Name: "Start PREPARING Yourself..." - The economy is getting crazy right now
Uploaded: 2025-08-05T18:01:55.000Z
Duration: 25 min 52 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

The superlative

One of the most beautiful things about the market is that it moves in cycles.

Future simple

Whatever grows will eventually fall down and whatever falls will eventually rise.

So the market doesn't consistently rise, that happens over a very long period of time.

But if you zoom in, there are always cycles, the market grows and then it falls down.

And whenever it falls down, it provides the investors with a very unique opportunity to buy really great stocks at a huge discount that allows them to profit from the market enormously.

In fact, over a hundred years ago, we have created the Fed.

And the job of the Fed is to tweak the system in such a way where that business cycle moves in such a way that it even more profits the investors.

So we no longer have crises such as what happened back in the 1930s where the great depression lasted for over 10 years.

Right now, as we speak, the Federal Reserve is tweaking the system in such a way where we are just when the next growth is going to happen, so anyone with a very decent understanding of the market can jump in and make the right investments and profit enormously out of it.

A quick glance at the S&P 500 clearly shows you that pattern.

If you look overall, the market has been growing tremendously, but zooming in every time, you see that there are cycles, the market grows and it falls down, the market grows and it falls down, and it grows and then it falls down every single time.

Long-term investors benefit regardless of what happens because they have invested in the right assets and overall, as the economy keeps growing, as the technology keeps growing, the value of their assets keep growing.

But if you pay a very close attention, you will see a very clear correlation between how the market moves and the Federal Reserve's interest rates.

If you look at 2009, you see that the market started growing tremendously after that right up until 2020.

If you look at the rates that are set by the Fed, you see the exact same thing.

Back in 2009, the Fed lowered the interest rates to almost 0% and the highs that they have been ever since, when the Fed started tweaking and raising the interest rates in 2016, they went as high as 2% at best.

And that was reflected in the stock market, which is why we had one of the longest economic or the stock market growth in the entire history of the stock market.

From 2009 to 2020, the market just kept exploding, corporate profits kept rising, and corporations had a huge access to huge capital that allowed them to innovate.

This is the time when Apple became the world's largest company.

This is the time we had plenty of companies across the globe dominating the market.

Yes, in 2020, we had a crisis that destroyed the market, but the Fed quickly acted and lowered the interest rates to almost 0%.

And if you look at the S&P 500, the reflection of that was very clear.

In 2022, the market crashed tremendously.

And if you look at the correlation with the Fed's rates, you see the exact same pattern that the rates have been grown to almost 5.5%.

So there is a very clear correlation between what's happening in the stock market and what's happening with the rates that are set by the Fed.

Yes, the rates that are set by the Fed impact the entire economy of the United States.

In fact, if we were going to be honest with each other, then the rates that are fed by the Fed impact the entire global economy.

So whatever is happening with the US Fed is impacting everybody.

I will tell you more than that, there are plenty of central banks all across the globe that set their interest rates according to what the Federal Reserve is doing, because every single currency around the world is being pecked to the dollar.

Recently, the Chinese central bank has been moving quite differently from the United States, but they can afford that since they are the second largest economy and they are the second most powerful country economically, at least in the world.

So if we understand how the Fed works, then we can actually make some really good predictions about where the S&P 500 is going to be, and that allows investors to make very good investments because they know how the market is going to react according to what the Fed is going to do.

Let me just give you one simple example how Feds rates actually impact the stock market.

One of the most important things that you have to understand is the time value of money.

Time has its own value, and the way we value time is because we give it a monetary valuation.

That's how we actually can measure the value of the time, and you can debate about if it's accurate or not, but in the financial markets, we came out with a measurement in order to do that.

Imagine your friend owes you a hundred dollars, and let's call him Jimmy, and you ask Jimmy, when can I have my hundred dollars back?

And your friend might say, listen, I don't have the money right now, in fact, I am broke, so I can't give you back your hundred dollars, but if you give me one year, I will give it back to you.

Well, do you think that a hundred dollars a year from now is going to worth the exact same hundred dollars today?

Yes, your friend will give you the exact same hundred dollars, but a year from now, that hundred dollars can buy less things, that's because we have something called inflation.

In fact, over the last 20 years, the dollar itself lost 70% of its value, and that's why you see wages rise, that's why you see the price of goods are rising, and the cost of living have risen tremendously.

Twenty years ago, a hundred dollars could get you a lot of things, today, a hundred dollars is not so much money.

You can take the hundred dollars today and you can invest it and you can make some returns.

You can buy a government bond and you are guaranteed to make some kind of returns.

There are certain banks around the country that provide you with an interest rate of 4.5% or maybe in some cases, up to 5%, so you are losing on the opportunity cost.

Which is why we can confidently come to a very simple conclusion, that a dollar today worth much more than a dollar tomorrow.

I would much more prefer to have my hundred dollars today so that I can invest it and make a profit out of it.

