The Next Great Depression - How To Prepare

What's gram up? It's guys, you here, and it's official: as of today, the bear market just hit a brand new low. Most people believe the economy is about to fall even further. For instance, Michael Burry just went on record to say that the S&P 500 still has much more room to fall. The "Doctor Doom" economist believes that we're in for a long and ugly recession, and the global economy is on the verge of historical change.

After all, Goldman Sachs estimates that China will see zero growth in 2023. Interest rates are expected to increase much further, and even the Federal Reserve predicted rising unemployment on its path of destroying unsustainable price increases. So, after watching Andre Dick's video going over his thoughts on a potential depression, I’d like to throw my own thoughts into the mix.

There is a proven way to invest and profit from a market that seemingly does nothing but fall and fall and fall. Then, I'll share how I'm planning to invest my own money throughout this next year because I've been stockpiling cash for one investment in particular that I think will do incredibly well. Although before we go into the details about how you could make money, we first had to talk about how you can subscribe if you haven't done that already.

So, thank you guys so much, and also a big thank you to public.com for sponsoring this video, but more on that later.

In terms of just how bad our economy is falling and why it's likely to get worse, here's what you need to know. On the most basic level, everything from the value of our money, the price of our investments, and the trajectory of the entire economy—from job growth, demand, and profit—is dictated by two words: interest rates.

Without getting too complicated, this is the interest rate set forth by the Federal Reserve that determines how much banks pay other banks each time they lend each other money. That in turn has an indirect influence on the rates being offered throughout everything from personal loans, mortgages, credit cards, or practically anything where money is borrowed from one person to another.

Because of that, when interest rates are low, money is cheap to borrow, and people spend more of it. But when interest rates are high, both people and businesses cut back, and demand slows down—kind of like what's happening here. As a result, just this year alone, more mortgages are now twice as expensive. Nearly every stock index has plunged 20 percent, and they warn that investors would feel some pain while the economy grinds to a standstill.

Although in this case, it's not just the United States; it's the entire world. Growth forecasts have started to dramatically decline on the realization that people are no longer spending as much as they were. Higher prices are beginning to eliminate discretionary spending, and that is affecting almost every business in existence.

FedEx, for example, is said to be a leading indicator because when they have less to ship, it's a sign that other businesses are seeing a decline in volume, suggesting that a worldwide recession is around the corner.

But now that Pandora's Box has already been opened, we gotta talk about how this is likely to affect you, your investments, and your money. First, we should talk about the stock market. As a result of higher rates, less discretionary consumer spending, and slower growth, prices have understandably fallen from their peak.

At this point, most people would compare the 10-year Treasury with that of the S&P 500, showing that as soon as interest rates begin going down, the stock market magically begins moving higher after trading sideways for almost two decades. But in reality, most analysts are calling for what's known as an earnings recession. Companies will report lower profits than expected throughout these next few years.

Now, in terms of how large of a decline we could see, Goldman Sachs takes the approach that generally bear markets decline about 30 percent when combined with the recession, meaning we have another 10 to fall if they're correct. BlackRock also mirrors their thoughts, noting that the slowdown in consumer demand and a hawkish-for-longer Fed will spark new lows.

But in the big picture, an earnings recession is actually what the Federal Reserve is aiming for because with less spending comes less demand and lower prices, and therefore lower inflation.

Second, the housing market. See, unlike stocks, home prices don't fluctuate minute by minute depending on what Jerome Powell says during a speech. Because of that, it's a lot more like moving a ship; turning the steering wheel doesn't have an immediate impact, but it sets the course of a new trajectory that only becomes apparent over enough time.

And that's beginning to happen here. In his latest speech, Jerome Powell warned that the housing market is probably headed towards a correction of 10 to 20 percent. In his words, what we need is for supply and demand to get better aligned so that housing prices go up at a reasonable level at a reasonable price, and people can afford houses again.

Now, even though I've quoted statistics before about declining home sales, low inventory, and record prices, they've begun to finally decline in August, down about six percent from their peak in June. This is largely the result of higher mortgage rates pushing down affordability and affecting what buyers are willing to pay for a home.

Now thankfully, it's not looking as though a housing correction would be anywhere close to what we saw back in 2008, but many markets are seeing a decline of up to 10 percent, and overall that's likely to translate to more affordable pricing for buyers—relatively speaking, of course, because prices are still 40 percent higher than they were two years ago.

And then third, we have bonds. No, not that bond, this Bond. And here's where a lot of our troubles are beginning. For those unaware, a bond is basically a way of lending money and getting paid back with a set amount of interest. As of right now, if you were to go and buy a Treasury bond fully backed by the U.S. federal government, they're paying you a guaranteed 4 percent return if you hold it for one year.

Now think about it: if you're an investor and you want to make money in the markets, why would you take the risk investing in stocks, cryptocurrency, or real estate when you could get a risk-free 4.1 return for doing absolutely nothing? The reality is, higher bond returns mean less money is flowing into other investable assets, and that, in turn, brings prices down for everything else.

Not to mention, with interest rates increasing even further, it's possible the bonds would offer an even higher return than they're paying right now, so it's still too early to tell where they might level off.

And finally, we have cash. Now oddly enough, this one is slightly more controversial because if someone is holding onto cash, they're losing value to inflation. However, if they're not holding onto any cash, that puts them in a precarious position. Should their investments fall, they lose their job, and they need something to fall back on.

