Is the next GFC right around the corner?

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crash chart

Talk of recessions and ‘the next crash’ has dominated the share market news so far this year. It’s inevitable that this starts to happen as we enter into the tenth year of a record breaking bull-run. Australia is doing even better than the US. We narrowly avoided going into recession in 2008/09, an incredible feat considering the US had their worst recession since the Great Depression of the early 1930s.

Even though we avoided recession, it didn’t stop our stock market crashing though. The All Ordinaries (ASX: XAO) fell over 50% peak to trough by March 2009 – wiping out hundreds of billions in pension and superannuation funds.

Recessions have typically occurred at least once a decade for at least the last 60 years, so it makes sense that investors and the media are starting to get worried. It might explain why the price of gold – the typical safe haven asset – has been steadily climbing over the past year to where it is today (around US$1,500 per ounce).

Bond yields around the world have also been falling to historically low levels – another typical sign of troubled times on the horizon (although record low interest rates are significantly assisting this as well).

So is the next GFC around the corner?

Well, I hate to disappoint, but I do not know. It’s a fool’s game (not the good kind of Fool) to try and predict what markets will do today, let alone tomorrow or next year. But (and this is my opinion here) I think that the financial crisis of 2008 was an uncommonly nasty recession, caused by egregious excesses in the US financial system.

I don’t believe the next recession/stock market crash will be ‘another GFC’, as those excesses don’t seem to be at play these days. But saying this, I’m no economist and there may be other problems that an economic storm might expose. You just never know.

Foolish takeaway

The fact remains that we are in the longest bull-run in history that will inevitably, at some point, come to an end. I think it is a good time to be prudent, perhaps allocating a bit more of your money as cash on the side for when those rainy days do come. But don’t guess, don’t try and time markets and don’t sell if things go pear shaped. That’s my humble advice, anyway!

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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