← Tom Bilyeu's Impact Theory
Tom Bilyeu's Impact Theory
10 Of The Last 11 Recessions Started Exactly Like This — Here's What The Smart Money Is Doing While You Panic | Tom's Deepdive
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Oil prices have a much bigger impact on your retirement savings than you might think, and a lot of people are learning the hard way that volatility in the Middle east means volatility in your portfolio. The last time a Middle Eastern conflict triggered an oil shock of the magnitude that we're seeing now, we which was the Arab embargo of 1973. Oil quadrupled in price. The S&P 500 fell 48% and the recession that followed lasted an entire 16 months. Since February 28th of this year, Brent crude is already up a staggering 40%. The IEA has called this the largest oil supply disruption in the history of global energy markets, and the S and P is already down roughly 9% year to date, with the NASDAQ down 6% in a quarter. And where it goes from here is anybody's guess. But there is a phenomenon at the heart of what's happening in the markets right now that is transferring trillions of dollars from the people that don't understand it to the people who do. And my goal right now is to get you on the right side of that transfer. We've all been watching the markets whipsaw back and forth like a drunken schizophrenic, way up minute, way down. The next Trump post that negotiations with Iran are going well. Oil drops, stocks fly. But then Tehran rejects the ceasefire and oil spikes and the markets tank.2% to 3% swings in either direction could happen on any given trading day based on a single statement from a government official. The financial news right now is wall to wall panic, and nobody seems to have a consistent answer in the middle of all that noise. How are you supposed to invest Now? I'll say this, it gets a lot less confusing when you understand why the market swings so wildly. It is not random at all. And once you see the string of cause and effect, a path forward becomes clear. And we're going to talk about that today in four easy parts. Here's what I'm going to show you. The Federal Reserve, the single most powerful economic institution on the planet, is structurally trapped. And the thing that's holding it hostage is oil. Specifically, the price of oil as modulated by the freedom of the Strait of Hormuz. Now, as long as that's being restricted by Iran, the Fed cannot come to the rescue of the global economy. And if investors believe the Fed can't help, the stock market will keep doing exactly what we're watching it do now, swinging violently in both directions, while most retail investors are making the worst possible decision at the worst possible moment. By the end of this video, you're going to understand exactly how the Fed has gotten trapped by oil, what history tells us about how all of this is going to end, and what the investors who come out ahead are doing right now. While everyone else is panicking. In part four, I'm going to give you a clear go forward roadmap, but make sure you do Not Skip Part 2, where we analyze 100 years of predictive data to so that you can move smart right now. Welcome to part one, the Cage how oil holds the Fed Hostage. Now, here's a stat that's going to shave a couple hours off of your sleep every night. Of the 11 U.S. recessions since World War II, 10 were preceded by a sharp spike in the price of oil like we're seeing now. That's the documented finding of James Hamilton, one of the most cited economists in the world on this exact subject. He first published this finding in 1983 and has been updating it ever since. The relationship between oil and recession is about as close to a law of economics as you're going to get. The single exception, a mild downturn in 1960 that most economists just brush off. Every other major economic contraction in modern American history was preceded by a spike in the price of oil. Oil is so foundational that it essentially touches every aspect of the economy, acting as a sort of doppelganger of inflation itself. So when you're trying to understand why the markets are behaving so manic right now, this is where you start. Not with Iran, not with Trump. With oil, there is a true cause and effect relationship. The Federal Reserve has one primary tool, the manipulation of interest rates when it's trying to influence the economy. And when the economy is Struggling with. When growth slows, jobs disappear and stocks fall. The Fed then steps in to rectify the situation by cutting rates. This causes money to become cheaper to borrow. And when money is cheap to borrow, people borrow more of it. No surprise there. And when there's more money to go around, people hire more, they build more and buy more, and the economy is thusly stimulated. That's the playbook, and that has worked for roughly 100 years. But oil just shreds that playbook. Every time it spikes, the price of everything that runs on energy goes up. When oil goes up, that's not just gas at the pump. That's every product that gets manufactured, packaged and shipped across this country or any