The Stock Market Crash Of 2022 | What You Must Know

What's up guys, it's Graham here. So, initially, I had another video scheduled and ready to post today, but given what's going on in the stock market and the very sudden decline of everything from index funds to cryptocurrency, I felt like it would be more appropriate to address everyone's concerns and share my thoughts about what's going on as a message to all investors.

See, I'm concerned that the vast majority of people watching my channel have only just recently started investing and have never been through or seen what a bear market or a recession looks like. Because it's really one thing to say, "Boom! You should buy the dip! Everything is cheaper today! The entire market is on sale! This is fine!" But it's another thing to start seeing serious losses in your account, watch all of your profit evaporate in a matter of weeks, or hit the panic button because you never expected things to drop so quickly. And that's what I want to address in this video, right after, of course, you subscribe and smash the like button for the YouTube algorithm.

Any minute now, start as soon as you do that. Thank you guys so much! Now, with that said, let's begin. To start, it's worth explaining what's going on and why the stock market is poised for its worst start of the year since 2008.

The first has to do with the Federal Reserve. The issue we have now is that record low interest rates, combined with easy money, combined with supply chain bottlenecks, combined with a shortage of labor, combined with excess demand, caused prices to rise at their highest level in 40 years. Otherwise known as inflation. Although since this inflation is harder, better, faster, and stronger than the Federal Reserve anticipated, they're taking measures that would prevent inflation from rising even faster. But that has another effect, and that would be decreasing risk.

Simply put, studies show that when interest rates are at record lows, people are more likely to take riskier investments for an even higher return, thereby boosting up valuations and the entire market. The negative is that it also leads people to take on excessive risk that they might not be able to handle, and that's prone to disaster, especially when interest rates increase, like we're beginning to see today. Second, slowing growth.

Even though this is certainly not the straw that broke the camel's back, a sudden 24% decline in Netflix stock could be a precursor for other companies that, if their growth begins to slow, could reflect dwindling consumer demand across everything. Another prime example is the alleged discontinuation of Peloton bikes due to a significant reduction in demand across the world, while their stock price is down 78% over the last 12 months. The fact is, there's become this growing narrative that customers have already made their major purchases; they've already subscribed to streaming services and are unlikely to see that same explosive growth in the future.

On top of that, retail sales volume is down 3.7%, spending is decreasing, and we're going back to a time where half of Americans are not able to afford a one thousand dollar emergency. In terms of this, what I also found very interesting and potentially telling about the future state of the economy is that since December, my own ad rates have dropped about 20 to 25% throughout every single one of my five channels, which is a rate decrease that I have not seen since I first started posting videos in 2017.

Now, even though I don't want to read too much into it, it does seem as though anecdotally speaking, companies have begun to pull back on advertising, likely because they aren't getting the same ROI. There are fewer people to market to, and if Netflix is any indication, they're preparing for a time of slower growth.

As a solution to this, China recently did the unthinkable and chose to lower interest rates as a way to incentivize people to keep borrowing and spending, thereby boosting up the economy during the ever-grant crisis. So, even though it's very unlikely that the U.S. would follow the same trajectory, if inflation begins to slow down, they may take a slower approach to raising rates. But it's still too early to tell.

Third, higher costs. Even though it's a very complex problem, the best way to explain it is like this: rising inflation and supply chain bottlenecks have caused the price of everyday items to increase, making it significantly more expensive any time you want to buy groceries, building materials, energy, gasoline, or pretty much anything. But that's also combined with the worker shortage, where companies have to pay more to keep their top talent from leaving.

Apple, for example, recently offered a hundred and eighty thousand dollar bonuses to keep their key employees from moving elsewhere, and U.S. professionals also saw their compensation jump at the fastest rate in nearly 20 years. On the one hand, this is good for employees who can negotiate a salary that accurately reflects their demand in the marketplace. But that also comes with the strong likelihood that eventually, companies will have to raise their costs in order to sustain profits. And that's what's happening.

For example, PG&E combats rising expenses with increasing prices. Small businesses have no other choice but to raise prices or they lose money. Chipotle and Whirlpool are now a little bit more expensive than they were a year ago. Netflix just raised prices on their customers due to increasing production costs, and that is just the tip of the iceberg because it's impacting pretty much everybody.

Take myself, for example. I sell my own coffee now for sale at bankrollcoffee.com, and unfortunately, coffee prices have increased faster than just about any other commodity. As a result, our own costs have increased about 20% throughout the last year. Until now, we've really just taken the loss on ourselves because we didn't want to raise prices. But at a certain point, we'll have no other choice but to eventually raise the cost of those items because otherwise it doesn't make sense to stay in business.

I also run an app called The Hungry Bull with a close friend, Jeremy, from Financial Education. It's an app that offers a daily newsletter and a place to track every piece of stock market information that you'd want to see, including earnings reports and conference calls. So, if you want to see it, I'll link to it down below in the description.

But the issue we have is that right now, there's a shortage of software engineers, and we can't as easily compete with venture-backed companies who are willing to pay whatever it takes just to get somebody on board. At the end of the day, there's really just a higher cost of customer acquisition and a higher cost of expansion during a time where demand and growth is dwindling, and that, as a result, is weighing down on the market.

