In this episode, Erik shares what are the preparations you may do when there’s an upcoming recession.
Erik J. Olson (00:00):
Will there be a recession in the United States? What is happening? This is Erik J. Olson, your host for this episode of the Journey to $100 Million, will there be a recession coming up in the summer or fall of 2022 in the United States? That’s a great question. Asked of me by Joseph Cutler, who is our project manager here at Array Digital? Well, I mean, look, if I knew the answer, then I could position myself properly to make $1 million from that. But I have no clue. Now look right now, as I record this on June 17th, 2022, the stock market has been down for several weeks. Housing is starting to come down finally, after being on a complete tear for what seems like years, probably about two years now, the housing market has just got up and up and up and up and housing prices are ridiculous, but you know what?
Erik J. Olson (01:06):
Inflation is also really, really high right now, like 40 year high two, no 8.8 0.7, I think is the last number. I saw something like that, incredibly high inflation, which means that you’re buying power is just eroding away. It’s like sand following through, you know, between your fingertips, your money’s just dissolving in your hands because of inflation. You can, you can only buy 94% this year of what you could last year with the same amount of money. That’s what inflation’s all about. I guess I did the math wrong, probably about 92%, really 91 and a half. You get about point though, is that your buying power decreases every single year because of inflation. So because of inflation, uh, because the housing market’s been crazy because, uh, prices are crazy. Like everything’s just getting really expensive. So there’s definitely that. And we’re starting to see the effects of that when it comes to things like stock market performance.
Erik J. Olson (02:04):
Finally housing is starting to reverse. I was on, uh, uh, Zillow the last like two or three days. And it’s the first time in a long time that I’m seeing that houses are starting to be reduced. Uh, just across the board, $5,000 off 7% off. I saw one last night, it was like a $300,000 piece of property. And it had been discounted by a hundred grand. I’m not kidding. A hundred thousand dollars off. That’s crazy, but I, you know, more likely it’s like five to 10, maybe even $20 off. That’s like the norm that I’m seeing, but I’m seeing a lot of discounts on houses. So certainly the real estate market has cooled off. No back to the question that Joseph asked is a recession coming. I don’t know now. Um, we have, uh, negative GDP growth for the past quarter. So that was the first quarter of 2022.
Erik J. Olson (03:03):
This quarter that we’re in right now, the second quarter of 2022 ends at the end of June. And again, I’m recording this on June 17th, if that comes in at negative and doesn’t matter how negative that’s two quarters in a row where GDP gross domestic product of the United States has decreased. That is a technical recession. So that’s the definition of recession two negative GDP quarters in a row. We already have one under belt and at least like, we’re gonna have a second one. Now, what does that mean? And what do you do about this? So as a business owner, I’ve actually, I’ve, I’ve read into this. There’s a book behind me, somewhere on that bookshelf or somewhere in my library. That’s not everything. That’s just part of it about recession proofing your business. I was really worried about this in 2018, because in 2018, everyone was saying in 2020, there’s gonna be a recession.
Erik J. Olson (04:04):
It’s almost guaranteed. They started saying that in 2018. Now the truth is we did have a recession in 2020, but it was because of the coronavirus pandemic, a sharp recession. And then it came back. No one was saying that we could have a recession back in 2018 because of the coronavirus. They didn’t even know what the hell the coronavirus was. So there was no reason in 2018 that people would think that there was going to be a recession in 2020, except that there was gonna be a presidential election. But, but everybody knew that the market prices, these things into itself immediately the, even before the information, but or before the event happens, uh, in anticipation of the event, it’s already priced into the market. So a presidential election coming up in two years is not gonna cause a recession because it’s already priced in to the market.