country. It's your grocery bill, your Amazon order, and the cost of just running every business in America, all of it climbs together. When oil climbs, and when prices climb across the entire economy, we call it inflation. It's technically not, but the difference will only confuse people right now. So I'm going to set that aside. Its impact on the economy is identical to inflation. So for the sake of what we're talking about right now, I'm just going to call it inflation. Once oil created inflation gets going, the Fed has a problem. Because if the Fed cuts rates when inflation is already rising, it runs the risk of turning economic stimulus into runaway inflation. That absolutely destroys the working and middle class, the 90% of people who work for a living and own no meaningful amount of assets. The people on the bottom side of the K shaped economy, they just get hammered and hammered and hammered by this. Now, in this scenario, the Fed would be flooding the market with cheap money. And when that happens, prices spiral even higher, even faster, causing massive economic trauma for working families. And accelerating inflation in an already struggling economy is the definition of stagflation, which is the worst of all worlds. Which is why when oil goes up, the Fed is stuck. It can't cut rates to save the economy because cutting rates would make inflation dramatically worse, hurting the economy. It can't save the housing market. It can't save struggling businesses. It can't ride to the rescue. The only tool that it has is, is locked behind a wall of oil driven inflation. And the only way through that wall is for oil prices to come down somehow first. That's the cage. We've seen it so many times before, and the last time we saw it, it nearly broke the country. It was 1979. Paul Volcker had just taken over as Fed chairman. Oil prices had been surging for years. First from the 1973 embargo then. Then from the 1979 Iranian revolution that we're dealing with the aftermath of right now. Inflation had climbed into double digits and Volcker made the decision that the only way out was through. He raised the federal funds rate to nearly 20%. Think of how people would react if we did that now. But we may have to. It's an easy bit of history for those that were born after that. But it was brutal to live through. Your mortgage, your business loan, your credit cards, everything got unimaginably expensive. Construction stopped, manufacturing stopped. The housing market collapsed. Businesses could not afford to borrow, so they stopped building and started laying people off. The economy contracted so hard, it triggered two back to back recessions. Unemployment hit nearly 11%. We're at only 4.4% right now. The cure was almost as bad as the disease. It's important to note, though, that Volcker did not raise rates because he wanted to cause a recession. He raised rates because he had no other option. Oil had taken the normal tool off the table. The only move left was the nuclear option. Raise rates so high that inflation gets killed, even if the economy has to take a hit to do it. That's what we're looking at as a risk right now. Not a certainty, but a risk, a very real risk that the market is desperately trying to price in every single day. And as the odds change in one direction or another, the market just swings. And that, my friends, is why a single tweet from Trump moves markets when he posts that Iran negotiations are going well. The markets are going to fly, oil's going to drop. Why? Because there's a straight line from getting a deal with Iran to the Strait of Hormuz reopening to oil prices coming down to thus easing inflation fears. Two, the Fed can now cut rates again. And therefore when the rates are being cut, the economy will start growing without triggering runaway inflation. Now, money is always chasing a return. This is something I think people lose sight of, much to their detriment, and it seeks a return most especially in late stage empires like ours that have a $39 trillion deficit and no end in sight for more deficit spending and money printing. Because in that scenario, prices are going to inflate, assets are going to inflate, and you have to put your money somewhere to hide from the negative side of the inflation and take advantage of the assets going up. And if you don't do that, you're going to get poorer every day. So savvy investors are super paranoid and extremely reactive in moments like this because their money's got to go somewhere. They can't just sit back and wait things out. They have to be proactive. Same thing in reverse. When Tehran comes out and rejects the ceasefire, oil spikes, inflation fears spike again. Investors panic again about the Fed being unable to cut rates and stimulate our way out of the problem. And because of that, people panic, sell, causing the market to crater. Now, hopefully what you can see now is that none of this is random. Every swing you're watching is the market pricing in the probability that the Fed has has either just lost its tool or gotten it back. Recessions often last for over a year, and