The Real Deal

By Michael Every of Rabobank

The Real Deal

Right now, the focus shouldn’t be on the little data we have. German industrial production figures were shockingly bad and take output to the lowest level since 2005, but that was an obvious trend years ago to those who wanted to see it.

Neither should it be on the Fed. The FOMC minutes said they are minded to cut rates further this year, after being adamant that wasn’t necessary a few weeks ago (i.e., why listen to them?), but are still worried about inflation risks – in sharp contrast to the RBNZ, for example.

Rather, it needs to be on the deals that are underway – and I don’t mean the circular investment/logic/firing squad(?) that we are seeing in US AI.

Against a backdrop of Israel denying a Politico report saying Qatar had dictated the telephone apology PM Netanyahu offered to the country for its attack in Doha, Israeli negotiators and Hamas signed Trump’s peace deal. All living hostages could be home by Saturday, the two-year anniversary of their kidnapping in the Jewish calendar, and an Israeli withdrawal begin. President Trump may fly to Israel to address the Knesset (and the Nobel Peace Prize committee) shortly.

If this proceeds, with all the usual caveats, expect the Middle East to start to change rapidly, and in the US’ favor. For just one example, there are reports Qatari-owned Al Jazeera, which runs anti-Israel/US stories, has seen a change of editorial staff to tone down its (English-language) rhetoric. Far more significant shifts in investment and logistics are likely to follow. As they say, ‘watch this space’. Which is what Europe will be doing – just watching.

On Europe-Russia, Denmark is to allocate billions of Euros for new US fighter jets as well as a Greenland military HQ - to protect it from the US or others, and Greenland itself or the Northern Passage from China to Europe via the Arctic? That’s as Polish PM Tusk announced he won’t follow the German extradition request for a Ukrainian national wanted by EU authorities for suspected involvement in the Nord Stream 1 & 2 explosions; and as Russia accused Ukraine of supporting terrorism in the Sahel.

Severe delays have also developed along one of Russia’s key overland supply routes from China, as Kazakhstan has intensified customs inspections at its border crossings looking for military- or dual-use goods subject to sanctions: some 7,500 trucks are reportedly stuck there. Welcome to how economic statecraft can work if countries choose not to keep exporting as normal via look-the-other-way transshipment – albeit at an economic cost.

After China stopped buying Aussie iron ore, demanding it pay in CNY not USD, its new alternative source of iron ore supply in Guinea suffered an explosion: coincidence or sabotage? Despite the market largely ignoring it, what *may* have transpired there could be a template for other supply chains in the current geopolitical environment: in fact, make me the argument for why it wouldn’t be the case without saying, “because markets”.

That’s as the Pentagon has begun receiving shipments of tungsten via Trinity Metals, in which it now holds a stake, straight from Rwanda: no more private commodity trade on that front. Expect that trend, which had been predicted here, to accelerate.

Nikkei Asia says US chip plant capex will outpace China, Taiwan and South Korea from 2027, with global chipmakers expected to spend nearly $400bn on advanced equipment.

“As expected, Labor has spent more than A$500bn of public money adding Glencore’s Mount Isa copper smelter and Townsville refinery to its growing list of manufacturing bailouts” (AFR), which argues: “If the ALP insists on underwriting fading relics rather than pioneering areas of strategic gain, it will risk not just burning more taxpayer cash but consuming Australia’s future competitiveness.” Strategic areas like… like… like…. Look! House prices are going up again!

Mexican officials are planning to push back against new US 25% tariffs on heavy trucks planned to start on 1 November, but talks are ongoing. Canada still isn’t buckling to Trump yet, But Bloomberg notes that millions of Canadians’ jobs are at stake, which underlines which way the decision is ultimately likely to go.

The EU “sees new US trade demands hollowing out deal struck by Trump,” says Bloomberg, with Europe unhappy that steel and aluminium tariffs apply proportionately to imported items using those metals… as the EU’s own steel tariffs were apparently already considering adding exactly the same feature ahead.

Moreover, the US is demanding the EU exempt its firms from its green rules. Doesn’t the EU get to regulate their own economy? Yet this is also Europe regulating US firms to their disadvantage. there is a cost involved with compliance here. despite pledging to rebalance trade through various mechanisms. Europe risks security, energy, trade, and Eurodollar crises if it walks away over the green issue; or a massive compromise in its principles --and the competitiveness of its own firms vis-à-vis the US-- if it bends. But realpolitik deals are about power, not technocratic committee win-wins.  

