Recession
We must prepare ourselves!
Many ask how Americans could elect Donald Trump, an obvious moron, as President twice. Well, I can think of many reasons. I’m not going to go down the list here; however, we are remiss if we don’t acknowledge that his deregulation and tax policies are popular in the business community. We should also mention that he had another thing going for him: he would under no circumstances get the US involved in another forever war.
Obviously, the Iran situation makes the last point dubious. As my readers know, I have grown steadily weary about where all of this might be going. To deny the Iranians any influence over the Straits of Hormuz will require excessive violence. The diplomatic track isn’t all that attractive either, given that the Iranians are known for never giving in. So, we are where we are. We will not get a sufficient oil supply in the next few months, will we?
Thus, the logical consequence is quite clear to us as market participants. We must prepare ourselves for a recession and a bear market. The table below lists significant bear markets in the last century.
The current crisis has some similarities to the oil shock in the 1970’s. As we can see, that decade was a very unhappy one in financial markets. We are unlikely to get the same drawdown now. Western economies are less oil-dependent than they were 50 years ago. In my childhood, J.R Ewing and Barnes fought over oil patches in the TV show Dallas. Today, Texas is an Electro-state. Still, oil production is an important business in the state, but consumers get almost all of their electricity from renewables. In Europe, we have much of the same situation. Germany has a renewable coverage of 60%, the same level as Spain, and even Italy has doubled its share of renewable coverage in the last 4 years. China can also be described as an Electro-state these days.
Yet, even though we are less oil-dependent today, an energy supply shock could get ugly enough. Reseccionary drawdowns in financial markets are usually between 20 - 50%. So far, the S&P 500 is down nearly 9%. Needless to say, we have some work left on the downside if the Iran situation keeps unravelling. There is only one thing to do. We need to brace ourselves, batten down the hatches, and raise some cash.
Disclaimer: Important Information for Retail Investors
The information in this blog is for educational purposes only, not financial advice. Investing in stocks carries risks; past performance doesn’t guarantee future results. Conduct thorough research and seek advice from financial professionals before investing.
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