If you have been watching the news, you probably realized that almost every billionaire, analyst,
or economist has warned us that a financial crisis is around the corner.
Here is Bill Gates saying that a global economic slowdown is hitting this year. Elon Musk is
cutting jobs at his companies because a recession is most likely as he believes.
Jamie Dimond says that he expects an economic hurricane to hit us. In fact, 70% of Americans
think a recession is coming. Seems like we are on the brink of economic catastrophe.
If you open the Wikipedia list of the number of recessions in the United States,
you will realize that recessions are nothing new. They might sound like a catastrophe, but they
are an essential part of our economic cycle. It’s normal that the economy reaches a certain sealing
and then slowly starts cooling down. But if you pay close attention, you will realize that back
before the creation of the fed, recessions were much more common. After around 2 to 3 years of
economic growth, the economy would peak and then slow down before its next expansion.
After the central bank’s manipulations, 6, 7, or even 8 years of economic expansions have become
much more common until we have broken the record of 10 years and 8 months of economic expansion.
It seems like we have reached our peak of using the fed’s policy to avoid recessions since we
have suffered one during the covid, and another is on the horizon before the pandemic is even over.
We are not going to go into details about why we are about to face another recession. We
have explored that in previous videos, so let's find out how to prepare for the next recessions?
How to benefit from the upcoming crisi? And how to make sure you get out of the
next recession much better financially? We will answer all of these questions
and many more, but before we do that, give this video a thumbs up, and let's dive in.
Never abandon the cash. An economic crisis is a period of turmoil, it is
the time when cash on the table matters the most. When business is growing, not many care about cash
because the economy is filled with it. People invest in risky assets without being concerned
about the consequences. That’s why we had crypto and nfts growing like falcon 9 the last 2 years,
but the moment the fed hinted that we are most likely headed into a recession,
even the world's richest man sold its bitcoins and began to grow its cash position.
Suddenly everyone began following the footsteps of Warren Buffet, who has always prioritized cash
over risky investments. His name wasn’t shining the last 2 years
like the likes of Cathie Woods or Elon Musk, but that's what makes him different.
He is sitting on an enormous cash pile, waiting for an opportunity to strike. So the best way
to prepare yourself for the next recession is by reducing your expenses as much as you can
and getting yourself ready for the winter. I know that sometimes a few dollars on a cup of coffee or
a few hundred bucks on new sneakers don’t mean much, but at the end of the day, they add up.
Add to that the enormous inflation we have now, everything you buy is much more expensive now. We
will get through this high inflation as soon as we solve the global supply chains, but it might
take us until the next year, so if you want to be ready for the next recession, save, save and save!
2. Invest in liquid businesses
Because cash is scarce during financial turmoils, a lot of businesses often shrink dramatically or
just declare bankruptcy. People aren't going to work for free. Remember that they have stomachs
to feed. So it's normal, where there is a wave of businesses that are going to shut down. During the
2008 financial crisis, even huge corporations filed for bankruptcy, such as General Motors,
Chrisler, AIG, and many many more. Bigger, more stable companies or governments acquired them.
So if you are investing, make sure to invest in companies that have the cash to survive
the storm. That's why some companies like Apple and Microsoft are sitting on a huge pile of cash
despite high inflation since it's far better to let inflation slowly eat away the fortune
rather than face a recession without enough liquidity.
If you want to find out how liquid the business is, all you have to do is take a look at its
balance sheet. If it’s a public company, then you should easily find their financial statements.
And don’t expect every company to have over 200 billion dollars in cash like Apple has.
3. A recession is an opportunity Recessions seem like the worst time to start
a business, however facts on the ground prove the absolute opposite. When the economy is growing,
competing with top players is difficult, if not impossible. However, during crises, when huge
corporations are distracted by huge bureaucracy, startups have the opportunity to strike.
Whatsapp, for example, was founded in 2009 when the economy was crippled by the crisis.
A few years later, Facebook acquired WhatsApp for 19 billion dollars. And today, with over 2
billion users, it is worth a lot more. Uber is another example. It was founded
back in 2009, and today it is worth almost 50 billion dollars despite the fact that
its still struggling to turn a profit. There are plenty of other examples, such as
Pinterest, Venmo, slack, and square but the most notable is, of course bitcoin.
In fact, the 2008 crash was the reason that pushed Satoshi Nakamoto to create bitcoin, that
ended up creating an entire industry that turned many people into millionaires and billionaires.
Think of Coinbase, Binance, Gemini, and many more. Even tesla, which went almost bankrupt during the
crisis, managed to survive and turn the crisis into a turning point in the industry’s history.
That was the moment when other manufacturers filed for bankruptcy while tesla emerged the strongest.
But it's not about just starting a business. A recession is a period to boost your career.
Taking responsibility during turmoils will give you an upper hand over your colleagues
and you can climb the career ladder much faster in a relatively short period.
Just take a look at how many CEOs lost their jobs to their junior managers during the last crisis.
4. Don't cash out It's easy to be patient when
everything is growing. If you purchased bitcoin at 11K dollars before its stratospheric rise,
you have watched how your assets grew so dramatically over a short period of time.
The truth is that the absolute opposite happens during a bear market. A lot of people don’t get
patient and sell off, thinking that the world is about to end. If the world is about to end.
Then you don't need that money anyway. Jokes aside, the stock market has survived
the great depression, world war 2, endless recessions , the Vietnam and Iraq war.
The investors who actually made money are the ones who either sold before everything crashed,
which is almost impossible since timing the market is not as easy as you might imagine,
or waited till the crisis passed and stocks began to grow again during the expansion period.
I have made huge losses, but I am more than confident that everything will recover.
5. Don’t go to debt
If you haven’t prepared yourself for a recession, you are going to struggle. A lot of people get
into debt when they can’t fulfill their basic needs, and if a recession happens as a result
of a financial bubble or inflation, like in our case now, the fed would raise the rates to slow
down the bubble, which means the debt is going to be expensive during such periods. In 2007, at
the peak of the housing bubble, the fed raised the rates to 5.25 percent. Imagine what was the rates
to consumers such as you and me. In the year 2000, during the dot com bubble, the fed raised the
rates to 6.5 percent. That's why recessions make the rich richer and the poor poorer because poor
people often struggle to save money, so during the recessions, they might have to borrow to put food
on the table while the rich don't and can use that excess cash to take an opportunity of the crisis.
These are just some of the ways to get yourself ready for the next crisis.
But at the end of the day, you have to consider your own circumstances, which is most likely
going to be different from everyone else. Thanks for watching, and see you in the next one.