How To Prepare For The 2020 Recession

What's up you guys, it's Graham here. So, we can't ignore these articles any longer. They're pretty much coming up every single day, so I figured this is something we should talk about. And that is the looming recession.

To start, on January 29th, CNBC published an article that stated that the odds of a recession spiked to a 3-year high. We also have Bloomberg reporting a few months ago that the chances of a U.S. recession by 2020 top 60 percent according to JP Morgan. We also have Fortune magazine reporting the Goldman Sachs estimates a 50% chance of a recession over the next year. And finally, we have Business Weekly reporting a 100% chance of you smashing that like button if you haven't already got you there.

Okay, no but for real though, I could talk about at least a dozen other articles out there all talking about an upcoming recession, each with their own prediction of when that's going to be taking place. So let's first talk about exactly what's causing this. Then, let's talk about exactly what I think is realistically going to happen, and finally, let's talk about how you could best prepare for the upcoming recession with the best chance of coming out ahead and making a profit.

So let's first talk about what's influencing the markets and which factors we should really be made aware of. The first one is rising interest rates. This means that the cost of borrowing money is expected to get more expensive over the next few years.

Now, when borrowing money is more expensive, you either need to raise prices to keep profit margins the same, which means that things get more expensive to you as the customer, or businesses don't raise prices, which means that they don't make as much money. Now, when you don't make as much money, you generally don't save and invest as much money, and because of that, the economy generally begins to grow at a slower pace.

But on the flip side, unfortunately, if you don't raise rates and you keep them too low for too long, then we have what's called inflation, and that just gets out of control. So we're in a pretty tricky spot right now where interest rates need to start rising, but they can't start rising too quickly.

The second thing is that we've been starting to see warning signs of the impending inverted yield curve, which according to pretty much any article out there, the inverted yield curve has historically been associated with a high likelihood of an upcoming recession. So let me explain exactly what this is in really super basic terms and why this is important.

The yield curve is pretty much just a graph that shows how much interest is going to be paid over a certain amount of time for agreeing to lend someone money, and in this case, it's the United States Treasury. Now, of course, generally speaking, if someone is going to be lending money to the United States Treasury for ten years, you would think that you would have to pay that person more interest for tying up and locking up their money for ten years than if they just invested their money for one year.

After all, the longer you tie up your money, generally speaking, the more risk there is, and with the more risk, you tend to pay more interest. However though, when the yield curve inverts, it means that the government is paying more money for you to invest short-term and less money for you to invest long-term.

Now you might start asking yourself, "Wait a second, Graham, why does this happen?" Well, this happens because investors are generally a bit fearful about the long-term outlook of the economy. So, an inverted yield curve simply signals that investors don't think we're gonna see as good of long-term robust growth as we have seen previously.

Now, this one though is more of a symptom of other conditions and not so a cause, but this is a good indication of what investors think the U.S. economy is going to be looking like over the next short and long term.

Now the third thing is that we have tariffs with China and a lot of uncertainty about what may or may not happen. Unfortunately, without getting political or anything like that, generally speaking, these tariffs tend to be bad for everyone. Now this all starts by the U.S. placing higher taxes on imports from China in an effort to encourage more production here in the United States. But the reality of what ends up happening is that products just get more expensive, fewer people have the money to afford them, fewer people buy them unless money flows back into our own economy.

And then when you do that, you have China that then says, "Well, if you're taxing our imports, then we're going to be taxing your imports too."

Well, the thing is a lot of American companies make parts in China, and that just means higher import taxes on many of the products that you use every single day. This just ends up becoming a never-ending cycle of higher and higher and higher prices until eventually it's resolved.

When it comes to investments and the stock markets and everything in the economy, the one thing investors hate more than anything else is uncertainty. Now, when investors are uncertain, what they do is they don't invest, they keep their money in cash, and this is not good for the economy. This causes prices to fall.

Then finally, the fourth thing is that we're seeing a slowdown in pretty much all markets. Over the last 10 years, we've seen such a steep run-up in prices, almost a play ketchup from an overcorrection in 2009. Honestly, those price increases are flat-out unsustainable.

I'll be the first to tell you that 15% year over year over year price increases are flat-out unsustainable, and that's not normal. It's just inevitable that eventually, things are going to cool down like we're starting to see now.

So that then begs the question, is our market running out of steam? Now, here's what I think is going to happen. The first thing that I've noticed a lot of is what I like to call the gambler's fallacy. This is the expectation that the market is going to crash just because we're in the longest-running bull market in history and therefore, we're overdue for a recession, and it's more likely to happen.

It's kind of like flipping a coin heads 10 times in a row and thinking the 11th time it's more likely to flip tails just because it's been so long since the coin has flipped tails. Markets don't just crash because they're overdue to crash. If it were as simple as timing the market cycles every eight to ten years, then everyone would be doing it.

Now the second thing is that I believe some of our recession talk is already somewhat factored into the market price of what you pay. Think of all the people right now not investing because they think we're going to be seeing lower prices, but this is in and of itself self-fulfilling, and therefore, we end up seeing lower prices.

Now from everything that I have seen, price drops love to happen when we're not talking about price drops and everyone is just irrationally excited about investing.

Now, the mere fact that we're concerned and taking into consideration a recession therefore should actually lessen the impact of a recession if and whenever it happens.

