How will this bull market end?
I’m hesitant to speculate about how this bull market will end because in truth, it never happens the way you imagined it. However, it is a good exercise in creativity and it helps me map out the potential fault lines.
Most recessions occur because of two reasons:
- Supply shock: where supply for something is interrupted
- Demand shock: where demand suddenly retreats

The economy in general can be thought of having one of these supply and demand graphs but each segment of the economy has its own graph. The aggregation of these single demand graphs = global economic supply-demand graph.
Example: Strawberries & Gasoline
Supply & Demand Disruption Precedes Recessions
For example, Kuwait has an economy that is highly dependent on Oil. If the supply and demand curves unbalance, the entire economy could enter into recession as seen here
Typically, the steps towards an oil recession seem awfully similar:
- Increase demand for product/service
- Massive expansion to meet that demand
- Demand slows down or prices comes down for some other reason
- Industry that is responsible for expansion enters recession
Let’s continue with the oil example
In the late 1990s, after the Asian and Russian defaults, there was a lack of investment into oilfields. By 2007, the economy had recovered but oil investments had not caught up. The price shot up and as a result, companies invested massively in technology and production expansion. Fast forward to 2014, growth in demand tapers off but production continues to expand, resulting in large price decreases and industry contraction.
For a diversified economy such as the US to enter a recession, a large number of markets need to dislocate and remain unbalanced simultaneously for quite some time.
→ This is what happened during the “great recession.” A large number of sectors in the economy entered a recession.

Where will the next recession hit?
My opinion is that the next recession could be one that looked like the 1960–1961 rolling recession, where the recession only affected certain sectors of the economy at a time. As one sector enters recovery, the slowdown will ‘roll’ into another part of the economy.
This could very much explain our tepid economic recovery
Oil has been in recession since mid 2014

Car manufacturing is currently experiencing a contraction since 2015

Retail real estate is starting to plateau due to oversupply and online competition

The good news is that the rest of the economy is holding up. Banks and other financial services continue to recover. Information Technology continues to expand as more companies upgrade their infrastructure. As long as no other important sector undergoes stress, then we are safe from a general recession.
Catalyst for a Sector Recessions
Potential catalysts that could change sector dynamics:
- Rise of interest rates + market liquidity constraints: Yes, the Fed is raising interest rates and removing liquidity from the market. That could put stress on companies that depend on short-term cheap credit. The first potential casualty is any sort of refinancing, including mortgage refinancing (banks)
- Continued improvement in electric production costs by alternative producers — this is big…

this is bigger… When unsubsidized wind becomes cheaper than gas, the entire gas-value-chain will suffer. Any industry related to the electric gas production will undergo stress, including: gas pipes, steel in gas pipes, companies that manufacture and install electric generators, gas drilling, drilling equipment, etc.

It is hard to tell when this will happen, both gas and wind have become more efficient but wind has a cheaper source of fuel (wind) so ultimately it is just a question of time.
