The coming economic storm

So, the stock market is trading at record levels. Unemployment is at record lows. What could possibly go wrong? How about an economic collapse worse than the 2007 – 2009 S&P 500 50% decline. Why do I have such a pessimistic outlook when everything looks so rosy? Let’s just say I’ve seen this movie before.

History

From an historical perspective, everything points toward a downturn sooner rather than later. History tells us that there has been a recession in the first term of every Republican president since Teddy Roosevelt. Next there is the historical record of bull runs. We are currently in the second longest bull run in history. Have you ever seen any stock market graph that has just gone up without ever going down? Every downturn has been foreshadowed by irrational exuberance. Remember that term? That’s how Alan Greenspan described the housing market just prior to the collapse.

Economic Headwinds

I have no idea what event or catastrophe is going to push us into recession. In some ways, all the negative indicators preceding past downturns are present today. Housing costs have risen to the point where housing affordability is affecting a large portion of the population. The same is true for rising rents. The housing collapse of 2007 was preceded by soaring defaults on home loans. One area of concern today is the rising default rates on car loans. Another area of concern is rising default rates on student loans. Rising debt is not being offset by rising incomes.

The rising costs for housing, transportation, and education means less money for savings. Half of American families have no retirement savings at all, according to a report by the economic policy institute. The average retirement savings for all American families is $95,776. Approximately 26% of adults have no savings set aside for emergencies. The fact is that many people are ill-prepared for an economic downturn.

Manufacturing jobs are likely to continue to decline. A combination of factors is in play here. First, many of these jobs are being replaced by technology. Many more are being lost to cheaper labor overseas.

Healthcare will be a major burden for most families. With more people unable to afford healthcare, the population as a hole is growing sicker. Obesity, diabetes, and opioid addiction are all major areas of concern. If the Republican led Congress and Senate pass their flawed healthcare bill, the loss of Medicaid and higher premiums for less coverage will combine to create a healthcare crisis.

Ineffectual Government

This leads me to what I see as the most significant reason for my pessimistic outlook: Our government. Not only do we have politicians at the top of government who are ill-equipped to handle a crisis, they more than likely will be the cause of the crisis that leads to an economic collapse.

Just about every decision Trump and the Republicans have made since the last election have illustrated their incompetence. President Trump wants to bring back coal jobs. That’s great for the few thousand coal workers who voted for him. It does nothing to create a renewable energy economy. Decisions being made concerning the environment, the EPA, banking regulations, trade, healthcare, national security, and more all point to a government more intent on dismantling the previous administration’s accomplishments than making smart policy choices that benefit the American people.

Taking Shelter

You don’t have to agree with me. You are free to make your own choices. There are steps, however, you can make to fair better if I am right. You can start saving more. You can unload debt. You can take money out of the stock market and let it sit on the sidelines. There will be many buying opportunities after the collapse. You can put stop loss orders on the stock you do own.

Just as every bull run is followed by a bear market, the upcoming economic collapse will eventually be followed by another upturn. Be smart. Be ready. It’s coming.