The 2020 Recession | My Investing Concerns

What's the guys? It's Graham here. So I just want to have a really open, honest, and candid discussion about what's been going on lately with the markets. The stimulus package is in place; what that means for you and my own thoughts about what's likely to happen from all of this.

Don't worry, I've never been, and I never will be one of those channels that tries to induce panic and make you think that the entire world is falling apart, even though I haven't really left the house in a few days, and today is my first day of wearing actual pants. However, I do want to take a really level-headed, logical, and realistic approach about what this means for all of us and discuss some of the strategies that we could use to come out of all of this unscathed.

Because after reading nearly all of the comments on my previous video, it was rather refreshing to see just how many people appreciated having a level-headed perspective on things. Trust me, that's not always easy to do. I'll be completely upfront with you guys; I am the type of person who worries way too much for no reason at all. I easily get caught up in all of these alarmist headlines about the end of the world as we know it.

I've glued to my computer, refreshing the screen every five minutes just to make sure I don't miss anything, and I've wasted a lot of mental energy on absolutely nothing of importance. I believe if you and I are alike, I am not the only one who does this. Believe me, I run through every single worst-case possible scenario in my mind about what happens if all of my tenants stop paying rent. What happens if I can't sell any houses as a real estate agent? What happens if my entire YouTube channel gets demonetized and people don't smash the like button to the age of the algorithm? What's gonna happen?

But then you take a step back from all of these sensationalized headlines just to realize we're gonna get through this totally fine. The only way to do that is not to lose your panic. As proof of that, here's what we're going to do. First, I'm going to quickly recap what's been going on lately, then we're gonna be looking back at the history of all bear markets just to see how bad things have really gotten, how long it's taken to recover. Then I'm gonna be sharing my own thoughts and concerns with what's going on in the market, and finally, I'm going to end it with the shameless self-promotion for Webull for anyone who wants two free stocks when they deposit $100 on the platform, one of those stocks being valued at $1400. Link down below in the description.

That is basically my video in a nutshell. So with that said, let's begin the video. My brand new studio set that I've been working on lately since not leaving the house, so at least this is what's been keeping me busy lately. It's right over here. I'm gonna go walk over and enjoy the video.

All right guys, so welcome to my brand new studio set. Let me know what you guys think of it down below in the comments. But anyway, let's do a bit of a history lesson here, or at least just a history lesson of the last few weeks. Because really, just up until that point, the economy was going along perfectly fine. Like, let's not forget a month ago, on February 19th, the S&P 500 hit a record closing high of $3,386. Unemployment was near all-time lows, interest rates were low, and besides a small shimmering glimpse of this mysterious illness developing in China, everything seemed completely fine.

That was until it started spreading. I've mentioned this term before, but something like this is known as what's called a Black Swan event because no one could have predicted it. I mean sure, we got Bill Gates warning about a potential situation like this a few years ago at a TED Talk, but no one could have predicted that 2020 would have been the year that happened. If it wasn't for this coming up, many people would argue that the economy would continue moving forward quite calmly and profitably anyway.

As this illness began spreading, it became apparent that it not only posed a huge threat to our entire global economy but also the health and safety of ourselves and those around us. And that's when the poop hit the fan. The second largest economy essentially shut down. Investors became worried about how this would impact their businesses. People began expecting lower profits, and then the stock market began doing its thing by dropping in price, and then dropping in price, and dropping even more price, and at the same time making people on Reddit's Wall Street Bets very, very wealthy.

But that is just the tip of the iceberg. As illnesses began being announced here in the United States, the Fed, out of nowhere, suddenly lowered interest rates by half a point. Normally, an action like this would excite the stock market; it would excite investors because all of a sudden they could borrow money at much cheaper rates. But not this time. Instead, people panicked because they thought if the Fed sees the need to suddenly lower interest rates out of nowhere, how bad is the situation and what do they know that we don't?

With that, the markets went down further and further and further, subsequently making people on Reddit's Wall Street Bets richer and richer and richer. Here's the thing: from an investment standpoint, this illness brought a lot to the surface that our economy just wasn't prepared for. Our healthcare system is not designed for such a large influx of people at the exact same time.