And finally, fourth, we have cryptocurrency. In the last 24 hours, Bitcoin fell 10%, while Ethereum dropped 12%. In fact, the entire crypto market dropped about 400 billion dollars in just the last week. Some of this was due in part to the news that Russia would propose a ban against cryptocurrency mining and trading, although most analysts seem to believe that any drop is only going to be temporary and that a ban wouldn't be enough to completely dissuade people from using cryptocurrency, especially when Russia has an annual trading volume of 5 billion dollars.

Although there's also the realization that in a way, the cryptocurrency market is also somewhat tied to the stock market in the sense that it serves as a hedge against higher inflation and a weakening dollar. But as the Fed takes measures to reduce inflation, that could impact the demand for cryptocurrency, causing it to fall. On top of that, there's always the looming threat of more regulation and government scrutiny.

Although personally, I just think the market is taking what's called a risk-off approach. This just means when the market falls, investors take profits, they sell out of certain assets, they raise cash, and then they wait for new opportunities. So right now seems like a time where investors are cashing out a cryptocurrency in the process.

We saw something similar happen in March of 2020, when Bitcoin dropped 50% during the height of the panic, where people began to worry that they would need physical cash to hold them through. There's also this new slogan going around of "sell the rally," which gives the impression that it's better to take short-term quick profits now because you don't know when you're going to have another chance.

I think that really signals the level of fear in the market right now and the fact that there's very little optimism that prices could eventually recover back to where they once were. But with all of that said, I think it's important that I mention this: I remember starting my real estate career in the beginning of 2008, right as prices had peaked and were about to undergo one of the worst price drops in history.

Within months of entering the workforce, I distinctly remember pretty much everything crumbling down—banks going out of business, people losing their jobs, the markets absolutely crashing, people were losing their homes, and everyone entered into this state of panic. However, even though I certainly questioned the timing of my entire career, I have to say going through the recession at an early age in the workforce during a time where everything just kept going down gave me a really unique perspective on the entire market.

Looking back, I believe it was those moments that really reinforced my desire to save as much as possible, cut back on spending, and invest as much as possible so that way I would be prepared just in the event something were to happen. Now, I understand that every time I say this, I sound like a broken record: that no one could time the market, no one has any clue what's going to happen in the short term, and the best strategy is always to keep buying and holding.

But whether or not people actually follow that advice is a totally different story. It's just so easy to believe in the concept of buying the dip and keep holding when everything just keeps going up and people on Wall Street bets are making more money in a day than you make in a year. But very few people ever actually follow this advice when prices keep going down, and you think to yourself, "I've added—not that! These losses! I was wrong! The stock market is very bad! So I'm just gonna pull out all my money and then just see what happens later."

It's going to test a lot of people's endurance and whether or not they're able to come out of this as a better investor. Even though no one knows what's going to happen or how quickly this is going to blow over, or how much worse things could get, do your best not to panic from spooky headlines and continue investing as usual.

Even though the recent market performance is scary and more than a third of the NASDAQ is down more than 50%, in the big picture, this is really just a blip on the radar, and it's not even close to the worst that we've seen. Like just consider this: The S&P 500 is down almost 5% in the last seven days, but over the last six months, we're up almost 2%. Over the last year, we're still up 15%, and over the last five years, we're up 93%.

And the market crash that you're worried about today is this little line right here—that's it! When you zoom out even further, that is what's causing you so much panic. That's it; that's nothing compared to the dot-com crash of 2000 or the 2008 great financial crisis. I hope that helps put things into perspective.

From my own experience, purely from an investment standpoint, it's usually these times that offer a great opportunity. As a perfect example of this, there's an article that came out in January of 2009 explaining that it had been the worst month ever for stocks, with the S&P 500 dropping 8.25%. But guess what? That was almost near the very bottom of the market, and had you been buying consistently, you would have made a significant profit.

There's also the saying out there that "riches are made in recessions," and that is very true. If you're in a position right now where you have a stable source of income, you have an emergency fund, and you have low living expenses, you are considerably fortunate, and I recommend you put your situation to good use. Now is the time for you to double down on your work, take on as many side jobs as you can, bring in a consistent income, beef up your emergency fund, and buy into the markets on a consistent basis.

I am sticking with the philosophies that I have talked about here on the channel for now five years, and really absolutely nothing changes, even if things get significantly worse. In fact, historically, the stock market actually happens to do rather well after a rate increase, with a median gain of about 5%. So, in my opinion, a lot of this panic is simply due to slowing growth, higher costs, higher inflation, and higher rates.

Now, don't get me wrong, I have absolutely no idea what's going to happen to the markets in the short term, but things don't just go up indefinitely forever. Instead of being fearful about losing money, we should really do our best to shift our perspectives that it's okay and it's just a part of the process—process of being a good investor.

And it's also a very important process of subscribing and smashing the like button if you have not done that already. So with that said, you guys, thank you so much for watching! Also, make sure to add me on Instagram and on my second channel, The Graham Staffing Show. I post there every single day I'm not posting here, so if you want to see a brand new video from me every single day, make sure to add yourself to that. Thank you guys so much for watching, and until next time!