Rich people benefit from a recession by buying assets at a fraction of their value, borrowing cheaply, renegotiating costs and holding the cash and credit to act while everyone else is forced to sell. The video takes a look behind the curtain at how the wealthy get richer when the economy is in shambles. It argues that a downturn is less a threat to them than a sale, and that preparation is what separates the buyers from the sellers.
Here are the 15 moves in order, plus a bonus on why the video thinks recessions shape the world order.
Watch the full video here, or skip to the breakdown below.
The 15 moves at a glance
- Government bailouts (0:19)
- Government bonds (1:01)
- Dumping or shorting stock before the crash (1:38)
- Buying stocks at the bottom (2:48)
- Renegotiate everything (3:33)
- Buying bankrupt companies (5:20)
- Buying real estate dirt cheap (6:06)
- Insurance (6:57)
- Low interest rates (7:51)
- More people looking for work makes business cheaper (8:28)
- Moving money offshore to store value (9:51)
- Contracts with the government (10:42)
- Stocking up on raw materials (11:08)
- Investing in businesses that thrive in a recession (11:44)
- Buying luxuries when others are forced to sell (12:20)
- Bonus: recessions and the world order
1. Government bailouts
A company can be as irresponsible as it likes and push its debt to the edge, because when it is about to fail the government steps in with money to keep things going. That does not happen for an individual close to bankruptcy.
The reason given is that these companies are important to the economy and employ thousands of people, whom the government would otherwise have to deal with. Examples given are the banks in 2008 and the airlines in 2020.
The ultimate safety net for the rich is the government.
2. Government bonds
Those who are not struggling pick up government bonds left and right. A bond is the government’s way of borrowing from businesses and individuals, with a decent return and little to no risk.
They are seen as very safe because unless the government collapses, you get your money and interest back. More economically developed countries also use them to regulate the market without printing new money and devaluing the currency.
3. Dumping or shorting stock before the crash
The rich keep their eye on the market and think a few steps ahead. When covid started spreading in China, many ultra-wealthy people sold the stocks most likely to be hit and shorted the market. Short sellers, it says, made over $50 billion during the coronavirus sell-off.
Its example of doing it right is billionaire Bill Ackman, who turned $27 million into $2.6 billion by betting the market would crash because of the virus. That, the script says, is the power of borrowed money.
4. Buying stocks at the bottom
When the economy takes a nosedive and everyone is panicking, the rich see a chance to make a lot of money. While others stock up on toilet paper, the wealthy snap up assets made dirt cheap by the crash. A recession is Black Friday for the rich.
The team says it did this itself in the downturn and its portfolio returned over 40%. The strategy works best for those in it for the long haul with enough cash to ride out the storm.
5. Renegotiate everything
The rich love better deals and this is the time to pick up the phone. Everything that can be refinanced gets refinanced. Businesses are so desperate to keep important clients that they accept terms they would never otherwise take.
Renegotiating raises returns and frees up money for everything else on this list. Everything in life is negotiable, and most people are simply not used to negotiating much.
6. Buying bankrupt companies
Imagine buying infrastructure, intellectual property, trained employees and raw materials for a fraction of the usual price. Big companies wait for competitors or neighbouring businesses to collapse so they can pick up everything for scraps.
Think of airlines and cruise lines in 2020. They were losing money because nobody was flying or sailing, but the planes and ships were still valuable and only needed to be used. The question is whether you will survive long enough to make it through.
7. Buying real estate dirt cheap
Real estate, it says, is the best asset anyone can own, and it lays out the chain. A recession arrives, people get scared, some lose jobs, nobody splurges, the economy contracts, demand drops, prices fall because normal people cannot afford property, and the rich buy everything of value at a fraction of the cost.
Developers have also been building heavily on credit, assuming demand will be there. With people unable to buy, banks come knocking for what they are owed.
Would you pass on buying your own apartment for half its worth?
8. Insurance
The story here is Wimbledon, which paid for pandemic insurance for 20 years. According to the script it paid around $30 million in total and received a payout on the coronavirus claim of roughly $140 million.
The flip side is what happens when insurers are doing badly, as in the recent LA fires. Some hedge funds increase their short positions on insurance firms, betting their valuations will fall.
9. Low interest rates
When the economy stalls, banks lose money too and try to win new business by lowering interest rates. Wealthy people with a strong track record can borrow at very low or even zero interest.
