The only people who panic-sell in a recession are those who really didn’t know what they were doing when they bought. The rich don’t sell in a recession. This is because they didn’t make useless purchases during a boom.

A recession is part of the big economic cycle and it separates the rich from those who were pretending to be rich. The real rich people get richer in a recession because they can buy valuable things on the cheap. Some say the world is on the verge of a recession right now. So, is that true?

A Recession of the Unprepared

No two recessions are alike. They have their similarities but they are intricately different. After the 2008 financial crisis, regulations were made to avoid the same thing happening all over again. But it is almost certain that the next recession will not be like 2008.

To understand what this 2022 recession is, you first need to understand how the 2008 crisis was resolved. The term we are looking for here is quantitative easing. That changed everything.

The central bank printed money to save the economy. While the economy appeared to be saved, it changed. In the end, the world economy is built on trust and value. Currency is just a measuring stick for that.

At the heart of the 2008 crisis and every financial crisis that has ever happened in the world, human psychology is right at the center. When we experience good times, we believe the good times will last forever. This reminds me of the Japanese booming economy in the 1980s leading up to the 1990s crash. The good times were so crazy that banks were giving people loans to do a glam wedding ceremony.

Before every economic downturn, there is always an overextension of credit. And everybody keeps telling themselves whatever theory that makes them feel good and optimistic. But if you are a student of history, you know what’s coming.

In 2008, it was an overextension of credit to buy houses or the real estate industry. But as times got good again and money printing saved the day, human beings quickly slip back into the same mold that created the problem.

In 2020, you know what happened. Governments had the audacity to shut down businesses all over the world. In their minds, they were saving humanity (which is a subject of discussion for another day). But apparently, they didn’t think far about the consequences of their actions.

The central bank had to print money (much more than ever printed) to make it look like nothing is wrong economically. And because very few people could work, there was certainly no productivity growth. So, the stock market just got inflated.

Governments gave people money for doing nothing. There was no exchange of value or anything as such. So, the money was credit. That was a clear overextension. But who would say no to free money?

So, it was obvious to anyone who cared about money and economics that a financial crisis was on the horizon. And it was going to be a different type of crisis. The overextension of credit is obvious to anyone who cares to look. This is why smart rich people have enough time to prepare for what is coming.

There is no doubt that it is coming. So, it is not going to be an evenly distributed recession. It is going to be a recession for the unprepared.

Those who are prepared have been waiting for this moment. In the last few years, people have become generally lazier. So, you can be sure productivity growth won’t catch up soon.

It means this recession, slow down, stabilization, or whatever you want to call it, will hang around for a while. And of course, the countries fighting each other doesn’t make things any better.

What Does the Rich Do?

The price of goods and services will go up. But the price of assets (especially poorly managed assets) will come down. This is what is happening. There will be more pressure on businesses than it has ever been. Those who have good systems and support will thrive, while many will struggle.

But there is even a more serious concern. What is the general human psychology programmed to do at this time? Are people optimistic, pessimistic, or indifferent?

The best psychological response would be indifference. This is where people don’t care much about what is happening in the markets and just seek to improve themselves and their work/businesses to be able to afford the things they want. However, most people are not that mature.

The problem of pessimism in economic downturns can be traced to the super-optimism in the economic booms. Economic pessimism is often a result of a high-level optimism that was given a sucker punch by reality.

This is when people pump their energies up for something and then meet with a sharp heartbreak. They will remain pessimistic for a long time.

The information around the world right now doesn’t show signs of optimism. There is a war going on with significant risks of escalation. Weakness and incompetence are being demonstrated by elected officials everywhere. There is hardly any “leader” right now in the western world with clear majority support. They are all hanging on a thin thread.

Trust in government is at an all-time low. And finally, the Fed (the central bank in the USA) is embarking on quantitative tightening.

Real assets are not going to lose value. It is the assets that have been overpriced in the last couple of years due to money printing that will have their value reduced. And the rich, who have systematically collected as much of the printed money as possible, are ready to pounce on those assets.

The Flip-Side

Good businesses that used the cash influx of the last 2 years to significantly grow their core and increase their productivity are in for a good time. The keyword here is “significantly”.

Of course, everyone did something nice with the money. But those who would win are those who did something very significant. And this is not talking about fancy projects or R&D.

This is talking about revenue-generating improvements. Some sharks are looking forward to buying good assets that have been poorly managed and hence, very cheap. They bring in new management, make some changes and they get an almost instant surge in value.

This is how the rich get richer. The very smart ones have begun doing this as far back as late 2020.

For Everybody Else

This is the time to work on productivity growth. This is not the time to try to look fancy or get into something because other people are. This is the time to put in the work and grow. This is not the time to try your luck on stocks, commodities, etc.

If you know what you are doing and you have a strategy, sure stick to it. But if you understand anymore or you are confused, stay away. Don’t look for tips or motivation anywhere.

Instead, find something to build. This is the best time to build something. This is the time for sweat capital. Unfortunately, this is a time when people want to work less. But it is also an advantage for people who are determined to get more things done.

If there is any timely secret for anyone reading this, it is this:

If you run a business and you still have all that “overextended credit” cash with you, go on a hiring spree. Go “steal” the best talents with the right work ethic.

Conclusion

The rich get richer every recession by buying assets on the cheap. Mostly it is great assets that get undervalued. But mostly it is good core businesses with mediocre managers.

So much more to say, but smart people will hear more than what is written here. Not financial advice, just financial perspective.

I rest my case.