Elon Musk JUST said a RECESSION is Coming *SOON*

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

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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

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the next one goodbye