ionicXBT
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1) First Recession? Bring it on.
🕑 Added 2022-11-18 19:15:19 +0000 UTCThis post is intended to:
- Teach you about previous recessions you missed.
- Tell you why recessions are the greatest time to be alive.
- How to come out on top while people lose.
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For many new investors, this is their FIRST TIME experiencing a crash like this. Currently, the economy has corrected with:
- The S&P500 is down 27%, which is a basket of the top 500 LEADING companies.
- The NASDAQ is down 37%, which is the 2nd largest American STOCK EXCHANGE after the new York stock exchange (NYSE).
- BITCOIN is down 75%, which is the first and largest CRYPTO by market cap.
and if you've been buying more SPECULATIVE stocks like zoom or crypto low market cap projects, you can be easily down 80%.
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The first thing you have to realise is that RECESSIONS ARE NORMAL, there have been 11 recessions since 1948, and it has made a new ALL TIME HIGH every single time.
Traditional investors assume recessions happen every 7 years, but history clearly shows this is just a baseline as some take longer time to occur.
But we can agree that it is a RARE OCCASION and after this recession, the next one will take years to come about.
A great OPPURTUNITY in disguise let me tell you why.
But first, let's talk about PREVIOUS RECESSIONS to get an understanding:
Let's begin:
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2000 INTERNET BOOM (DOTCOM BUBBLE )
Sidenote: Any kind of economic bubble refers to a situation in which prices are higher than someone would reasonably expect. If a bubble bursts then it signals a deep correction,
Before this recession, there was a HUGE RALLIES in companies similar to what we have in crypto.
The internet was first introduced and it was a revolutionary technology that shifted the world, everyone wanted in on it.
This was fuelled by low-interest rates in 1998, which made a lot of people borrow money to run an internet-based business which ENTICED highly speculative investments.
And investors were getting a low-interest return from banks, so it was better to buy into their IDEAS for a greater return, plus who wouldn't want a piece of the next big thing?
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However, the majority of these projects, or should I say 80%, had NO roadmap or market-leading utility.
The bubble eventually burst after investors realised that these companies had business models that were NOT SUSTAINABLE.
The recession lasted 2 years between March 2000 and October 2002.
During this time the S&P500 dropped down 49%, the NASDAQ dropped down 77% and FEAR was spreading like a wild fire.
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2008 FINANCIAL CRISIS (HOUSING BUBBLE)
Before this recession, the housing market (which is property prices as a collective) was steadily RISING for a while.
People became increasingly confident and started to believe properties are worth more and more and that not buying property in this market would be foolish.
Banks also saw how much homeowners' property value is increasing and started to approve loans on ANY basis.
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They thought house prices will continue to RISE, so they created as many mortgages as they can since they knew if the debtor can't pay the mortgage and defaulted,
they'll just repossess the property which should have an increased value above that of the original loan.
So how did it go wrong?
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All this was fuelled by CHEAP CREDIT and lax lending standards.
When the bubble burst, the banks were left holding trillions of dollars of worthless investments in subprime mortgages.
Now everyone is SELLING or defaulting on their loans, house prices are DROPPING, and the banks aren't lending to anyone so demand drops further.
Companies started to LAY OFF WORKERS who they couldn't afford, so this even impacted normal working people.
The bubble burst and the recession lasted 1.3 years from between October 2007 to March 2009
During this time the S&P500 dropped down 57%, the NASDAQ dropped down 51% and panic was on the rise.
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NOW HERE WE ARE IN 2022.
Currently, the S&P500 is down 27%, and the Nasdaq is down 37%.
What caused this?
Well in 2020 the COVID 19 outbreak resulted in a decline in the economy.
Many individuals were unable to work and businesses were forced to put their operations on hold because of this global pandemic.
Many businesses lost valuable customers and the economy was slowing down.
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So what did the government do to BOOST the economy? PRINTED MONEY. A lot of money.
They offered thousands of pounds of stimulus checks to each household as well as schemes to boost back the economy.
And it did.
Stocks and crypto pumping crazy as people are getting money and using it to invest.
But INFLATION is a silent killer. It reached the highest level since 1981 at 11.1%
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Now, what is the actual definition of a recession?
"Two consecutive quarters of decline in GDP growth"
Simply put GDP (which measures how well an economy is doing), declining for 2 quarters in a row.
We have already seen this and smart investors are aware, but the media think otherwise.
The reason they DON'T think it's a recession is that the second quarter's decline didn't go LOWER than the previous quarter's decline.
But a decline is a decline especially during two successive quarters, unless they want to change the definition.
But news and retail are ALWAYS LATE and will only accept it when it's too late to profit.
The intelligent investor's side is who you want to be on.
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WHY THIS IS THE GREATEST TIME TO BE ALIVE
Recessions cause prices to fall to UNPRECEDENTED LEVELS and only the WISE are PREPARED to capitalise from it.
Now that we understand previous history, we can refer back to the 2000 recession.
During the boom Amazon reached a peak share price of $5.60, the recession caused the price to FALL 95% to a price of $0.28.
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The MAJORITY OF PEOPLE LEFT and decided to give up, they decided that investing wasn't for them.
But some people stayed as they understood cycles because they had LEARNED, and they bought more.
For the people who stayed, they enjoyed huge rewards,
This internet technology, which started as a single screen on a computer, became the face of current times.
22 years later to this day amazon's price has increased by over 31,000%.
The cycles will be explained in another post, but recessions are one of the lowest points of cycles.
Recessions have the LOW RISKS and can INCREASE RETURN potential because everything is available at a DISCOUNT.
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HOW YOU WILL TAKE ADVANTAGE
An average person in a recession will just worry about trying to STAY EMPLOYED, which won't get you far.
This is how you will PREPARE.
CASH is king during a real recession.
If you do not have the capital to invest, then you won't get pretty far. You need capital and it is best to have A LOT of it during this time.
You will get a second job or do what you have to do to get extra capital as there is nothing worse than watching your favourite project be at its lows and you can't afford it.
A second job will also help you as you could get laid off as companies budget shrinks. So a second job will PROTECT YOU as you prepare for it.
Do not CARE about what other people will think of you, you are playing the BIGGER GAME which they are not aware of.
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You will look at your FINANCES.
Now is the time to LIMIT your expenditures.
Property values will DROP if you’re into real estate. We have already seen high property listings which is a warning people are eagerly trying to sell.
Certain projects will be UNDERVALUED. Look for companies that aren’t desirable right now, but have solid FUNDAMENTALS. (I will share mine soon)
If you’re into LUXURIES, you’ll find watches and sports cars at half to 2/3 of their current value as people sell them to keep businesses afloat.
In 2009, people were able to buy a car for half of what it is worth today.
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I will conclude with this final point
Everyone knows to Buy low and sell high until it's time to ACTUALLY buy low.
So Prepare yourself. You still have time, before retail catch on.
This is just start, next I will show you practical Indicators so you know what to look at as a signal for when the market bottoms.
@ionicXBT
Comments
❤️
Thank you for your crystal-clear summary and recommendations. 🙏🏽
Have the Market bottomed or yet to be?
