One tweet by Elon Musk and stocks climb to new heights, cryptocurrencies crash, or the SEC launches lawsuits. You may hate or love this guy, but his word carries weight. In recent months the CEO of Tesla also added his two cents to the discussion around recessions. So, what is Elon Musk thinking about recessions, inflation and the state of the economy?

Recession inevitable, but near-term? >50% (Interview at Qatar Economic Forum on June 21, 2022)

His opinions on a US recession? It’s inevitable at some point. Near term? More likely than not.

That opinion got a bit more weight by him directing Tesla to cut 10% of its salaried workers. (see below)

Super bad feelings and 10% job cuts at Tesla (Internal emails from ~June 2, 2022)

Reuters published excerpts from internal emails that Musk sent to executives at Tesla. In short:

  • “super bad feeling” about the economy
  • “pause all hiring worldwide”
  • Tesla had become “overstaffed in many areas” (Note: in other remarks he clarified that Tesla grew too much during the pandemic in hindsight)

“Recession might be a good thing” (Twitter on May 26, 2022)

On May 26, @BLKMDL3 asked Musk: “Do you still think we’re approaching a recession?”

Musk replies (emphasis mine, and I left out the WFH part):

Yes, but this is actually a good thing. It has been raining money on fools for too long. Some bankruptcies need to happen. […]

Let’s unpack that.

First, he’s confirming that he thinks a recession is coming. Note that he doesn’t say what he means with recession, so he’s likely talking about a “two-quarters” recession.

Then he talks about money raining on fools … what? After the 2008 financial crisis central banks wanted to prop up the economy. So they opened their coffers and doled out cash (via low interest rates and quantitative easing). Anyone with a half-baked idea of how to maybe become the next Facebook or how to eventually possibly earn money got funding. If you’ve been around in the dot com boom around 2000 you know those kinds of companies. pets.com, anyone?

MORE about the 2008 recession here

If it weren’t for this overly “cheap” money, those companies would be dead. That’s why they are sometimes called zombie companies. And those should-be-dead companies are what Musk talks about—their bankruptcies “need to happen”.

Does that sound a bit harsh to you? It’s not necessarily meant in a nasty way though. I can’t read Elon’s mind but one important side-effect of recessions is that they act as “cleaners” of the economy. As the downturn starts, banks and other lenders look a bit closer at how companies spend their money. So those with a pipe dream as a business model go bankrupt. The survivors of the recession are productive companies that actually know how to earn money. (Or so the theory goes.)

The result is a stronger economy—and to get there, Musk likely welcomes the clean-up effect of a recession.

What to own in times of high inflation? (Twitter on March 13, 2022)

Discussing high inflation, Elon tweets:

As a general principle, […] it is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high.

Not too surprising hoarding cash sucks when inflation is high: As prices rise, your cash is worth less and less.

So, what to do, according to Musk?

First, own “physical things”. His only examples is owning a home (which also might reduce cost of living). Traditionally, gold has been used as an inflation hedge.

Second, he proposes shares in companies with good products. He didn’t say what “good” here means, if high quality items, simply necessary products, or what.