Why Elon Musk Predicted 18 Months Of Recession And Bankruptcies

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Why Elon Musk predicts 18 months of recession and dominoes of bankruptcies

Breaking his silence over the current global meltdown, Tesla CEO Elon Musk on Friday said the recession the world is now experiencing owing to multiple macro-economic factors could last up to 18 months.

The possibility of a recession is evolving into a self-fulfilling prophecy as each passing week more and more non-financial experts discuss, comment and make their predictions about what will happen in the coming months, when the aggressive rise in interest rates combined with inflation and the energy crisis will hit growth even harder.

One of them is Elon Musk, who has been talking about recession for quite some time now. "My feeling is that we will see a recession around the spring or summer of 2022, but not later than 2023," he said, of course via twitter, on December 30, 2021. He warned that of the hundreds of startups worth more than 1 billion, not many will survive the next recession.

Is he seeing the signs possibly clearer than others or just chating on twitter?
Today, Musk appears even more confident about the coming recession and even believes that it is welcome to clear the market of companies that do not create value. Easily, one might say, a man with a fortune of more than $ 210 billion is talking about a recession.

Musk bases his view on the fact that ξε rained infinite money in previous years of negative interest rates. Money that many used foolishly. "It's been raining money on fools for too long. "Some bankruptcies have to be made," said Tesla founder and new Twitter owner.

Businesses that exhibit negative cash flows (which he describes as "value destroyers") and have virtually no reason to exist will cease to exist. This is how the market will be discarded after a domino of bankruptcies. Of course, let's say here that Tesla raised $ 20 billion in the period 2010-2018 so it was one of the companies that took advantage of the liquidity rain, while generating negative cash flows of $ 9 billion and 2021 was the first year profitability throughout the year.

So, all these years Tesla has been in the club of companies that today Musk is asking to go bankrupt.
How long will the recession last? Based on what has happened in similar cases in the past, it will last from 12 to 18 months, Musk estimates.

He goes a step further, arguing that telecommuting during the pandemic and lockdowns have led many to believe that they do not have to work hard, relying on support measures and money flown from governments by helicopter. All of them will be faced with the harsh reality, according to him.

What will be the consequences of the recession? Musk sets out the views

If this new economic contraction is as deep as the previous two (2008, 2020) companies will proceed with large reductions in costs. Those who will succeed will be those who make sure that they can operate for 24 months in conditions of inability to raise funds from the markets. That is, those who have made good management of the money they have raised over the years.
During such recessions, even the world's best liquidity investment firms limit their investments, while smaller investors either stop investing or go out of business altogether and disappear.

This creates less competition between funds for large and smaller deals, a development that in turn leads to a reduction in valuations and the deals that are finally realized.

As for startups and businesses in general that have started operating in the last 5 years, Musk has a warning tip. Forget how easy it was to raise money because these conditions were not normal.

From now on, raising funds will be a much more difficult task. Also, those companies that were planning to raise capital within the next 6-12 months, should keep in mind that they will ask investors for money, perhaps at the peak of the recession.

Therefore, even companies that are doing well, will find it difficult to achieve the deals they want and it will be good to change strategy

In conclusion, Elon Musk believes a recession is certain but with each recession comes a stock market crash. Will there be a stock market crash in 2022?

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🔥 Disclaimer: Everything expressed in this video is a personal opinion provided for entertainment value only. I am not a professional nor a financial advisor. These are not instructions, suggestions, nor directions as to how to handle your money. Please, always do your own due diligence.
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