Erik J. Olson (05:03):
So where we’re at now, is there gonna be a recession? I mean, I could say yes, but I have no clue. I mean, it looks like we’re headed for, uh, a recession, a big recession. I don’t know. But as a business owner, the best thing you can do when a recession hits is frankly, continue to operate a great business like you did before the recession. That’s what I got out of. All of the research that I did is you have to run a tight ship before the recession with things like contracts and loyal customers, so that when a recession does hit, they don’t leave you immediately. Now, another thing that you can do beforehand is position your investment portfolio properly so that you’re not at a massive risk. So the stock market has come way down in the last couple of weeks or months. But if you had
Erik J. Olson (05:57):
Previously put your money into something that was a little more recession proof, actually not even a little more, actually just recession proof. Cuz the stock market is just the opposite of recession proof. Then you wouldn’t have taken as much of a hit or you may not have taken no hit at all. You may actually be like having awesome returns in something like real estate, which is another reason I wanna get into real estate. More. The stock market is wonderful if it’s going up and most of us buy for the long haul, right? We’re we’re, we’re buying an anticipation of appreciation. Now, if, if you’re a very savvy investor, you can make money when it goes up or down because you can sell short and if it goes down, then you make money, but it’s incredibly risky. You better be a professional if you’re gonna do that.
Erik J. Olson (06:44):
So, uh, yeah, the recession, it, it looks like it’s coming, uh, by the time this episode comes out, it will probably be early July. So this is kind of like a little time capsule for you. Um, I would imagine. Okay, so let’s make some predictions. All right. Two weeks from now when it comes out, when it’s official and it won’t be like on July 1st, we find out it’ll be like, you know, after a week or so going into July, we’ll find out so little prediction. Um, all right. Yeah. I’ll, I’ll make a prediction. I predict. Yes. Uh, we will miss, uh, our GDP growth will be negative for the second quarter of 2022. And uh, we will be in a, a technical recession, meaning technically we will be in a recession. I would imagine that once that information comes out, then people are going to respond to that.
Erik J. Olson (07:31):
Now are they gonna respond? Uh, crazy. Meaning like they just stop spending money because we’re in a recession or do they kind of shrug it off and go back to business as usual? I would imagine that we will see a little bit more of a dip just because of the fact that we are technically in a recession. Once the news comes out, we’ll see it progress and get worse for a month or maybe two. And then we’ll see it start to glide back out or at least stabilize, I’ll say stabilize. I wanna say we’re gonna get out of it. Um, politics have a lot to do with it. Inflation has a lot to do with it. The federal reserve just raised interest rates by three quarters of a point that is massive. So they’re taking massive steps in order to slow down inflation, cuz it is out of control. Yo like it’s way outta control. The fed has no clue how to control the same besides they got one tool basically, which is to raise rates and you know, it’s, it’s that that’s their hammer and they are swinging it. So, uh, that means what does that mean? That means that money’s gonna be more expensive to borrow. That means that people and businesses will spend less or borrow less of it, which
Erik J. Olson (08:54):
Means won’t invest in capital and infrastructure and things like that. Now, you know what? We may have a recession coming and it may be bad, which means that uh, the next presidential cycle in 2024 is gonna be real interesting and really, really ugly. Ooh, really ugly. It was his fault. Oh it was his fault. Oh. Oh politics. Anyways. Yeah man. Hey look, prepare now prepare before the recession, right? If you have money sitting on the sidelines, this is a huge opportunity. This is like, this could be a once in a lifetime opportunity until the next opportunity. That’s once in a lifetime comes along, get your money straight. If there is a big recession, things like real estate prices crash, that is your time to pounce buy low, hold it through the next cycle. Sell before the next recession. That’s what I’m gonna do. What are you gonna do? Hit me up on social media. You can find me on Twitter @iamerikjolson, E R I K J O L S O N. I am Erik J. Olson. That’s on Twitter, but on Instagram I’m different. Cuz I like to make it complicated on Instagram. I am erik.j.olson . That’s E R I K J O L S O N. What do you think is gonna happen? Do you think my predictions are stupid? Tell me what yours are.