Elon musk recently warned of a recession that could come as soon as spring 2022. Almost every investor has been warning of an economic slowdown of some kind, but not many give a time frame as urgent as elon's latest prediction. This video will cover why elon believes a recession is imminent and how investors can prepare. As the richest person in the world and founder of several successful companies, elon musk has experienced firsthand the struggles of a financial crisis.

He sold his first company that he co-founded with his brother zip2 in february 1999 for over 300 million dollars. That's right before the dot-com bubble. Popped in march of 2000. elon also experienced a 2000 a recession as a ceo of tesla and spacex, which both almost simultaneously went bankrupt now elon believes we are about to experience a similar situation within the next few months.

A tech journalist for the wall street journal tweeted there are 936 startups valued at more than 1 billion dollars in the world today. What do we think this chart looks like in say, 5 years attached to the tweet is an image showing all the unicorns, which are private companies, with a valuation of over 1 billion dollars. This list of unicorns includes companies in almost every sector, with each containing tens or hundreds of companies. This is a stark difference with the 150 unicorns that existed in september 2019., that is a 6x in two years, a rate that is certainly not sustainable.

Elon responded to this tweet by saying: if history is any guide, not many will make it past the next recession. After being asked when the next recession will be elon said, predicting macroeconomics is challenging, to say the least, my gut feel is maybe around spring or summer 2022, but not later than 2023. There are many reasons to believe that a recession will come in 2022.. First of all, i'm sure all of you know that consumer prices are increasing at incredibly fast rates in response to a tweet that said, 99 cent dreams, elon said now, one dollar and 25 cents.

The main reason why prices are increasing is because of the government's excessive expenditures which essentially allowed the us to print its way out of the 2020 recession. This graph shows the amount of tax that the average u.s worker has to pay to keep the federal budget funded. The level of tax that each worker has to pay has spiked significantly in recent years to roughly 22 dollars per hour. That is obviously a humongous amount.

Elon responded to that data by saying this chart is a big deal in an effort to lower the government budget. The federal reserve plans to raise interest rates and slow down quantitative easing, which is when the federal reserve purchases bonds, the fed, recently released a press statement estimating that they will need to raise interest rates to 0.9 percent in 2022. While 0.9 may seem, like a small amount, it's actually a substantial increase when compared to the average interest rate over the past decade. As you can see from this graph, the fed attempted to raise interest rates at 2.4 in 2019.

However, the market reacted negatively forcing interest rates to go down to 1.5 before the pandemic even started. A rate increase to 0.9 percent would almost certainly negatively impact the market, especially because the financial markets have become so reliant on zero percent interest rates. The median projection for the appropriate level of the federal funds rate is 0.9 percent at the end of 2022 about a half percentage point higher than projected in september, participants expect a gradual pace of policy firming with the level of the federal funds rate generally near estimates Of its longer run level by the end of, in addition to raising interest rates, the fed also plans to taper off on bond purchases, starting from mid-january 2021, the fed will slow down and spawn purchases by 30 billion dollars per month by mid-march fed chair jerome powell Estimates that the fed will no longer be buying any bonds at all. Speaking of economic trends, the sponsor of this video trends.co is helping.

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Beginning in mid-january, we will reduce the monthly pace of our net asset purchases by 20 billion dollars for treasury securities and 10 billion dollars for agency mortgage-backed securities. If the economy evolves broadly, as expected, similar reductions in the pace of net asset purchases will likely be appropriate. Each month, implying that increases in our securities holdings would cease by mid-march a few months sooner than we anticipated in early november. This might sound great on the surface, as inflation will likely cool down because of this.

However, it also means that the economy will suffer as a result. The economy has rebounded significantly from the pandemic, but that recovery was reliant on the government's spending which is about to stop soon. Elon musk predicted that a recession could come as soon as spring 2022, which is about in line with when the fed halts its bond purchases. What i just mentioned might sound horrible already, but elon may be hinting at an economic disaster potentially worse than a recession.

A recession is actually quite common because it is simply two consecutive quarters of negative gdp growth. Therefore, even if the gdp declines by 0.5 percent for two quarters, that would still be considered a recession on the flip side, a depression is when the gdp drops over 10 in one year. The most renowned instance of this is the great depression during the great depression. The u.s gdp dropped by 30 percent just like before every financial crisis, economic prosperity preceded the great depression, dubbed the roaring 20s.

The 1920s marked one of the greatest periods of speculation, which of course, set the stage for the great depression. A writer named tim urban asked we're 20 of the way through the 2020s. Can we start the roaring part soon elon responded with a 100 and a praying emoji. He then further elaborated by tweeting.

Let's make the roaring 20s happen. This tweet implies that elon believes that, at the current level of speculation, we aren't too far away from the royal 20s one twitter user mentioned how there is a website that lets you take pictures of dumb nfts for money. The website essentially mocks nfts by showing how you can just take pictures of nfts instead of owning them on the blockchain elon laughed in response to the tweet. We could already be in the roaring 20s, but in the 21st century, instead of the 20th century.

Another factor that could instigate a recession is the growing retail inventories. Kathy wood, a fund manager who elon musk deeply respects has been predicting an economic slowdown from oversupplied inventories. Retail inventories are down significantly from pre-pandemic highs, as supply chains are failing to meet consumer demand. In response to this, businesses have been ordering massive amounts of inventory to satisfy future consumer demand.

Kathy believes such orders have been overdone and will lead to massive amounts of sitting inventory. Recent indicators are showing that her prediction may become true within the next few months. Kathy tweeted today we learned that in november, retail inventories rose more than 2 percent the fastest pace since the 90s, while imports jumped 4.7 and exports dropped 2 percent. Moreover, real consumption, including services, was flat and the saving rate dropped to 6.9 percent below pre-covered levels.

The increases that kathy is referencing are monthly increases, so inventories would actually be increasing at a 24 annual rate. If such an increase were to be sustained for a year. The inventory increases are so considerable that america's entire third quarter - gdp growth was purely from inventory growth. As inventories continue to increase in the next few months, the economy will likely slow down, which could lead to fears of a recession within the next three to six months.

That time frame is right. In line with elon's prediction of a recession, investors can hedge their portfolios from a recession in several ways. Rey dalio, the largest hedge fund manager, believes that purchasing chinese stocks will yield huge returns, while de-risking investment portfolios. However, many definitely find dalia's prediction to be questionable.

Chamath palihapatiya, the founder of social capital, has become market neutral by purchasing microsoft and google, while shorting meta, netflix, apple and amazon. Lastly, cappy wood is shorting. Traditional companies like gm, which could serve as a hedge against the stock market crash. So there you have it elon.

Musk's prediction of a recession coming as soon as 2022 and no later than 2023. Let me know whether you think elon musk is right and whether you want me to go in depth on how investors can hedge themselves against a potential recession. If you enjoyed this video, please hit the like button and subscribe and i'll see you in the next one.