So measures have been put into place to try to do their best to limit how many people get this, and as that happens, people don't leave the house, they don't spend money. Businesses don't make any money, they lay people off, they reduce hours—people aren't making money, and the ripple effect from that becomes unprecedented.

So in an effort to mitigate those concerns, Congress passed several stimulus packages to get funding back into the economy, including a proposal to give each American a check worth a thousand dollars or more, depending on their family size and income. Then, after travel restrictions were put in place and airline stocks dropped faster than my Do Kwon on Aides video, the Federal Reserve lowered interest rates again to a rate not last seen since the 2008 Great Recession. And even with all of that, the stock market still declined.

Now, obviously, I'm leaving a lot out of this just as a way to simplify the situation as much as possible but the gist of it is that the impact of businesses closing down and people losing their jobs and not spending money could have a very long-standing impact on our economy. Not to mention we're not exactly sure how long this is going to be going on for and that uncertainty is driving us to check stock prices every few minutes and to make sure Robinhood is still working. I just checked, Robinhood is still working.

So with that mini one-month history lesson out of the way and with stocks down about 30 percent from their peak, let's go ahead and take a look at other bear markets and crashes just to see how this is compared. And of course, to do that we're gonna be going all the way back before 1929, the wonderful year of 1907. This is a time where the stock market dropped 50% in value after the 1906 San Francisco earthquake, where heavy insurance payouts led to gold being withdrawn from the banks and lending requirements suddenly became a lot more strict.

That caused people to panic about liquidity within banks and when trust companies were rumored to have speculated in a failed copper business, people panicked and began withdrawing their money from the banks in rapid numbers. That situation led to the monetary policies that we have today, otherwise known as what's called the Federal Reserve. After that, however, the market saw a wonderful surge in prices yet again as people regained their confidence in the economy, which saw a 193 percent increase in price within less than four years.

That was, however, until the Great Depression of 1929. And here's what happened: after the roaring 1920s, money was pretty much pouring out of every crevice, and for lack of a better word, people were leveraging their money way too much and borrowing way too much to invest back into the stock market. So much so that the Federal Reserve was warning people like, "Hey, this probably isn't sustainable, guys. Not a good idea to do this."

The issue with this was that banks were so loosely lending money to people that pretty much anyone could go and borrow money for the purposes of investing in the markets because the markets and stocks only go up, right? Well, even though the exact catalyst of the crash is unknown, some theories suggest that a rise in interest rates faltered people's confidence in the market and began spurring people to sell off. Others say it was due to an overproduction in agriculture, which caused those companies to go and sell that product at a loss, hurting profits.

During all of this, many other economists were suggesting and theorizing that not enough people were smashing the like button for the YouTube algorithm. Anyway, once the stock market showed even the smallest glimpse of vulnerability, people began selling at rapid levels and began withdrawing their money out of the banks for fear that the banks would be going out of business.

However, banks were at a bit of a standstill because they had invested and loaned out all of their money and they were unable to give people their own money back. That led to the stock market dropping 83% over 2.28 years, with a nearly twenty-five percent unemployment rate among Americans. Even as the stock market slowly began to climb back from its freefall, many people still remained unemployed, and the economy was basically just picking up the pieces again to eventually rebuild.

Then when World War Two hit, many economists argued that this was what helped get us out of the Great Depression because that ended up giving work to the nearly 17 million people who were unemployed during that time. Either way, after that the economy enjoyed about fourteen years of consistent economic growth, averaging a gain of over 815 percent during that timeframe.

However, as the war ended, we saw another drop in the markets of about 22 percent over six months as veterans reentered the workforce, began competing for a limited supply of jobs, and the entire economy had to readjust without the government spending money in a war. But after that, we saw a fifteen-year increase in the stock market, with prices increasing over 935 percent during that time.

But then the 1970s saw even more turbulent times. Between January of 1973 and December of 1974, the stock market lost about 40% of its value. This occurred when President Nixon removed us from the gold standard, which linked the value of our dollar to the value of gold. However, this led to some crazy runaway inflation because as they started printing more money, it devalued all of the other money that's currently in circulation.