no one wants to be caught naked investing in the wrong thing when the tide goes out. That's why the Iranian regime knows they don't need to win the military conflict to win the war. They just need to keep the Strait of Hormuz disrupted long enough to send oil prices up for long enough that the US Loses the political will to fight. When the Fed is rendered useless, the United States is the one that absorbs the most political and financial pain of a protracted global recession. That's Iran's leveraged play. That's why the market is swinging the way that it is. And that's why Trump's words move oil and oil moves everything else. But here's the question that actually matters the most to your money right now. Does the cage that the Fed is in always holding? Because if you look at our history, not theory or punditry, but the actual 100 years of data that we have, a very clear answer to that question begins to emerge that will inform how you should be investing through all of this right now. Welcome to part two, the pattern. 100 years of data on what's going to happen next. Here's where most people make a catastrophic mistake. They see the Fed's cage. They feel the fear as the markets go up and down with seemingly no reason whatsoever. And they're watching their portfolio bleed out on the down days. And when that's happening, they do the one thing that will guarantee they end up on the wrong side of the wealth transfer that I mentioned at the beginning. They sell, and the reason they sell is that they've never actually looked at the data. So when something goes down, they have this fear that it's going to be down forever. They get bamboozled by the headlines. They listen to the punditry instead of looking at the data. If they looked at the data, they wouldn't sell in moments like this. So let's look at the data. Stick around. We'll be right back after this.
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all right, let's pick up where we left off. Since 1928, the average bear market, the kind we're flirting with right now, has lasted 289 days. It's about nine and a half months, and during those nine and a half months, the average loss is 35%. Now, 35% is brutal. I totally get that. But here's the other side of that equation. The average bull market, the period where stocks are going up, lasts almost three times as long, about 2.7 years on average, and the average gain is 112%. Now, if you want to win in investing, you have to make that asymmetry work for you. Taking a 35% hit over about nine months is scary, but if you hold on, you end up making 112% over the next three years. If you panic and sell during the 35% downturn, you lock in the loss and miss the entire 112% recovery. And I get it. Everybody thinks they're so smart that they're going to time the market. But the reality is virtually nobody gets it right. And if you just hold through the chaos, you come out massively ahead. That's not opium. That's 100 years of documented market behavior. The dice are loaded, and they're loaded in favor of the patient investor. Now let's zoom out even further, because the long game is where this becomes absurdly clear. Of the last 95 years of market history, the stock market has been going up 78% of the time. Bear markets, the events that dominate the headlines, account for less than a quarter of market history and they're consistently shorter and less severe than the bull runs that follow them. And here's the stat that I hope will permanently change how you think about investing. Over the past 82 years, 100% of rolling 20 year periods in S&P 500 history have been positive. Every single one. Not 90%, not 95%, 100%. There has never been a 20 year losing period. Not once. That includes the Great depression, World War II, the stagflation of the 1970s and yes, even the lost decade of the dot com crash and 2008 financial crisis. If you put money in and left it alone for 20 years, you would have made money every single time. That's the most consistent track record in the history of modern finance. Now, I can hear you through the comments section already. That is cold comfort for people who got hammered by the lost decade from 2000 to 2010. So how are you supposed to know that that's not what we're facing now? A decade is a very long time. Now it is a great question, and honestly, I don't know. Nobody knows. But let's look at what actually happened during the lost decade. As AMG Wealth's research shows, the S&P 500 produced an annualized return of negative 0.9% from December 31, 1999 to December 31, 2009. That's including dividends reinvested. A dollar invested at the peak in late 1999 was still worth about 91 cents by the end of 2009. It was genuinely a lost decade. But it was far from being a catastrophic loss. And the only other time that it took more than a decade for things to recover was the Great Depression. This is not something that happens often. And even if you invested at the absolute peak in early 2000 right before the crash, and held for 20 years through both disasters, if you were invested broadly, you still made money. A lot of