Meanwhile, as Politico puts it, ‘Socialists cave to centre-right demons to slash EU green rules’, while @JavierBlas notes the “Spanish grid asks for urgent measures (to be implemented in 5 days) to stabilise the electricity network as voltage swings again sharply (the situation is similar in early autumn to spring during the blackout). It warns the grid’s safety is at risk.”

In politics, French President Macron has promised to name a new French PM by Friday as outgoing Lecornu said the prospect of a snap parliamentary election is receding - so who has compromised on what in that tranche of realpolitik? Again, please answer assuming it does not involve “because markets.”

In Japan, talks between LDP leader Takaichi and Komeito leader Saito have failed to produce a deal, with the possibility of a breakdown in the 26-year relationship between the two political parties rising, further muddying the waters on where Japan, and JPY, goes from here.

That’s as Argentina sees its rates exceed 80% as a Peso crisis is sparking a cash crunch, according to Bloomberg: the US Monroe Doctrine carrot of a $20bn swapline was not enough, it seems. How much larger does it then need to get? Pick a number… or dollarisation? Who knows in this geopolitical climate!

On top of that, Bloomberg notes ‘US Stablecoin Dream Is a Nightmare for China’ - and not only China: Europe and others will all have to deal with it. Their argument is that “The US is shaping dollar stablecoins as a means to carry America's influence around the world, which is seen as a new front of geopolitical competition.” Indeed: we wrote on that topic and angle recently at a time when most in markets were either asking “Who is stablecoin?” or talking about how it just meant ‘buy all the things’, not who would be buying whose things.

It’s the latter that matters: that’s the real deal being played out, contested market by market and geography by geography

Tyler Durden Thu, 10/09/2025 - 15:00

Gold Is Saying The Fiat Currency Experiment Is Ending Globally; Rubino

Via Greg Hunter’s USAWatchdog.com 

Analyst and financial writer John Rubino has been warning of a currency crisis for the last few years, but it’s not just the US dollar, euro or the yen. 

Almost every country has exploding unpayable debt, and there is not a fiat currency that is going to survive.  Rubino explains, “If you watch the financial press, they are noting that the price of gold is going up, but they are treating it like any other asset.  

"Gold is humanity’s oldest form of money.  So, when it goes up in price, that means the currencies against we are measuring it are going down in value. 

What we are seeing all around the world is fiat currencies declining in value dramatically . . . especially against gold.  Gold, just in the last couple of weeks, pierced not just its all-time nominal high, but its all-time inflation adjusted high. 

This is a much bigger deal because we have had so much inflation in the last 30 or 40 years. 

Basically, gold is saying that the fiat currency experiment is ending. 

In other words, the monetary system that we set up in 1971 when we went off the gold standard . . . this led countries to create way too much debt, increase their spending dramatically and basically make all the mistakes that a human makes when you give them an unlimited credit card. 

Now, we are burdened with debt we cannot pay off, and people expect to be taken care of, and France is a good example of this.”

Almost every nation is facing the same crisis and same currency outcome.  Rubino contends:

“Governments around the world are forced to borrow more and more money to cover the obligations they have taken on and to cover the interest costs on their debts.  That requires them to print more money, and that is lowering the value of the currencies even more quickly.  This basically will lead to a currency death spiral.  That’s where we are right now.”

Rubino likes physical gold, silver and mining stocks.  Rubino says, “The silver price will begin to outperform gold on a percentage basis.”  Rubino also says:

“. . .In order (for gold) to serve as the foundation for the next monetary system . . . as we did it in the classical gold standard that was in place up until WWI, if we went back to that, you would need a gold price at around $20,000 per ounce.  You would need this to back all the currencies that are out there now. . . . If we keep doing what we are doing now, the fiat currencies would go to zero, which means gold would go to infinity.  My guess on the future gold price is somewhere between $20,000 (per ounce) and infinity.”

Rubino also thinks artificial intelligence (AI) is both inflationary and deflationary.  He explains in the interview.

There is more in the 49-minute interview.

Join Greg Hunter as he goes One-on-One with financial writer John Rubino of the popular site called Rubino.Substack.com for 10.7.25.

Tyler Durden Thu, 10/09/2025 - 14:20

Putin Issues Rare Apology, Compensation For Azerbaijan Airline Disaster

Russian President Vladimir Putin has issued a rare statement of regret after acknowledging Russia's role in the downing of an Azerbaijani Airlines flight traveling from Baku to Grozny on December 25, 2024.

