All of you guys are way too positive and have adopted the retail investor mindset full of “conventional wisdom”, which is preyed upon by professional investors.
This market is going to get a lot worse, approaching if not a full-blown depression, and its going to happen for several reasons. (EDIT: Not immediately, but within the next two years)
- Demographics shift affecting capital markets & retirement crisis. The largest and wealthiest segment of the population is the baby boomers. The majority of them reached retirement age within 2 years. After 2008 devastated their retirement accounts, many of them realized that they don’t have enough to retire, so they made riskier investment than they normally should have. Artificially raising the stock market and lowering the cost of capital. This bear market and recession, will devastate them further, and many wont be able to retire at all. So what do they do? Sell the house, and move to cheaper lodgings. Well, if everyone does that at the same time? Home prices crash, especially since millenials don’t make enough to pay the asking price. I would not be surprised to see a 50% fall in home values.
- Student debt. Young people from age 20-35 are traditionally the ones that buy homes, cars, and all the big life purchases. This age bracket is what fuels a consumption based economy. Currently, this age bracket is loaded with too much student debt, which is not dischargable in bankruptcy, to do any of the above. So we’re not gonna be able to spend our way out of a recession.
- There aren’t enough gen-xers to fill out the tax paying bracket. The majority of income tax comes from people aged 40-65. These people are further in their careers and making more money, therefore more income tax. There just aren’t enough gen-xers to pay the same level of taxes that the government needs to operate with all of the existing entitlement programs. This is gonna blow a huge hole in government finances.
- Corporate debt. Since 2008, interest rates have been crazy low, allowing companies to borrow “free money”, and then they used that money to buy back their stock and artificially raise their stock price, netting their executives hefty bonuses. Interest rates rise, they have to pay back the loans, but a recession & bear market cuts 30% off their stock value right from the start. Where is that debt payment money going to come from?
- Government debt. we’re at trillion and counting. We’ve run out of people to borrow money from, and the rest of the world will be dealing with their own financial crises.
- Global financial depression. Germany, China, and Japan each depend on exports for over 30% of their GDP. If the US is in recession, who is gonna buy their goods?
- The EU is going to collapse. This is why Merkel stepped down now. Cause she doesn’t want to be holding the reigns when shit hits the fan. European demographics are way worse than Americas. They are not going to be capable of consumption-fueled growth for at least 30 years. There are no young people to pay taxes to fund the retirement of the old people. They just aren’t there. So those pensions that the boomers were counting on, wont be z
- Italy and the rest of the southern European countries joined the EU for access to Germany’s credit card, and then they elected a series of politicians who bought elections by guaranteeing social programs, instead of using those loans to modernize their economy and infrastructure. So now, you’ve got tons of debt, empty promises, and non-competitive economies. Italy’s debt is at trillion, 15% of which is bad standing, and that’s AFTER the EU redefined the rules for rating debt. Italy doesn’t have the demographics to be able to grow its economy, so they wont be able to repay that debt.
We could deal with any 2 or 3 of these, but all of them? At the same time? At the same time as a recession and stock market crash? No way Jose…. And I didn’t even mention automation and AI…..
TLDR: Putting this all together, we have a bear market, a recession, a fundamental and game-changing shift in demographics, a retirement crisis, too many young people in debt, and not enough gen-xers to pay the majority of income tax. And that’s just America. The next 15 or so years, are gonna be rough.