Having done this before and having your credit score ready becomes a competitive advantage. The bank lends so you can exploit the downturn, simply because you have proven you pay it back.
10. More people looking for work makes business cheaper
Recessions suit those who can keep a business running. They force you to trim the fat and go lean. Many people are laid off, those who keep their jobs are grateful, and the cost of doing business falls sharply.
That creates an imbalance of power. The more people look for work, the cheaper hiring gets, because a crowd is waiting at the door to take any spot. Volatility is real, but you can take things into your own hands if you are courageous enough.
11. Moving money offshore to store value
Rich people fear governments devaluing the money they worked for through inflation, which comes when new money is printed and floods the economy. For about 100 years the main play has been to print more. According to the script, the Fed printed about $3.5 trillion over six years in the Great Recession and more than that in a few months during covid.
Seeing this coming, the wealthy take money offshore and buy gold, silver and crypto. They also diversify currencies, buying less volatile ones such as the Swiss franc or the Norwegian krone.
12. Contracts with the government
To boost the economy, governments need people working, so they start infrastructure projects and award the contracts to businesses. The rich own most of those businesses and earn more, though the projects do hire people and some money trickles down.
In the script’s words, nothing is more recession-proof than a government contract.
13. Stocking up on raw materials
When economies stand still, people and businesses stop buying raw materials and prices fall in line with demand. Gas, oil and iron have not lost their intrinsic value, people just do not need them right now.
The rich who have been sitting on cash buy and store these materials, wait for the recession to pass and sell them back when demand and prices return to normal.
14. Investing in businesses that thrive in a recession
Every economic shift brings a new breed of thriving businesses. After 2008 came Uber, Airbnb and many others. The sectors that thrived in the pandemic were e-commerce, with a focus on food and product delivery, and online entertainment.
Today the script points to AI and automation, followed by biotech and longevity. The rich watch upcoming startups for the option of getting in early.
15. Buying luxuries when others are forced to sell
Certain art, collectibles and premium properties rarely come to market, but recessions sometimes force wealthy owners to liquidate to cover holes in their finances. That is when the rich pick up the rare Picasso or the Ferrari 250 GTO they have been eyeing.
From the team’s personal experience, high-end brokers keep a curated list of clients who are told an item might come up and are invited to bid. If it reaches the general market, the first wave of rich buyers did not want it.
Bonus: recessions and the world order
The closing view is that the more you study economic history, the more cyclical it looks, and that roughly every 50 to 100 years there is a major shift in the international hierarchy. After the second world war the USA came out on top, the dollar became the reserve currency and, once the gold standard ended, the US could print freely and keep its value.
This is likely about to change, it argues, with China retaking the top spot it historically held for longer than the US. It adds that such shifts are rarely peaceful and are usually driven by war or a great depression, and that signs such as unease, falling trust in governments and rising populism have appeared over the past decade. The team says it has no crystal ball.
Prepared money wins in a downturn
Across all 15 moves the pattern is the same: cash, credit, a good track record and the nerve to act while others panic. The wealthy treat a recession as a discount window rather than a disaster.
The video ends by asking viewers how they plan to make money during the recession, because even if you are not super rich, it argues you probably have some ideas to come out ahead.
FAQ
How do rich people make money in a recession?
They buy stocks, real estate, bankrupt companies and luxury assets at a fraction of normal prices, borrow at low rates, renegotiate costs and hold bonds, raw materials and offshore assets.
Why does a recession lower asset prices?
Fear and job losses cut spending, demand falls and normal buyers can no longer afford property or stocks, so prices drop and cash-rich buyers step in.
What is a government bond?
A government bond is the government borrowing money from businesses and individuals. It pays a decent return with little to no risk, since you get your money and interest unless the government collapses.
Why do the wealthy get bailouts when individuals do not?
The video says large companies are an important part of the economy and employ thousands, so the government steps in to avoid dealing with their failure.
Why does a recession make hiring cheaper?
Layoffs mean more people compete for fewer jobs, which lets employers pay less because plenty of others are waiting for the spot.
Keep reading
- 10 Ways Smart People Can Get Rich
- Complete list of ways to get Rich (62 Examples)
- 15 Secrets RICH People Use to Get Everything in Life