So to counteract that, strict policies were put in place to raise interest rates and try to keep the value of our dollar in check. But after that, as usual, like clockwork, people regained their confidence in the economy. The markets continued climbing for the next 13 years with an average gain of 845 percent during that time.

After that, we have another one that people keep bringing up lately, and that would be the Black Monday crash of 1987, where stocks dropped 22% in a single day. The exact cause of this is a little unclear, but because there were no policies in place to prevent this from happening in the first place, a mixture of factors all came into place for a once-in-a-lifetime sequence of events that caused the biggest stock market drop in history.

Not too much later, the markets rebounded and continued to climb over 800 percent over the next 13 years. Then we got the dot-com speculation of 2001, which was caused by a frenzy of speculation towards internet-related companies—a little similar to what we saw in cryptocurrencies in December of 2017. People were really just scooping up anything they could because this is the Internet, and this is the future, right?

Well, that was unsustainable, as many dot-com companies couldn't actually make any money—they collapsed. But even despite all of that, things still rebounded, and we saw about five years' worth of almost 110 percent growth. That was until the Great Recession of 2009. I'm sure this one doesn't need a ton of explanation right now, but basically, banks lent out way too much money to people who were not qualified who then went to go and buy houses with.

And then once they could not sustain those payments, they began defaulting, which means that went back on the banks, causing the stock market to drop about 50% in value. The Federal Reserve stepped in to bail them out, and then we recovered in the longest, most profitable bull market we've seen ever in history until now.

At the time I'm filming this, the markets have dropped about 25% off their peak, and if we go and look back historically through the last 110 years' worth of data, we can see that throughout everything we've been through, eventually we will recover, and everything will be okay. Not to mention, if we include the 1929 Great Depression, our average bear market has seen a loss of 41 percent over an average period of 1.4 years.

When it comes to this, there's a saying out there that goes something like, "Every bull market is the same and every bear market is different." This is especially true today. We're experiencing a global event that's largely unprecedented from anything we've seen before, and we have no idea how much worse or how much better things are going to be in the short term.

We're coming to the realization that many businesses are running paycheck to paycheck and can't afford to close their doors for longer than a few months without going out of business. That's eventually going to lead to a domino effect across our entire country. As businesses go out, people lose their jobs; they stop making money, scale back on their spending, and they can no longer make payments.

Even with this surplus of financial stimulus packages expected to go into place, we have no idea if that's going to be too little too late and also how many people are going to be affected by this, both financially and from a health perspective. As far as what I think can happen with all of this, we have a few potential scenarios. One is that we're able to slow the spread of the illness, people's confidence slowly resumes, a vaccine is offered, consumer spending slowly begins to increase, and apart from a few lost quarters of growth, things eventually recover and continue as normal.

Or this is going to last way longer than people think. People are going to be out of work way longer than they think. Our healthcare system temporarily gets overwhelmed and overpopulated, and people's confidence in the market diminishes to the point where that becomes a domino effect of continuing lower prices.

And really, even with these two scenarios, no one actually knows what's going to happen. Many people can argue that if it wasn't for this illness, the entire economy would just be continuing on as usual. So once we can remove this variable from the marketplace, things should, in theory, recover once our confidence resumes in the market.

This affects everything across the board, completely separate from our economic stability, and the longer it takes to control, the worse that's going to be for everybody. My personal belief is that even though we don't know how long this is going to last, I have a feeling that as quickly as we saw it come down, we'll see it come soaring back to life. Maybe not to the highs and to the extent that we saw a month ago, but higher than where we are now.

Although I think the longer that takes to happen, the longer it's going to take us to recover from the losses that we've seen. And listen, the point of this video is not to scare anybody. It's not to tell you the usual cut back on spending, save money, invest consistently, and stay the course. But instead, to be real with you guys and say like, "Hey, you know what? It's normal to be worried. It's normal to be concerned. It's normal to feel like you're panicked."

