Summary: For the past year I’ve warned that the economy is slowing. For the past three months I’ve warned that a recession is coming. Now let’s consider the likely effects, and how you can prepare.
- The odds of a stock market crash are high.
- Are you at or near ground zero, to be hurt by the crash or its after-effects?
- Will you be affected by its ripples — or the recession that probably causes the crash?
- Here are the likely worst affected industries and regions. Prepare now if you’re in them, or if you are over-weight their stocks.
A crash is coming soon. I believe (aka guess) it will happen in 2016, when stocks are knocked down by the combination of a recession, liquidation of margin debt, and collapse of valuations.
Valuations are a particular weak spot of stock. Now near record high levels, they are among the most mean-reverting of economic series on a generational basis (i.e., they collapse and then return to the average of the past 10 or 20 years). Stock prices might drop roughly by half, as they did after the last two bubbles popped.
What does a stock market decline do to the economy? Let’s count the ways.