When is the Next Huge Stock Market Fall Coming?

Dear Reader,


US stocks and also global stocks bounced up after 24 December 2018. I think DJIA, S&P 500 and Nasdaq Composite will get close to their previous peaks. The process will go ahead in 2019 and 2020.

In 2021 a large stock market fall will come, according to my humble opinion. The fall will be much greater than the 19.8% recent fall of the S&P 500 which started in the third quarter of 2018. I think the US stock and global markets will crash by around 35-50% starting in 2021.

Why? Because the global financial and monetary system will have too much leverage by then, i.e. too much debt! Even now their is excessive debt burden in the leveraged loans and energy sector markets. What will cause the crash? I think it will be like the butterfly effect in chaos theory. There will be some smaller and some larger triggers like in 2007-2008 -> BNP Paribas Credit Funds, Bear Stearns, Lehman Brothers, Merryll Lynch, AIG etc.

There will be simply too much leverage(debt) in the system. Just look at China - the total debt to GDP of China is above 250%. And China's economy along with USA, Mexico, Indonesia, Nigeria and Turkey has been the main driver of global GDP growth in recent years.

What will the next crisis look like? I think the fall in global GDP will be flatter, but more prolonged than  that of the Great Recession in 2008. Basically it would be like through a milder version of the Great Depression that started in October 1929 and lasted through 1939. This time around, however, the fall in global GDP will last 4-7 years.

Who will benefit from the coming crash? The countries with low debt - Central and Eastern Europe should benefit in the long run, because global firms will look to cut costs. Other countires with low total debt to GDP should also benefit. China could suffer immensely in the next global recession, but it will still remain the second largest economy in the world and will emerge stronger after the economic difficulties it is going to encounter, if my forecast comes true.

Here is the place where my humble person must praise the The Federal Reserve Board of Governors in Washington DC, the Central Bank of the United States. Only the Federal Reserve was brave enough to start decreasing the money base, that is to shrink its balance sheet. The Federal Reserve was brave enough to raise the Federal Funds Rate numerous time. And when the hext crisis comes, only the Federal Reserve will have enough means and ammunition to fight the next downturn of the ecomomic cycle.

I must say, that the strategy of my guru Warren Buffett to stay always invested in the stock market will not work in the coming stock amrket fall. Actually, he never lived through a real Economic Depression. Just to inform people that SOFIX, the main stock market index of the Bulgarian Stock Exchange has recovered only to around 40% of its previous 2007 peak. And Bulgarian GDP has long recovered and surpassed its previous peak. Yes I know, the stock of Berkshire Hathaway fell four times more than 40%, but it relatively quickly recovered.

When the leading global central banks start printing money en masse again, gold, oil and other commodities should turn out to be a good investment and the related stocks, or at least they will not fall as much as the overall stock market indices. High dividiend yield stocks should also fall less in the coming crash. The likes of retailers like Walmart and pharmaceutical companies should provide some form of the proverbial margin of safety.         

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich