I’ve never been as bearish in my life as I have been over the last couple weeks when writing this blog, but the more I look, the scarier it gets for me to take risks as I’m not able to do the same volume of trades as I have in the past. I’ve never been the one to be able to happily put my money in a stock for a month or two and get the money back
History Repeats Itself
This might come as a shocker, but we’re about due for a recession or some sort of market crash anytime now. Before I go on, take a look at this table with the dates of every single recession since The Great Depression. Look at each of the Start dates. They’re each anywhere from 7-9 years apart.
With the exception of the Recession in ’73, there has been one very predictably every 7-10 years, with an interval of eight years being the most common.
In between these bigger recessions, there are smaller market declines. We have seen several market corrections, between China falling to recession-esque levels, to the American Market correction we had to kick the year off in January and February.
Just like everything else in life, the market gives warning signs before doing anything radical (with the exception of the Flash Crash in 2010, that was almost impossible to predict when it would happen, and whether or not it would happen). Now I’m going to go over to London here and take a look at the FTSE because it’s a FANTASTIC indicator of an impending crash.
To see what I mean, all you have to do is look at the FTSE before the last two big crashes (’99 and ’07), and then you’ll realize how we are potentially in the midst of another recession.
FTSE peaked for a THIRD time right below 7000 (this time at 6948), and then sharply declined.
But everything’s going great right? I thought we were done with all that recession stuff, the market looks great!
Actually, no. There are two more things to consider here. First of all, a bull market only lasts for 6 years, and that “bull” market has already come to an end. The S&P500 was DOWN 3% last year. Now most people can make more money in down markets than in a bull market, but the fact still remains that the market was down, PERFECTLY correlating with the 6 year bull market (look back on the table I made above and you’ll see that the last recession ended in 2009).
The other factor is that a recession is defined as two consecutive quarters of negative GDP growth. While American markets don’t look to be going into negative GDP territory anytime soon (although exports have slowed down incredibly and basic rules of mercantilism state that a country should export more than it imports, the US looks like it’ll make it just fine), a quick look across the pond to Europe will tell you that the entire Euro is failing. In fact, almost every other country is doing worse than the FTSE.
After all, how can they not? They have to support hundreds of thousands to millions of refugees from Syria and the rest of the Middle East, whether they want too or not. Political unrest and uncertainty have left the economy in flux in much of Europe. Being separated by two bodies of water certainly helps London, making it a little bit more stable and a better indicator than something like Germany.
If we look over at Asia, the Nikkei (NI225/Japan) is down -12.72% y/y, the Shanghai SE (SHComp/China) is down -32.72%, the Hang Seng (HSI/Hong Kong) is down -23.15%, and Sensex (SENSEX/India) is down -7.36%. I used CNN Charts for this, but here’s a better visual representation (minus China, because the chart got REALLY cluttered) courtesy of Google.
If the entire rest of the world is struggling to break even, how much longer can the US sustain this image of everything being alright and a great economy?
After all, markets only truly start crashing when people stop making money, and start selling off or withholding their money. One or two years of slightly negative markets won’t start a recession.
The true recession, in my opinion, started in July 2015, but it’s going to take something else, a negative catalyst of some sorts for American markets to truly feel it, and when it hits, it’ll be nothing short of devastating.
I hope you liked this article. If you did please rate it 5 stars and comment or e-mail me with any questions!