Well folks, elon musk just said a recession is around the corner: let's analyze what elon musk just said: why? What could possibly convince him to suggest that the recession is right around the corner and then let's look at some market data to see is recession potentially right around the corner? Well, let's take a look at this: okay first things: first, here's the twitter stream so uh. Somebody asked there are three and 936 startups valued at more than one billion dollars in the world today. What do you think this chart looks like in say five years? In other words, how many of these companies are going to be bankrupt or xed off this list, because they're not worth a billion dollars anymore or just went out of business elon musk says: if history is any guide, not many will make it past the next recession And remember: elon musk mentions that other than ford, the only us automaker not to go bankrupt and get to production is tesla. It means the other.

Automakers went bankrupt at some point or just don't exist anymore anyway, so i mean obviously historically. We know that like companies, eventually they have a life cycle, they go bankrupt. Does anybody remember sears, sears built a home that i bought? It was a kit home. It was crazy anyway.

I have a video on that, but anyway look at this. Then somebody naturally says: when do you think the next recession will be and elon musk replies with predicting macroeconomics is challenging, to say the least. My gut feel is maybe around the spring or summer of 2022, but not later than 2023. So, in other words, folks, elon musk says within the next 12 months, we will probably see a recession according to his gut feeling.

Now, of course, i had to follow up with not only mentioning that this video was brought to you by moomoo, linked down below which we'll talk more about them in a bit, but will the recession be transitory, to which, of course, elon has not yet responded? But let's try to understand where elon's head is so first, he prefaces by saying that he's not really good at predicting macro uh and that this is just his gut feeling, and so i was thinking about okay. Why might there be a recession uh? Well there? There are two potential reasons: there's the kathy wood reason, which is: if we see rampant deflation uh and at the same time as we see rampant deflation, we could raise rates. We could end up flattening the yield curve. The yield curve could invert, which signals a recession around the corner and boom.

We could go to recession, so in other words, if we get inflation that goes down too fast, we and yet the federal reserve at the same time, is too aggressive. We could dampen economic growth for two quarters boom we're in recession. That's all. It takes two quarters of negative growth you're in recession right.

Alternatively, inflation could be so elevated that it continues to go up that supply chain issues continue to be an issue that inflation actually continues to run hot while the fed raises rates. This reduces spending and gdp growth to a potential negative territory, because now it's so expensive to spend money and people don't have money left. There's no more free money floating around the stimulus regime is over and then what happens? We go to recession for exactly the opposite reason, which is too much inflation and then a slowed economy because of that so either direction. Either.

Deflation and people not spending as they're waiting for prices to go down, leading to gdp decline for two quarters boom recession or inflation and high rates, making it impossible for people to continue to either want to or be willing to pay the prices that they're seeing and Boom we rotate down for that now. Where do we think elon musk is well according to his last tweet chain, which uh on october 26, uh fox did a little kind of summary of it. I don't really care so much about the fox summary of it, though i just wanted to find the tweet, and this was the easiest way to find it uh and take a look at what oh, my gosh stop playing the stupid ad. Would you who asked you to start playing crap fox, my goodness god light anyway? So take a look at this here kathy wood says on october 24th, in 2008 to 2009, when the fed started quantitative easing, i thought that inflation would take off.

I was wrong. Instead, the velocity of money, the rate at which money turns over per year, declined taking away its inflationary sting velocity is falling. So this is kathy wood replying to jack, dorsey, saying that hyperinflation is going to take. You know, change everything.

It's happening, okay! Well, i made a video already breaking down my response to the relationship between the velocity of money and inflation and response to kathy wood. You could take a look at that on my channel, but more importantly, right now is elon musk's reply, which elon musk's reply is uh. It keeps bound there we go. I don't know about long term, so same kind of preface that he's not good at the macro right but short term.

We are seeing strong inflationary pressure. Folks. Two months ago, elon musk told us that short term. We are seeing strong inflationary pressures.

This implies that, if he's predicting a recession between now and the end of 2022, it is going to be because of a roof because of an inflationary push. Now, when we look at what bloomberg is indicating right now, bloomberg is suggesting we might actually not be as far progressed in the bull market as it seems so now it's worth mentioning that the wall street consensus estimate is for inflation to rotate down to 2.8 percent By the end of 2022., the federal reserve also believes that inflation will rotate down to about two and a half percent by the end of 2022.. So according to the market and according to the fed, we're not really seeing this lasting inflationary sting or at least we're. Not expecting it to last beyond, maybe the first or second quarter of 2022.

It's certainly not through the end of 2022. So is it then possible that elon musk sees another alternate possibility? Let's talk about that right after our sponsor moomoo moomoo is an app that helps you trade, like a pro it does this by offering powerful analytic tools, commission, free trades and reliable order, execution, mumu's, technical analysis tools are really easy to use and super helpful, especially to Retail investors, like you and me many sites charge for the information that moomoo offers totally for free. They offer things like daily short selling volume, financial statements conveniently available in the app cost distribution data and a community that talks about everything about finances and stocks. Right now, moomoo's community is comprised of over 17 million traders and since mumu offers commission free trades, there really isn't a reason not to use them.

The best part is, if you click the link in the description down below you will get a chance to earn up to five free stocks worth anywhere between three dollars to thirty five hundred dollars. When you open your account and deposit money terms and conditions apply thanks. Moomoo for sponsoring this video check out that link down below and get your up to five free stocks. It's possible that maybe elon believes we're going to have some shorter term like q1 q2 pressure that could lead us into temporary recession as the fed stops printing money.