And the third thing is that no one, including myself, knows what's going to be happening. Remember what I mentioned that JP Morgan says there is a 60% chance of a recession happening in the next two years. Well, the thing is that four months after they wrote that article, they now say that a 2020 recession won't happen, same with just about every other financial wizard out there. One day they say the market is crashing, and then the next week the market is totally fine again.

The truth is that most of the articles out there, including the spooky title of this video, have the sole purpose of just getting you to click and watch. The more dramatic the title, the better the viewership, which means the more ad revenue gets brought in. Just think of that for a second. If the title read, "Expert says that no one can predict when a recession will happen," guess what? No one is going to click it. No one is going to read or watch it.

On the other hand, if they say, "60 percent chance of a recession by 2020 experts says here is why," then everyone is going to be clicking on it.

Now the fourth thing is that you have so many fake news articles out there, or fake news that are designed to look like reputable unbiased news articles that instead have the sole purpose of manipulating you into buying what they have to offer. These articles have the only purpose of just inciting fear to lead you in the direction and steer you into what they want you to be buying.

Take one of these fake news articles by Bonnen Hill. They claim we're gonna be seeing a 70% drop in stock prices and that the stock market is a Ponzi scheme that will end in tears. I kid you not, a Ponzi scheme that will end in tears. And their solution to avoid all of those tears, well, you have to pay for that because that's in their article that you got to pay for.

The same applies to almost every other website out there that tries to get you to buy gold. They all make very legitimate-looking websites and headlines their own narrative to steer you towards investing in the services that they have to offer while at the same time appearing like an unbiased source.

And this sounds super shady, right? Well, this happens all the time. And here is exactly the reality: if someone is totally unbiased, I don't give a sh** whatever you do or whatever you don't do. It doesn't make any difference to me. But this is exactly what you need to understand.

The first thing is that no one can accurately and consistently predict whenever a recession is going to happen. We've been seeing all of these articles since 2013 from people who claim the recession is coming any month now. This sort of stuff is just never-ending. You'll end up reading about one expert predicting something over here, and then another expert predicting something over here, and then, wait, there's another expert over here, and they keep repeating these doomsday market recession articles and claims until eventually, one of those people is right, and then they use that as credibility to propel them into the next venture.

The thing is nobody cares how many times you're wrong; they just care about the one time when you're right. Hmm, think about that for a second.

And second, it's important that you prepare for a recession in ways that you control. You cannot control the price of the stock market. You can't control what the Fed does. You cannot control whether or not we're gonna see more China tariffs or not. You cannot predict what is going to be happening. But, on the other hand, you can predict this that will help you out tremendously.

The first thing is that you can control whether or not you keep a three to six-month emergency fund at all times in case something happens or in case you lose your job.

The second thing is that you can control whether or not you have too many outstanding debts that you should probably just end up paying down. If you find yourself over-leveraged or you have too much high-interest debt, then it's in your best interest to make an effort to pay that down and free up cash flow just in the event or whenever a recession happens.

The third thing you can control is how much money you spend. If you're overspending on things you don't really need, then it's up to you to cut back on that spending so you can save to invest more.

When you do invest, only invest money over the long term. Riches are not made overnight. Ideally, when you invest, you should be investing money that you won't be needing for the next 10 to 20 years.

Now, if you are the type to invest and just panic whenever the market drops 5%, then you're either investing too much money that you can't afford to lose, or your risk tolerance is not as high as you initially thought it was.

Now if that's the case, you may want to grow a larger emergency fund, or perhaps invest in less volatile assets. And finally, when it comes to me, I just see lower prices as a massive opportunity. Riches are made in recessions; this is your time to shine.

Now, when it comes to me, I made my best investments in 2011 and 2012 when the markets were at their absolute worst and everyone was telling me it's not a good idea to invest. But in a weird sort of way, I almost look forward to a time when we might start to see some lower prices.

So this means that if the market drops 20%, this is not a time to panic. This is a time to continue buying more. You should almost consider the stock market a little bit like buying toilet paper.

Let's say that you're going and buying toilet paper, and you stocked up and you bought toilet paper at two dollars a roll, and then all of a sudden that price of toilet paper goes to two dollars and fifty cents a roll. You think, "Here's all, I made a good investment because now all my toilet paper over here is worth a little bit more." Well, then what happens on a Black Friday where toilet paper is worth a dollar? What do you do? You buy more because you realize that's a good opportunity to stock up on more toilet paper.

Now that is my mentality when it comes to investing—not with toilet paper, I don't do that with toilet paper. But when it comes to investing, that's just the way I think.

And just to alleviate some of these concerns, you don't need to take all of your money right now and just dump it in the market. Instead, you could do what's called dollar-cost averaging, which is where you buy a little bit each and every month, whether the market goes up or whether the market goes down, and you're slowly gonna average in your buying.

Anytime it comes to investing, it's really important to understand that slow and steady wins the race. This is not about making a very quick immediate 10% profit every single month. This is investing slow and steady so that you could build your wealth over time without being concerned about what the market does in the short term.

So with that said, you guys, thank you so much for watching. I really appreciate it. Let me know your thoughts down below in the comment section. If you guys agree with my thoughts, if you disagree, let me know! Don't just say, "You're a Graham," just give me some honest feedback; I would love that.

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