Putin informed Azerbaijani President Ilham Aliyev during meeting in Dushanbe, Tajikistan that Moscow will compensate Azerbaijan for its role in accidentally shooting down an Azerbaijani passenger plane. The incident brought relations between the two countries to a low-point.

Via Associated Press

After being struck by a Russian missile, the pilots attempted an emergency landing in western Kazakhstan, but the plane went down, killing 38 of the 67 people on board.

Putin had previously apologized for the "tragic incident" - but this marks the first time he is saying formally that Russia takes responsibility, and is seeking to mend ties with Baku.

Azerbaijani officials had accused Russia of refusing the aircraft permission to land on its territory after it was hit, forcing the badly damaged aircraft to extend its time in the air further.

"Of course, everything that is required in such tragic cases will be done by the Russian side on compensation and a legal assessment of all official things will be given," Putin told Aliyev in a face-to-face meeting, which was the first in a year since the incident happened. "It is our duty, I repeat once again … to give an objective assessment of everything that happened and to identify the true causes."

According to a summary of Putin's explanation of the crash:

The Russian president informed Aliyev that an incursion of three Ukrainian drones was the root cause of the tragedy, with one of them still in the air when the AZAL flight 8243 was damaged. According to Putin, the plane was “most likely hit by debris” from a missile that self-destructed in the air.

The incident took place near Grozny, Russia. The crew tried to divert the flight, but the plane eventually crash-landed in Kazakhstan.

So essentially among the causes Putin blamed a cross-border Ukrainian drone incursion in the context of the war in Ukraine.

President Vladimir Putin acknowledged that a Russian air defense system was responsible for the crash of an Azerbaijan Airlines passenger jet that killed 38 people in December (translation via AP) https://t.co/agQ3g6rLig pic.twitter.com/A1LzSpnrsP

— Bloomberg (@business) October 9, 2025

The Azerbaijani president then thanked Putin, expressing "gratitude for the extensive information on the last year’s December tragedy."

"You are personally keeping the investigation process under control and we have no doubt that it will establish all the facts in an unbiased manner," he told Putin. Both countries appear eager to put the tragedy behind them, and advance relations further.

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Tyler Durden Thu, 10/09/2025 - 14:00

America's Growing Pushback Against Data Centers

Authored by Kay Rubacek via The Epoch Times (emphasis ours),

We are told daily that America is hopelessly divided. That every issue is red versus blue, left versus right, and that there is no longer common ground. But last month in Franklin Township, Indiana, something happened that doesn’t fit that story and it may hold a lesson far bigger than one rezoning fight.

A data center near single-family homes in Stone Ridge, Va., on July 17, 2024. Nathan Howard/Getty Images

Google had planned to rezone nearly 500 acres for a massive hyper scale data-center campus that representatives said would consume about millions of gallons of water a day, place heavy loads on electricity infrastructure, disrupt quiet neighborhoods with noise and lighting, and receive generous tax breaks while providing minimal permanent local jobs. It looked inevitable. Corporate lawyers had filed the paperwork, local officials had the vote on the calendar, and residents were already bracing for the outcome.

But in the weeks leading up to that vote, Franklin Township neighbors began to organize. Neighbors of all backgrounds—farmers, homeowners, parents, retirees—organized across political lines. They put up yard signs, and launched a Facebook group that quickly drew hundreds of members and launched a resident petition that gathered 7,600+ signatures. They wrote and called their council representatives, and word spread through churches, schools, and community meetings. By the time of the final hearing, the chamber was packed wall to wall with residents, standing shoulder to shoulder in opposition. They had packed City Hall so tightly that the chamber was standing-room only.

District Councilor, Michael-Paul Hart told reporters for More Perfect Union who were present on the night of the vote, “In my six years on the council, I’ve never seen all the rooms filled to the max with people waiting in the lobby. I’m overjoyed by the amount of community support that came out for this.” One local resident said: “This was do or die. We came prepared to fight with everything we have against this data center.” “I’ve been hoping that something would bring us together,” said a community organizer. “And it looks like data centers are.”

Minutes before the vote, Google abruptly withdrew its petition. The room erupted in cheers. For once, global power bent to local power.

A local business and farm owner who was concerned about water shortages or contamination that cold potentially be caused by the proposed data center commented after the win, “In a world where we are constantly being divided, everyone showed up tonight with a common goal and we won. For a long time we felt like we were four people with cardboard swords fighting a monster, but tonight it shows that people power still rings.”

This wasn’t just a feel-good moment for one Indiana township. It was part of a growing national pattern.