money. Not to mention the people who understood what was actually happening during that lost decade made staggering fortunes. Because buried inside that sideways market were some of the greatest buying opportunities in human history. Human history. Microsoft was trading at around $15 per share at the depths of the 2008 and 2009 financial crisis. These days it hovers around $400. If you understood that Microsoft was fundamentally sound and you bought during the panic, you turned every dollar into more than $25. The S&P 500 itself bottomed out at 666 in March of 2009. It's now, even with current conflict driven Sell off happening roughly nine times that level. And maybe the most important thing to understand about the lost decade is that it didn't destroy wealth. It transferred it from the people who panicked and sold to the people who understood the pattern, bought and then held patiently. Now, before you bolt rose colored glasses onto your face too tightly, make sure you consider this. The markets respond in a knowable pattern to war. In most conflicts since World War II, when there was no fundamental disruption to the global energy supply, the data is remarkably consistent. Markets bottom out an average of about three weeks after the initial shock. They then recover their pre conflict levels within roughly six weeks after that, and they are higher 12 months later, a full 73% of the time. Oil shock wars, like what we're dealing with now, however, are the explicit exception. The 1973 oil embargo, which is probably the most analogous scenario to what we're going through today, triggered a 48% crash that I mentioned at the beginning. And while the recession ended in 16 months, it took the S&P 500 nearly six full years to recover. So while you can rest pretty easy knowing that in the long run you're going to be fine if you do not panic, sell. If the Strait of Hormuz stays closed for too long and oil prices remain elevated, odds are we're not looking at a fast six week recovery. We could be looking at something much longer and more painful. But even the 1973 crisis ended and the embargo was lifted. The oil prices came down in every crisis before, and they will come down again. No matter what happens in Iran. The Fed will eventually get its toolkit back after the oil embargo. The decade that followed the 1980s was one of the greatest bull markets in American history. The people who understood the dynamic between the oil markets and the Fed's ability to control interest rates used the panic selling from the uneducated, highly emotional retail investors as a buying opportunity. And they used the moment to build generational wealth. So while it is brutal to think about all those people that lost their money, if you keep your head straight, you can be the one that takes advantage of these kind of moments of disruption. Remember, the Fed's cage always breaks. It broke in 1973 when the oil spiked. It broke in 1990 when Iraq invaded Kuwait and oil spiked. It broke in 2001, it broke in 2008. The mechanisms change, the severity changes, the timelines change. But the cage always, always breaks. And The S&P 500, over every extended time horizon in its history, has rewarded the investors who Understood that and held on. The pattern is clear. And if the pattern always resolves the same way with a massive, well, transfer, that means if you understand the mechanisms of the transfer, you can come out ahead, way ahead. That's what we're going to look at now. So welcome to part three, the transfer. How generational wealth actually moves in a crisis. Every share that gets panic sold gets bought by someone else. When you sell because you're scared, you are literally handing your position to whoever is on the other side of that trade. Odds are that person has a framework and liquidity. They understand the mechanisms at play in the markets, and they're using your panic as their entry point. That is what a wealth transfer looks like in real time. It does not require anyone to be evil, it just requires a difference in understand. And the market, ruthlessly and without sentiment, moves money from the people who don't have the correct understanding to the people who do every single time. Warren Buffett understands this better than anyone alive, which is exactly how he has made his absolutely vast fortune. When the 2008 financial crisis hit, when the world was genuinely terrified, when Bear Stearns had collapsed, when Lehman had gone bankrupt, when every financial pundit on television was telling you to get out, Buffett was moving in the opposite direction in all the way in. He deployed billions into Goldman Sachs at the exact moment Goldman needed a lifeline. He put $3 billion into GE. He financed the Mars acquisition of Wrigley. He was buying while retail investors were fleeing for the exits. In one of the most dramatic financial panics ever. Those crisis era deals ultimately generated more than $10 billion in profits for Berkshire Hathaway. That is what being on the right side of the transfer looks like. Buffett didn't have any special information. He just knew