2022 proved to be much worse than most people expected.
Markets haven't been this bad since the 2008 crash, the crash that not only crashed the
entire US economy, where huge corporations such as the Leham brothers went bankrupt,
but it took down the rest of the world with it.
It was like the domino effect that led to the euro debt crisis.
China was hit fairly hard with a huge drop in exports.
However, in a few years, the economy recovered, and the United States experienced the longest
economic expansion in its history.
Over a decade of economic expansion.
However, as a wise man once said: whatever rises will eventually fall, so did the growth
in 2020.
But government spending kept the economic wheel spinning.
The only problem with the current crisis is that the bubble has been growing so much that
we are now at that point where we no longer can’t postpone another crisis.
In the middle of such a panic, most retail investors are panicking and selling off their
assets before everything crashes further.
A trade war with China, a global pandemic, an actual war in Europe, oil prices above
100, and worldwide inflation, it seems like if you are not going to sell now, soon your
investments will be worth pennies.
But that’s not what one of the greatest investors in the world thinks.
Warren buffet is urnings investors not to panic and look for great deals in the market.
At the height of the 2008 financial crisis.
When banks were falling down one after another.
Buffett pumped $5 billion into Goldman Sachs shortly after Lehman Brothers collapsed.
It literally saved the bank since investors lost confidence in the system.
And here, the most respected investor is throwing billions into Goldman Sachs.
In exchange, he received $5 billion in preferred stock paying a 10% annual dividend.
That’s 500 million dollars of cash every year, as well as warrants enabling it to buy
43.5 million of Goldman's common shares at $115 each at any point in the ensuing five
years.
While many called him a fool back then, nothing is better than cash in the bank.
But that didn’t last long.
In 2011, Goldman bought back the preferred stock for $5.64 billion and handed Buffett
a $500 million bonus.
So that raises a few a question since we are in the middle of another crisis, a crisis
that could end up much worse than the 2008 crash, where some companies already began
going bankrupt before the recession officially started.
What are the assets that will keep generating income not only during the crisis but even
after?
If you are ready, give this video a thumbs up, and let's dive in.
When you think of bill gates, you think of a tech billionaire who is focused on developing
technologies that would revolutionize the world.
He became a billionaire in his thirties after finding Microsoft, one of the largest tech
companies in the world.
You would never connect bill gates to farming.
However, last year, he aggressively began buying farmland.
He has amassed nearly 270,000 acres of farmland across the country, which means he owns more
land than the entire city of new york.
Farmland doesn't sound as cool as a tech startup, but at the end of the day, you can’t eat
your iPhones and MacBooks to satisfy your basic needs.
Jeff Bezos is another example.
After successfully building the largest eCommerce platform, he has purchased 420K acres of land,
mostly in Texas.
As mark twain once said: Buy land!
They are not making it anymore.
It’s a limited resource.
Your stocks or crypto can go down by 50 percent overnight because of an economic crisis, but
you will never wake up one morning finding out your farmland is worthless.
Americans make up just 5 percent of the world population but consume most of the world's
resources, especially food.
But now, the world is on the brink of a hanger.
According to IMF, The world economy is at risk of a food crisis as a result of unprecedented
supply disruption caused by the war in Ukraine.
Ukraine and Russia are some of the biggest exporters of grain which are halted as a result
of the conflict, which has caused a worldwide shortage of food.
So oil prices aren’t the only source of global inflation.
What is certain about the future of humanity is that wars have always been part of human
history, and the demand for food will never go away as long as they are humans, which
is why billionaires across the globe, especially in the US, are aquiring farmland.
2.
Royalties If you have watched shark tank, you are familiar
with royalty deals that are often thrown away by Kevin O'Leary.
Instead of asking for a bigger pie of the economy, Kevin O'Leary is known to go after
royalties.
The question is - why?
When you invest in a company, you become one of the shareholders.
It is in your best interest for the company to grow so that one day you eaither going
to sell your piece the pie and finally enjoy the fruits of your labour or the company will
finally get profitable and share the profits with you.
However, that might never happen.
Uber is a 43 billion dollar company that is still bleeding cash.
Facebook, the largest social media company in the world, has never paid a dime in dividends.
But unlike equity, with a royalty deal, investors will always be on the winning side.
A royalty of 10% of sales on all products would mean that if a firm sells $1000 worth
of goods, they would have to pay $100 to the party they have a royalty deal with.
Even if the business is bleeding cash, the investor will still be making a profit as
long as there is revenue.
Whenever a computer manufacturer sells a PC with the Windows operating system preloaded
on it, they pay a royalty fee to Microsoft.
There are different kinds of royalties, from intellectual properties such as patents to
franchise rights, that are often used by chain stores to leverage their products and services.
Royalties guarantee cash on the table regardless of the outcome of the business.
3.
Bonds.
Holding bonds in the last 3 years was dumb.
Low-interest rates made bonds so unattractive that literally almost any other investment
easily outperformed bonds.
Since the beginning of the pandemic, 10-year bond rates were less than 1 percent.
I mean, that's lower than inflation.
You are guaranteed to lose money.
However, as the age of cheap money came to an end, bond rates began to shoot.
They are now as high as they were in 2018, floating around 3 to 3.5 percent.
That’s definitely lower than inflation.
However, that’s still far better than 0.5 percent.
And if the fed keeps raising rates to finally end the highest inflation in 4 decades, bond
rates will only rise.
I wouldn’t be surprised if bond rates would double by the end of the year.
When everything is crushing, government bonds don’t just put cash on the table regardless
of the circumstances but also keep growing.
4.
Stocks But don’t let the storm push you away from
the markets.
Whenever everything is booming, it's easy to make money.
Because everything is growing anyways, the real challenge comes when a storm hits the
market, as is the case now.
Stocks might not seem attractive, but this is not the first storm.
During the dot com bubble, stocks like Amazon lost like 90 percent of their value.
During the 2008 financial crisis, markets across the globe were crashing.
And what's happening now is yet another crisis.
The storm will definitely clean the market from inefficient companies, but those who
provide real value will prevail, and a storm is an opportunity to purchase these stocks
at a great discount.
5.
Private businesses
Private businesses make up almost half of the US economy (44%).
A great number of them struggled tremendously during the pandemic, especially restaurants,
invidual stores, and small businesses.
Those who survived are yet to overcome another challenge, a challenge of high inflation,
high-interest rates, and lower demand.
It’s not a surprise we will witness a lot of bankruptcies in the coming future.
Not because these businesses are bad, but rather because they simply don't have the
airbag to withstand the crisis.
So big businesses will most likely jump in to acquire them since they will easily become
money-making machines once the storm passes.
Thanks for watching, and see you in the next one.