Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown, 3rd Edition

CHAPTER4

The Market Cliff

NOT YOUR FATHER'S DOWN CYCLE

Remember the “Fiscal Cliff”? At the end of 2012, the media was all abuzz about an artificial deadline previously set by Congress after which a slew of budget cuts and tax hikes would go into effect unless lawmakers could reach a budget agreement. Congress had the power to create the artificial Fiscal Cliff dead-line, and Congress had the power—although not necessarily the immediate internal agreement—to avoid this artificial cliff, which eventually they did.

The kind of cliff that we want to introduce you to now is not a cliff that can be avoided by an act of Congress, the Federal Reserve, or by any part of the U.S. government. In fact, this new kind of cliff cannot be avoided at all because it will be the natural and unavoidable result of the end of a falling bubble economy. Once it starts, no amount of massive government stimulus will be able to stop it. In fact, the stimulus will just make it worse.

The combination of slow gross domestic product (GDP) growth and continued lack of growth of high-quality jobs will eventually worry some stock and bond investors. At first, only a few will want to exit some of their bonds and stocks. But over time, the number of investors seeking safety will climb. And eventually, it will hit a critical mass, pushing these assets over the Market Cliff and kicking off the beginning of the multibubble pop.

The Market Cliff Won't Be Just a “Down Cycle”

The mantra we often hear in a down market—but ...