring building.
Often they go out of business even if they have to close down for a month or two.
And the stimulus checks that people received probably spent it on amazon and other giant
corporations that had the infrastructure to keep working even during the pandemic.
There is very little you can do on an individual
level.
Where the economy ends up being is entirely depends on the policies the government and
fed will take to manage this crisis.
But what you can do is take advantage of the circumstances.
First of all, save save and save!
In times of crisis, we often should do the opposite, which is spent.
However, since your actions on an individual level are very limited, if we end up in a
depression, you might end up in a horrible position.
It's better to be safe than sorry.
Secondly, regardless if this is going to be a fast recovery like a V-shape that economists
usually talk about or long and painful.
The fact remains that many businesses are going to go bankrupt, so being able to identify
the trends and what industries are taking their place is key to building a fortune in
an extremely short period of time.
You might be able to achieve in a single what it would take you otherwise in 5 years.
If guys have enjoyed this video, make sure you give it a thumbs up and if you want to
support our channel then check out Skillshare using the link in the description.
Other than that, thanks, guys, for watching and until next time.