- Investors feeling safer than they should is the primary cause of market crashes.
- Consumer debt is at unhealthy levels, but it is not reflected in consumers’ credit scores.
- Bonds in every sector have the potential to be much riskier than their credit ratings indicate.
- It may be a good time to avoid long-term bonds and securitized debt and to look for investments less exposed to high levels of debt.
Stock market crashes, like those that hit the U.S. markets in 1929, 1987, and 2008, tend to follow the same formula. This makes people wonder why they keep happening and we cannot prevent or even predict them. In fact, the act of thinking that we can prevent or predict them can at least partially be credited with causing them.
The formula is essentially as follows…