Essentially - and we start going to that rate liftoff and boom, we had a temporary recession and that helps us finally bring inflation down. We go into recession, price is normalized, inflation comes back down. We have a little bit of a reset from all the easy money asset values get crushed, and then we pick up the pieces and grow from there entirely possible. But right now estimates are for inflation to inflect down.

At some point, i suppose, if we don't see an inflation inflection down point or an inflection to the downside, in inflation sometime by the middle of 2022, people might start getting pretty dang nervous about inflation again and maybe elon's right. We might be running into an inflationary recession again, however, how frothy is our bubble that we're in right now? Are we even in a bubble compared to some historic research? Well, let's take a look at this. Here's a piece from bloomberg which talks about that fears of a perceived bubble in u.s equities may burst when the fed begins to tighten and bloomberg, believes that this is mostly overblown. The reason for this is they do agree that we might be due for a choppy period, but risk premiums remain too high and the longer bull market is still too young to claim that 2022 would look like a y2k kind of peak and crash.

So first bloomberg addresses risk premium. So here's how risk premium works if you can get a guaranteed rate of return of, let's say one percent on a treasury bond and a company is growing by let's say eight percent that risk premium. That you're willing to pay is. Is about eight percent or seven percent you're willing to pay roughly that difference right and as long as that that difference remains high, it's an indication that valuations are higher for the uh for the expensive companies.

The reason is, if you're, one percent here and you're eight percent here for you to actually realize that seven percent difference for you to realize this kind of risk premium. Then returns have to be about that eight percent. But if returns go down to six percent and your risk premium is seven, you wouldn't buy the company, and so valuations would fall until the risk premium is seven or greater. Don't worry so much about that.

What's important to know here is that if risk premium is higher than usual, that implies markets are still kind of tentative about going all-in, and so here bloomberg makes this comparison to the 90s tech bubble, and they say that the risk premium for tech in the 90s Bubble was actually negative, in other words, back in uh. Before the tech bubble, people were willing to basically take a negative yield on tech risk, adjusted because they just had to be in tech, and this was basically a big frothy sign of uh. Oh we're in a freaking bubble here when you're negative like this, because it's a sign as bloomberg here says that investors went all in on risk and that basically, we haven't seen these kinds of risk premia since about 2002, which honestly was a pretty dang good time To invest check this out here bloomberg suggests, and this is from a report from today a history suggests the equity bull market that began in 2009 may only now be past its midpoint and only starting to develop extraordinary characteristics similar to the late 90s or early 1920s. So, in other words, there could still be room to run before the late 1920s or 2008 style crashes.

Now take a look at this overbought conditions and sentiment. Extremes may suggest that stocks are in for a near-term pullback, but a major bubble top seems premature from a longer-term perspective. The average bull market in the s p 500, has lasted 18 years. The run since 2009 is only half as long and pales in comparisons of other bull markets.

Take a look at this. The pink line here is the bull market of the 1920s, which had a bull market like this. The blue line here is the bull market of the 50s to 68.. This right here was the 80s to 2000s bull market and folks take a look at where we are we're.

This stupid little orange line right there, so, in other words, bloomberg, is suggesting we're not really close to a bubble top here. So, even if we were to have a recession that really might just be a tool of getting inflation down, if elon is right and we're worried about inflation, i don't know if we could really say we're at this sort of bubble top when we look at some Of the factors of our actual markets, now look that's not to say that things like apple and microsoft, and some of the big fangs aren't at some crazy levels. But we've just had a massive sell-off in small caps. Highest risk plays in the stock market a huge valuation compression in software companies.

If anything, we're seeing valuations. Normalized yeah real estate prices are high, but we're not seeing the bubble economics that we saw in 2006 and seven when dead people were getting loans and people weren't qualified to repay their loans. We got high credit scores relatively low debt to income on average people with a lot of equity, so it seems it. It does feel a little premature to say: that's it.

You know we're going in for a recession here now bloomberg does say here. That price also tends to imply, maybe too early to say, stocks are at the end of the bull market, the years leading up to increases weren't as strong leaving longer term the longer term uh trend room to continue advancing, but s p stocks have jumped more than 104 percent over the past five years, but those gains are nothing compared to the 200 percent surge of the late 90s 230 surge of the late 1920s. Nonetheless uh. It's obviously worth watching for changes in the market here, but uh overall, here households take a look at this.

It's not clear that a household frenzy to stocks is really behind the long-term equity rally, but there's evidence of renewed interest. Since the pandemic began hinting that we may be in the early stages of a rotation into equities as an asset class. This is household equity ownership compared to like institutions uh only sitting at about four percent compared to which is certainly at a high compared to the last 11 years. But again, this is only since 2010 that this chart measures here so kind of interesting divergence of opinion.

Here so you've got these: these potentials of the kathy wood style recession, the elon, musk style recession. The idea that our boom market may only be halfway done uh and quite the indicator is not really suggesting that a recession is imminent. So i feel like we're looking at two potential extremes: the elon extreme and the kathy extreme, and ultimately the answer is going to be probably somewhere in the middle, we'll see anyway. These are my thoughts if you, like my perspective, check out the programs on building your wealth down below use that new year's coupon.

It's a special new year's coupon just for 48 hours, so you can get or take advantage of either some learning right at the beginning of the year or a tax write-off for the end of the year, check them out, link down below and folks, we'll see you, The next one, goodbye.