In Peculiar, Missouri, more than 1,000 residents joined a Facebook group called Don’t Dump Data on Peculiar. They put signs in their yards, attended council meetings. Many held prayer circles on the proposed site. Eventually their city leaders reversed an earlier zoning approval.

In Chesterton, Indiana, Provident Realty Advisors withdrew a $1.3 billion data center proposal after facing organized opposition from residents and town officials. In College Station, Texas, the city council unanimously rejected the sale of public land for a data center that would have required 600 megawatts of power, after thousands signed petitions and raised concerns about water, noise, and community impact. In San Marcos, Texas, a proposed facility was halted following public pressure over water and energy use. And in Tucson, Arizona, the city council unanimously rejected a proposed data center after residents pressed concerns about water consumption in the drought-stricken region.

Their battles are not yet over, but each of these towns acted early. They had seen what happened in Loudoun County, Virginia, which has become the data center capital of the world. Loudoun now relies on the industry for more than 30 percent of its county revenue. That money comes at a cost: endless construction, new high-voltage transmission lines, rising noise complaints, and neighborhoods that feel powerless to stop further expansion. Franklin Township and others decided they didn’t want to end up like Loudoun. They fought before the concrete was poured, and they won.

A report by Data Center Watch, a research group tracking grassroots efforts to oppose data centers states that $18 billion worth of data center projects were blocked, and another $46 billion of projects were delayed over the last two years in the face of opposition from residents and activist groups.

Why are data centers sparking such resistance? On the surface it is many things—water consumption and noise pollution among others, but the biggest complaint is about a lack of transparency which causes distrust between residents and the plans that are most often obfuscated from their sight. Residents are going to great lengths to conduct their own research by comparing promises of “jobs and investment” in their town with actual results from towns elsewhere, where locals have experienced land swallowed up, excessive water consumed, taxes diverted, and only a handful of permanent jobs left behind after construction is completed. They are finding multinational corporations arriving with lawyers often before neighbors know what’s planned for their backyards. They are sometimes finding conflicts of interest or undisclosed financial incentives between local officials and corporations. That kind of secrecy doesn’t inspire confidence and they are sharing their findings by word of mouth, from community to community, across the nation.

The effort is not against technology but against a lack of trust and the feeling of being treated as expendable. Communities are told they should sacrifice peace, land, and resources for the sake of “progress.” And those burdens are not small. Once construction crews leave, a billion-dollar facility may leave behind only a few dozen permanent jobs. The tax incentives that lured the project in are often paid up front, while the costs, such as higher utility bills, industrial traffic, or noise, linger for years, and property prices lower. Residents see the imbalance: their community bears the disruption while the profits flow elsewhere. So they are right to question: progress for whom? When the benefits are global and the burdens are local, and when facts are hidden from those who will live next door to the data behemoths it is only natural that people begin to push back and take a stand for their property, their neighbors, their local businesses and community.

It is this imbalance that has made data centers the new flashpoint in America. In the past, local opposition to projects was often dismissed under the label “NIMBY”—short for Not In My Backyard. The term was coined in the 1980s as a way to portray citizens who resisted new highways, landfills, prisons, or factories and they were often labeled as such for being hypocritical or selfish. Over time, that phrase became shorthand for narrow-minded resistance, the opposite of civic duty. It has roots in communist and socialist ideologies which seek to eliminate private property and cast a shadow on those who seek to stand up to what is most often defined as progress but is pushed upon citizens without any openness in communication. Our Founding Fathers envisioned the opposite: the right of people to own and defend their property, to steward their land, and to resist government overreach. Protecting your backyard is not selfish. It is one of the deepest American instincts, a defense of independence that preserves the possibility of community itself.

And there’s a hard truth to face: with the trajectory of the current global AI arms race, data centers are going to be built whether we like it or not. They are the infrastructure of the AI age that we cannot hide from. Every AI model, every cloud service, every video stream runs on servers in these facilities.

But that doesn’t mean they must be planned in stealth or built within earshot of people’s homes. They can be placed further out, away from dense neighborhoods. Yes, it costs more to run transmission lines and build infrastructure further afield. But the cost of harmony is worth it. Local residents shouldn’t have to bear the heaviest burdens of a global competition they never chose.

The lesson is straightforward. If citizens want to protect their communities, they must act early before rezoning makes resistance nearly impossible. They must use social media not to doomscroll, but to connect and learn and to organize. They must ask hard questions, demand real numbers, and, above all, talk to one another. And they must step beyond the narratives that divide us. Franklin, Peculiar, Chesterton, College Station, and San Marcos show what happens when communities refuse the narrative of division and link arms instead: they prove that local voices still have power in America.

