Recently, the global economy fell into a recession. A recession is an uncommon event, one nobody looks forward to. But what exactly is a recession, and why is it so scary?
What is a recession?
A recession according to Oxford dictionary is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. Basically, recession = Bad
So knowing that, why is the recession so bad? What are the effects of one and how can we profit from this?
Unemployment claims soar
Due to the sharp dips in revenue companies are experiencing due to the coronavirus outbreak, they cannot afford to keep as many staff and hence, have no choice but to let go of some of their employees.
Over the past 5 weeks, the number of unemployment claims rose above 26 million. This means that 16% of labor force is currently unemployed.
Because the unemployed have less to spend, consumption drops, leading to a vicious cycle of companies experiencing more revenue dips.
Oil prices went sub-zero
Yesterday, something unprecedented occurred. Oil prices dipped below zero. This happened as it was cheaper for people to pay you to find storage for the oil than to store it themselves.
This happened due to the fact that oil is traded as futures contracts, meaning that by a specific date, traders would have to actually collect the barrels of oil, which most(regular) people can't do.
This led to a major sell-off as investors and traders tried to close and get rid of their contracts, hence pushing the price of oil 'below zero'.
This led to a major sell-off as investors and traders tried to close and get rid of their contracts, hence pushing the price of oil 'below zero'.
Cash is King
I promised that I would share about how you can profit from this recession. The truth is, there's nothing much to it. Just make sure you have cash, so that you are ready to buy as the market continues to dip.
I say 'dip' because it's impossible to tell exactly when and where the market is going to bottom. However, what we can do is pick a few blue-chip stocks and buy them on dips. This is known as dollar cost averaging(bringing down the average price of each stock), which can earn you immense amounts of profits once the bear market ends.
Also look to buy companies with strong fundamentals and healthy dividends. This helps you to build your own stream of passive income for a discount(while the market is down).
If you have anything to add, please to leave a comment or contact me at 'jingrui.wu.2002@gmail.com'
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