Because of that, I think cash should be treated as though it's any other investment: have enough on the sidelines to cover three to six months' worth of your expenses. Add in a little bit more as a buffer should anything unexpected come up, and then sprinkle on a little bit extra for some additional peace of mind should you need it.

Although in terms of what this means for you, the future of the markets, and how I am personally investing my money, here's what you need to know. There's an easily avoidable reason why the average investor gets such a horrible return.

Although before we go into that, real talk, I understand how frustrating it can be as an investor in 2022. That's why our sponsor, public.com, wants to help. They're an investment platform that helps people be better investors. In addition to being an all-in-one platform, public.com gives you the information that you need to make informed investment decisions.

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And now, with that said, let's get back to the video. Alright, so when it comes to investing throughout these next few years, it's worth mentioning just how terrible the average investor is; that way, you don't fall for the same mistakes.

See, one of my friends runs the blog "Market Sentiment"—a link to down below in the description—because they found that the average investor over 30 years makes just one-tenth of the return of the overall market. In fact, there's no time period in which the average investor beats or even matches the most basic of market returns.

Why, you might ask? Well, most investors have a tendency of selling at the worst possible time and buying after the market has already seen an upward trajectory, usually on the fear of missing out. In doing so, they basically sell the bottom and buy the peak, thereby lowering overall returns.

On top of that, he also mentions a good point that there is an element of luck that determines your success over a 10-year period. After all, if you started investing in the year 2000, you would have lost money a decade later, whereas if you started in 2010, you would have more than doubled your money.

The solution in this scenario is to keep a balanced portfolio of bonds, which is typically a lot more stable and might even increase in price during a time that stocks decline. In doing so, they mentioned that a balanced portfolio had positive returns 60 percent of the time, and even when the market went down, the losses are reduced.

Of course, keep in mind that nothing is risk-free, and even in 2022, bonds are seeing one of the worst years ever in history. Now, in terms of how long this might last, according to Michael Burry, declining inflation is not the consequence of monetary policy and politics, and that it's not just going to be a single spike, as he describes it.

Inflation will decline, people will celebrate by spending more money, and then inflation will reappear for sometimes as long as a decade. So in terms of the right way to invest, one strategy entails buying the dip, which on average results in a return nearly twice that of someone who simply holds on and does nothing.

I also found it interesting that markets on average take one to two years to bottom and two and a half years to recover. So buying consistently allows you to purchase the lows while gaining the upside that eventually things will return back to normal. Plus, every single study shows that the longer you invest for, the lower your chances of losing money, with a 99.8 likelihood of a balanced portfolio being profitable over a 15-year time frame.

Although in terms of how I'm investing throughout this next year, here's my entire plan. First, let's talk about stocks. For the last few years, I've been dollar-cost averaging into an S&P 500 index fund and an international index fund every single day without fail.

Even though I'm not dumping all of my money here, I'm still investing the exact same amount on a regular basis, and that is not expected to change. I'm a firm believer in the stock market over the next few decades, and whatever happens between now and then is simply white noise.

Second, we gotta talk about real estate. Up until 2020, real estate was my largest holding, and it was where almost all of my money was invested. But as I began getting busier, real estate took a bit of a back seat while I focused on balancing my portfolio throughout other asset classes.

But now I'm seeing a lot more potential coming up with commercial real estate, like medical office buildings, warehouse space, or long-term high-end tenants. And I'm simply saving up and waiting for the right opportunity to come along.

Here's my thinking so far: commercial real estate has barely been affected by the market. After all, most buyers purchase a property based on cash flow, not overall market conditions. So if a building makes fifty thousand dollars a year and it sells at a five percent return, then it's worth a million dollars.

And it's only a matter of time until buyers stop taking out loans at six percent to buy a property that only makes four percent. To me, it's just not sustainable, and the only logical solution that I can see is that commercial real estate returns have to increase by lowering the purchase price.

If that's confusing, just imagine a building makes fifty thousand dollars a year—it's worth a million dollars at a five percent return—but now that interest rates have gone from three to six percent, that exact same building might have to sell for a six and a half percent return, which would be valued at seven hundred and seventy thousand dollars.

That's why I'm taking a really close look at commercial real estate that I could purchase in cash; that way, I could take advantage of softer market conditions without worrying about paying higher interest or competing with other buyers who take out a loan just for the sake of being able to take out a loan.

Because of that, third, I'm keeping a little bit more cash on the sidelines until I find the right property to purchase. Now, I want to be totally transparent: I'm still investing the exact same amount into the stock market as I have been throughout these last few years, but everything extra goes to cash.

Whenever a good deal comes up, I'm buying it. I have no idea when that might be—it could be a week, a month, or a year from now—but I don't think the commercial real estate has yet fully priced in these rate hikes, and that is an opportunity that I'm looking very closely at.

So overall, I have to say this year is probably going to be quite difficult for most investors, and in a way, it's to be expected. Investments don't just continue going upwards indefinitely, and there are going to be years where you lose money. It's a part of the process, but don't let that deter you.

If anything, it should be motivating knowing that you're able to buy everything for cheaper today than you could have a year ago. I know it's never fun losing money or seeing your investments drop in value, but this is a very, very long-term game. So, make sure you have enough cash on hand to see yourself through, continue investing as normal, and as usual, hit the like button for the YouTube algorithm if you haven't done that already. Thank you again for watching, and until next time!