We can't ignore these emotions. After all, as a real estate investor, I am concerned about my tenants not paying rent and having to cover the cost of my mortgage, property taxes, and insurance. That's a lot of money every month out of pocket without receiving any rents in return to come help with. And even though I'm fully prepared for that and I have everything in place to handle it if and when it does come up, I know a lot of people who are not prepared for that and are really only a few months away from defaulting on their loans.

At that point, I have a feeling it's up to the government to then step in and pause payments long enough for this to blow over. If not, I'm concerned that the ripple effect could be much bigger than what we imagined. We're really rest assured that all of this is only temporary and that eventually our markets will rebound.

Judging by what I personally saw during 2008 and 2009, when people were on the brink of believing that everything is over, that our entire economy is doomed to existence and people have lost their entire faith in the financial system—that's usually the point where we have hit our bottom. After all, panic and fear need to be at all-time highs for us to see our stock market lows.

Even though we don't know exactly when that's going to be, it's really important to understand that that is just a process of investing long-term. After all, looking back, what if I told you that you had a chance to invest in 1929 after everything had lost 80% of its value?

Imagine having the opportunity to go and invest in 1974 after everything lost 40% in price. Or what about investing in Amazon during the dot-com bubble when people thought the tech stocks were done with? Well, what about being able to buy real estate in 2009 when many people believed that real estate was never gonna be the same ever again? Each of those provided a very unique buying opportunity that would have made patient, willing investors a lot of money long-term.

All I'm getting at is that in each of these market crashes, it could be argued that this time is different. And indeed, every time is different. No two bear markets are ever gonna be the same, and I believe once we run out of unknowns with what's gonna happen with our economy, eventually that's gonna be the point where stocks begin to climb again.

I have no idea how long it's gonna take, but I do believe we'll be able to look back at this as a very good buying opportunity in hindsight many years from now when we're all safe and sound, not cooped up in our houses all day. That's not to say it might drop even more in price, and very well it might. But for anyone who has ever commented or wished that they could have invested during the 2009 Great Recession—well, here is your chance.

I don't want to say that to disillusion anyone or give anyone a false sense of security, but objectively, if we look back at every single stock market crash in history, things have gotten better and things have recovered. I have no doubt that eventually, that's going to happen here as well.

As far as my own thoughts on this, I'll be honest: it's scary reading a lot of the headlines. It's easy to wonder about just how bad things are gonna get and then set yourself up in a state of panic, especially if you're staying home, not going out, cooped up inside all day, and spending all of your time thinking about the worst possible scenario. It's like, no wonder people are going crazy and panicking.

I've spent a few days inside already, and I am going crazy without many things to do. I'm gonna tell you guys straight up: if you have too much time on your hands, your mind is going to get the best of you. So for that, I recommend you take a step back and realize that long-term everything is going to be okay. Everything is going to recover. Make sure to put your health and safety first and then continue forward as usual.

Now, of course, I do wonder about the ripple effect this is going to have on our economy if this persists for more than a few months. If that happens, I feel like consumer spending is almost going to be changed as people have like a PTSD from not working and not having enough money to pay the bills. I think that's going to take a while for people to feel comfortable spending again.

But for anyone who is not a few years from retirement, especially if you're young, from an investment standpoint, now is still a great time to continue buying in and just dollar-cost average as usual throughout this entire experience. And on a totally unrelated note, social distancing right now is very important. The longer that you could stay home, watching YouTube videos and smashing the like button for the YouTube algorithm, the better it's going to be for everybody.

So with that said, you guys, thank you so much for watching. I really appreciate it. If you have not already subscribed, make sure to destroy the subscribe button, destroy the notification bell. Also, feel free to add me on Instagram; I post pretty much daily. So if you want to be a part of it there, feel free to add me there.

As on my second channel, The Graham Stephan 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. And then, like I mentioned in the very beginning, as promised, if you guys want two free stocks, use the link down below in the description, and Webull is going to be giving you 2 free stocks when you deposit $100 on the platform, with one of the stocks potentially being worth up to $1400.

So if you want a chance to get two free stocks, use that link down below. Let me know which two free stocks you get. Thank you so much for watching, and until next time.