I recently promised to answer two questions we’ve been getting…
When will the next market crash happen? And what will cause it
As the physicist Niels Bohr noted,
Prediction is very difficult, especially if it’s about the future.”
But here are five things we do know…
- Last month we entered the longest-running bull market in history, at 9½ years
- No bull market has ever made it to its 10th birthday
- The second-longest bull market was the dot-com-fueled rally of the 1990s which caused investors losses of nearly 80% when it flamed out
- While there’s no guarantee this bull market will crash before it hits its 10th birthday in early 2019, we do know that, historically, the longest-running bull markets go out “with a bang, not a whimper”
- As the experts who study behavioral finance note again and again, we humans have an enormous capacity for forgetting the lessons and pain of past crashes, and most people will be as woefully unprepared for the next crash as they were for the previous ones
Let’s Look at What Will Cause the Crash…
There are a number of things brewing that might trigger the next collapse. Take your pick:
Interest Rates Jump – Thanks to extraordinarily low interest rates for longer than ever before, risk-taking and leveraging have exploded. Interest rate increases that are faster than expected could push down stocks and commodities and trigger a domino effect.
Certifiably Crazy World Leaders with Their Finger on the Trigger – The threats posed by countries like North Korea and Iran are very real… and very unpredictable.
Cyber Attacks and Disruptions to the Power Grid – These attacks by countries like China, North Korea, Russia, and Iran are becoming more common and more debilitating. They’ve hit major companies and governments, both local and Federal. They have unimaginable power to paralyze the country and cripple our economy.
Emerging Markets in Distress or Chaos – Countries from Turkey to Argentina and South Africa are experiencing market and currency plunges, along with interest rate and recession woes which could spread to other countries. We easily forget how economically connected we are to other countries around the globe.
China Could Crack – China has so far weathered the threats of a trade war and a rising dollar. But a real-estate crash or defaults of local government-owned financing vehicles could be the breaking point and would impact our economy.
Trump Might Be Impeached – Although he would likely stay in office, confidence in the bull market that really took off when Trump got elected could be undermined.
Very Tight Labor Market – Wait a minute! Isn’t record-low employment supposed to be a good thing?
There are always unintended consequences. In this case, an incredibly tight labor market has resulted in 911 emergency call centers not being able to get enough people to answer the phones. And prisons are now training inmates to be coders.
What could possibly go wrong with that?
The bad news is this is just a partial list of potential causes of the next financial crisis
The bottom line is that the current bull market isn’t going to last forever.
If you don’t have a “Plan B” and a significant portion of your savings portfolio in safe and liquid financial vehicles, you are in for some serious pain that could last for many years.
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- It’s backed by a five-layer safety net
- The Bank On Yourself strategy comes with numerous tax advantages, including tax-deferred growth and tax-free withdrawals, under current tax law
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