what a deal looked like. And he had an unwavering belief that the crisis would end just like every other previous crisis. He understood the mechanism well enough to know that the Fed eventually escapes his cage and starts pumping the markets again. Right now, it's easy to panic the markets with a single tweet because of a psychological principle that drives emotional investors, the exact type of investors that transfer over generational wealth to the investors that stay emotionally sober and invest like an AI algorithm. Please let that be you. Right now, everyone is focused just on oil prices going up and the market's going down. I get it. That hurts. It's not fun. But here's what the mainstream narrative is not telling you. All that really matters in the long run is market fundamentals. But in the short Term markets Price in fear first and fundamentals second. Always consider this. The United States is the world's largest crude oil producer. Not Saudi Arabia, not Russia. The United States at 13.58 million barrels per day in 2025, the US produces more crude oil than any country in history. And in 2020, for the first time since 1949, the US became a net petroleum exporter. When oil prices spike because the Strait of Hormuz is closed, the United States is not just absorbing the pain of higher energy costs. US Oil producers are printing money. The EIA confirmed in March of 26 that higher oil prices are directly driving higher U.S. production forecasts. American energy companies are benefiting enormously from the exact crisis that everyone else is suffering through. This is structurally different from what happened in 1973. Back then the US was deeply dependent on foreign oil. We imported 30% of what we consumed. An OPEC embargo was a direct attack on our economic infrastructure. Today we produce more than we consume. The Hormuz disruption hurts Europe, Japan, China, India, the oil importing economies, far more than it hurts us. Add to this that the US Dollar is still the world's reserve currency when there's global chaos, real destabilizing geopolitical chaos like what we're seeing right now. Money flows toward the dollar, toward U.S. assets, toward U.S. markets. Because when the world is on fire, where else are you going to park your capital? Russia, China, Iran? The chaos that's terrifying retail investors is also functioning as a magnet for global capital. That dynamic does not show up in the daily market swings, but it's real and, and it is likely to play out to the patient investors advantage in the long run. So while disruptions like this might cause us to lose our political will to fight, if you understand how it's going to impact the markets, you individually can thrive from the same disruption. But you have to be able to see through the emotion driven market swings that dominate the headlines and believe in the long term historical trends if you're going to win. And the harsh reality is that most people simply cannot do that. This is where behavioral economics comes in. Decades of research, most famously from Nobel Prize winners Daniel Kahneman and Amos Tversky, have documented that losing money feels roughly twice as painful as gaining the same amount of money feels good. It's called loss aversion and it's wired into us at a biological level. It's not stupidity or weakness. It's just a feature of human psychology that causes one type of investor to reliably transfer wealth to another. Type of investor. This is why retail investors systematically buy high and sell low, the exact opposite of what they should do, because they are predictably irrational. When the portfolio is up, the pleasure is moderate. When it's down by the same amount, the pain is unbearable. So they sell. And when they sell at the bottom, the they lock in the loss and end up missing the recovery. This has been documented across decades of market data. It is the single most reliable repeating pattern in all of investing. And right now, with the Fear and Greed index sitting near its lowest reading since 2022, the psychological pressure to sell is at its most intense, which historically has been exactly the wrong moment to do it. Here's how to think about what's happening right now. The market is down. Fear is at an extreme. Oil is elevated. The Fed is trapped. The headlines are wall to wall panic. And most retail investors are making the decision to sell or to wait on the sidelines until things, quote, unquote, calm down. But waiting for things to calm down means waiting for prices to go back up. And if prices go up, you've missed the discount. The people who built generational wealth in 1973 didn't wait for the oil embargo to end before they started buying. They bought during the chaos. They held through the pain and were rewarded when the cage broke and the bull market of the 1980s arrived. The people who built wealth in 2009 did not wait for the housing market to recover. They bought Microsoft at $15. They put money into the S&P at 666. They used the panic as their entry point. The chaos that you're watching on your screen right now, that is the mechanism by