Of course, we are taking a very small amount of money, which is a hundred dollars in this example, just to understand the point.

You can take this exact same logic and you can apply it to much bigger amounts, such as a hundred million dollars or two hundred million dollars or a hundred billion dollars.

So if we do the math and assume that the interest rates are 10% in this case, yeah, let's just imagine a hypothetical scenario where the interest rates are 10%.

I mean, hopefully interest rates will never be 10% because that is going to have a devastating impact on the entire market and the economy.

But just for the sake of this example, let's imagine that interest rates are 10%.

What is going to be the true value of this hundred dollars a year from now?

If we include all those factors, now in this example, we are not taking multiple factors, we are going to just take one simple factor to simplify the entire concept.

A year from now, the value of a hundred dollars is going to be 90 dollars and 91 cents.

Let's summarize that amount to 91 dollars.

So even though a year from now you are getting the exact same hundred dollars that you loaned to your friend, it's real value and what you can buy from it is going to be 91 dollars.

Now let's compare that and imagine that the next day you meet your friend and you tell him, listen, if you give me back my hundred dollars a year from now, it's real value is going to be 91 dollars.

So maybe you have to give me an extra 9 dollars to make up for the losses that I will have because the money is still with you.

Your friend is going to tell you, have you seen the news that the fed has lowered down interest rates from 10% to 5%.

And now let's take a scenario, what is going to be the real value of that hundred dollars assuming that the interest rates are going to be 5%.

In that case, suddenly the real value of that hundred dollars a year from now is going to rise to 95 dollars and 25 cents.

Just because the fed lowered down interest rates from 10% to 5%, suddenly the future valuation of the money that we have today is going to rise, at least on paper.

And that is a reality because everybody knows that there is something called inflation and everybody knows that any money should not be sitting around and should be invested.

And if it's even invested in the safest way possible, you can get the rates that are set by the fed.

There is something called the bone market and that is one of the best ways to loan your money to the US government.

And unlike your friend who can barely pay back your hundred dollars, the federal reserve has hundreds or the US government has hundreds of millions of taxpayers who will pay taxes to the US government and the US government can safely return the money back to you.

Which is why if you loan that money to the US government, you can loan it at the exact same rate as the fed does to the government of the United States.

So you can guaranteed get that 5% that are set by the fed.

And now let's take this very simple concept and apply it to the stock market.

So whatever stock you are looking at, it's not just a symbol that you see on your computer, it's literally a printing machine.

That's how we view as investors when we look at the stock market.

Yes, maybe a tech guy will look at NVIDIA and will say what a great technology that NVIDIA has created.

Maybe some kind of economist will look at NVIDIA and will say what a great company you built.

Or an entrepreneur will look at NVIDIA and will praise its CEO.

But we as investors do not look at stocks like that.

So we want to ask ourselves a question, how much money will this printing machine is going to create in the future?

So if we assume just hypothetically that this company is going to exist for the next ten years and if we expect this company to make a certain amount of money, then the value of the business and the stock that we see right in front of us is the sum of all of that money.

For example, if we look at NVIDIA, NVIDIA stock is being traded at $135 at least at the time that I am recording this video.

But does this price really reflect the true valuation of NVIDIA?

In order to do the math, all we have to ask ourselves is that how much money NVIDIA is hypothetically going to make over the course of the next whatever time that NVIDIA is going to exist throughout its entire existence.

But we can't literally make that kind of conclusion because we can't know for a fact the future.

But we can make estimates, we can make forecasts.

So if we assume for example that NVIDIA is going to make let's say $1 billion over the course of its existence, all we have to do is that use the exact same formula and ask ourself a question.

What is going to be the real value of that future billion dollars that NVIDIA is going to make?

And as the Fed raises their interest rates or lowers down their interest rates, the true value of this billion dollars is going to rise or it's going to fall down.

And based on that, we can make our calculation what should be the real price of NVIDIA.

And if we expect the Federal Reserve to lower down for example interest rates, then we can certainly say that whatever money NVIDIA is going to make, the value of that future cash flow of NVIDIA is going to rise because the Fed have lowered down interest rates.

And this is just an example with NVIDIA, you can take any other example.

You can take Tesla, you can take Palantir that probably doesn't make much money and yet its valuation is insane but that's a story for another video.

So the companies that promised to make or expected to make much more money in the future, their valuation instantly rises as the Fed lowers down interest rates.

According to UBS, NVIDIA is going to make next year 147 billion dollars.

There are different kind of estimates of how much NVIDIA is going to make.

Some estimates put NVIDIA's future or next year's revenue at 200 billion dollars and some went as far as putting it at 250 billion dollars.

I understand why they came out with those numbers because there is a very good reason for that.

There is a lot of demand that is coming from all across the globe and there isn't a single technology company across the globe that can produce such high quality and advanced GPUs like NVIDIA is doing today.

So all the demand is going directly into the pockets of NVIDIA.