Economic history likes to repeat itself. Especially when it comes to excessive debt in the economy and wild speculation in assets. Every single time this occurred both eventually reversed itself and many got wiped out financially, and what followed was some of the best buying opportunities in history for those who were patient.

Starting in 1860 the American stock markets went on a 69-year bull market. During this time there were a few corrections (1901, 1913, 1921) that caused little damage. On the last Friday of August 1929, the NYSE hit what would be its peak at the time and a selloff quicky ensued. On the following Monday the NYSE lost $14b which in those days was unfathomable. The market declined 89.9% after finally bottoming in May 1932. This was the North America’s greatest selloff on record.

The causes of the correction were too much debt, easy money, wild asset price speculation and too many non-performing loans in the economy, much like today. Eventually the Federal Reserve and other central banks attempted to stop the liquidation by withdrawing cash from their economic system. Since cash became scarce, lending dried up and the economy stalled causing the Great Depression. It was not until the spring of 1954 that the Dow Jones Industrial Average finally returned to the August l929 high.

Today’s risk level is most likely one of the highest since the late 1920’s. Tariffs are destroying consumer discretionary income and good jobs inside and outside of America are disappearing. At the same time, most stock markets are at or near their all-time highs even though both political and economic risk continues to increase. We estimate that by mid 2026 the full effects of Trump’s tariffs will show up in corporate profits, and the markets will react accordingly.  

The above chart shows that the only time the S&P experienced a higher price-earnings ratio was during the tech bubble.  This is telling us investors believe utopia has arrived and consumers are going to go on a never-ending spending spree. These values also portray the belief that Trumps tariffs will result in prosperity even though they are destroying world trade. 

Human nature comes into play. Today they are gambling because they are going up, and people want to share in the party. But when the markets turn down it will be amazing how fast buyers disappear. It is too early to tell how bad it will get. If Trump realizes he could be destroying America and gets rid of the tariffs the economic slowdown will still last most of 2026 before a recovery.

Things like crypto, gold, and real estate will weaken, especially once interest rates start to go up during the first half of 2026. This increase could continue for years to come as the demand for new money will  skyrocket. It sounds bad but remember higher rates will benefit the saver and punish only the indebted. This is why we are always recommending keeping debt levels to a minimum.

For the next year returns will come from interest and from dividends. Continue to buy one year insured GICs. We expect interest rates in a year’s time to move higher as Ottawa will need to borrow billions and be forced to protect the value of the Loonie. We believe our recommendations will all raise their dividends again next year. Each increase will be small, but the companies will want to continue their record of increasing their dividends once a year. This is about the only investment segment that will remain positive over the next year. Be patient and continue to wait for the market to come to you.