which the next generation of wealth is going to move. And that brings us to the only question left. Now that you understand how the wealth transfer happens, what do you actually do about it? Welcome to part four. What to do with this knowledge. You now understand, hopefully something that most people watching the markets do not. You understand the Fed's cage. You understand why the Fed gets trapped by the price of oil and what is required for it to get unstuck and back to being able to stimulate the economy without causing inflation. You should now understand the pattern that bear markets are temporary and consistently followed by bull runs that last longer and go up more than the recession went down. And you understand the emotional triggers that cause wealth to be transferred from the panicked and illiquid to those with capital and high conviction. But knowing is only half the battle. So what do you actually do with the knowledge? Three things they're not that complicated. But they are going to require you to escape the all too human trap of investing emotionally. First, own the asymmetry, the broad Market index. The S&P 500 is a broad basket segment of the market, and it illustrates everything that we've talked about in this video. It's like a living document of the American economy's 100 year record of just relentlessly growing. It has been positive over every 20 year period in its history. It has returned an average of 112% over the average bull market. And as long as oil prices are elevated, you can likely buy it at a significant discount. You don't have to predict when the Strait of Hormuz will open. You don't have to predict when the Fed will cut. You don't have to time anything. You just have to own a broad basket of assets that are resilient to different economic forces and then hold. Keep buying on a schedule, regardless of the headlines, and let the asymmetry work for you over time. And that's it. That's the whole game for the foundation of your portfolio. Second, build conviction, not just positions beyond a broad basket of assets. Any individual stock you own has to be something you understand well enough to hold through a 40% drawdown, because you're likely going to face a 40% drawdown or more if oil prices go up too high or for too long. You can pretty much guarantee that. And if you don't understand why this individual company that you're holding onto is going to be worth More in 10 years, then you're going to sell at exactly the wrong moment, which is the most common method by which one transfers wealth to the people who have a better understanding of market trends and a stomach for the downturns. Conviction isn't about being stubborn. It's about developing genuine understanding of human psychology and the historical market trends. If you can explain in plain language exactly why you own something and why the crisis doesn't change that thesis. And you're right, of course your odds of holding through a crisis go up and your odds of success go up. If you can't explain it to yourself, odds are you're going to sell. And never forget. Of course, you could be wrong. So your best strategy is a broad strategy where you are diversified against as many economic forces as possible. Third, treat this moment for what it is. The Fear and Greed Index has its craziest readings since 2022. People are scared, oil is elevated, the Fed is trapped, and most retail investors are either selling or sitting on the sidelines. That's the setup. And that's what most of the entry points to the greatest buying opportunities in history have looked like. Like this exact moment. Now, nothing is certain, but historically, this exact configuration, extreme fear, high oil prices, discount prices on assets and universal pessimism have preceded the moments where patient capital made the most money. You don't need to bet everything today. In fact, you shouldn't. You should just keep buying on a nice steady schedule and not selling what you already own. The edge isn't going to be in information. Everyone has access to the same price data, the same headlines, the same Fed statements. The edge is in having a framework, understanding the oil Fed feedback loop, the historical patterns of bull and bear markets, and the psychological principle that makes you likely to sell at the exact wrong time. That's what's going to separate the people who come out ahead from the people who hand them the opportunity. The Fed's cage is real. There are times where they will not be able to cut rates. And because of the war in Iran and what it's doing to oil prices right now might be one of those times. But eventually oil prices will come back down and the Fed will once again be able to stimulate the economy. And as long as you have a long term time horizon, the people who stay invested are the ones who will come out ahead. Alright, that's it for today's episode. If you got value out of this, it would mean the world to me if you would go give us a five star rating. It helps more than you know. All right, thank you and until next time, my friends, be legendary. Take care. Peace.