What has led to seemingly impossible wins wasn’t money or lawyers, but neighbors refusing to be divided. Farmers, parents, retirees, and young families rallying together to defend the ground beneath their feet. The win in Franklin Township this wasn’t just a win for one Indiana community. It was a case study in what America can still be, when we choose to act in civic duty, stand with our neighbors and choose harmony and open communication over secrecy and division.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

Tyler Durden Thu, 10/09/2025 - 13:40

Bear Market Losses – A Dangerous Illusion

Authored by Lance Roberts via RealInvestmentAdvice.com,

When bear market losses occur, headlines talk in percentages: “The market dropped 20 %.” Investors nod. A 20 % decline sounds manageable, historical, and expected. As Ben Carlson recently penned:

“Bear markets have some symmetry to them, at least in the short-term. In the long term, bull markets versus bear markets are asymmetric. Things are not balanced.

Look at the gains versus losses. The bear markets are blips. To be fair, those losses don’t feel like blips when you’re in them. Bear markets can be brutal. Losing money is not fun. Seeing a large portion of your portfolio get vaporized can cause you to question your sanity as an investor. And yet…the bull markets completely overwhelm the bear markets. It’s not even close.

This certainly seems to be true when looking at a chart of “percentage returns. “ The chart below uses monthly, inflation-adjusted returns for $1000 invested in the S&P 500 index (data via Robert Shiller, Yale University)

However, looking at the markets this way and assuming that “bull markets” have dwarfed “bear markets” throughout history creates an “illusion of safety.” This is why such mainstream and mundane analysis is only used to deter concerns about market downturns and suggest that investors remain fully invested at all times.

But ask yourself these two simple questions:

• If true, why does no legendary investor “buy and hold” the market?

• Why does every legendary investor have one rule in common: “to buy low and sell high” in some form? From Warren Buffett to Paul Tudor Jones, the investing greats warned about the peril of market drawdowns and the risk to investment capital.

While Ben is correct in the overall analysis, the framing is misleading. As we will discuss in detail, the chart, originally put out by First Trust, hides the real damage to your portfolio, goals, and timeline. As noted, bear market losses, when displayed in percentages, obscure what it takes to recover. Furthermore, it ignores the most critical commodity of all investors: the “time” lost and the destruction of the “compounding effect.”

A 20 % or more bear market loss is not just a dip. It’s a reset. It drags down the current value of your investments and your future wealth. The more profound the loss, the more ground you need to make up, and the longer it takes. Investors think they can ride it out. However, many behavioral studies show this is not the case, and that investors eventually “sell” as the “loss avoidance” kicks in. That is when the real damage is done.

Most market commentary glosses over that. It speaks in long-term averages and smooth recoveries, assumes you stay the course and never sell, and that you’re not withdrawing funds. Those assumptions rarely hold up under pressure. Markets don’t move in straight lines. Neither do portfolios. Understanding the real cost of a bear market means looking beyond percentages.

Let’s explore the math.

The Math of Loss

Losses hurt more than they appear because recovery isn’t symmetrical. If your portfolio drops 20 %, you need a 25 % gain to get back to even. Drop 30 %, and you need nearly 43 %. A 50 % loss? That takes a 100 % rebound. These aren’t abstract numbers; they’re the reality of compounding in reverse.

Let’s assume that an index goes from 1000 to 8000.

• 1000 to 2000 = 100% return

• The index rises to 3000 = 200% return

• Going on to 4000 = 300% return

• …

• And continues to 8000 = 700% return

If an investor bought the index and generated a 700% return on their money, why worry about a 50% correction?

Here is the problem with percentages.

A 50% correction does NOT leave you with a 650% gain.

A 50% correction subtracts 4000 points, reducing your 700% gain to 300%.

Source: St. Louis Federal Reserve Chart by: www.RealInvestmentAdvice.com

As shown in the example, the small drawdown seems innocuous until you realize it clipped 4000 points from the index. The problem now becomes the issue of regaining those 4000 lost points to break even.

Understanding the math of loss is incredibly important.

Real life works the same. From 2007 to 2009, the S&P 500 lost over 56 %. To recover that, investors needed more than 113 % in gains. The market didn’t break even again until 2013. That’s six years to claw back losses. And that assumes no withdrawals and full participation in the rebound. Most investors didn’t make it. They panicked, went to cash, and missed the recovery.

Let’s reconstruct the chart above from the percentage gain and loss chart into actual point changes. In this form, we see that most of the advances in bull markets get subsequently destroyed in bear markets.

As of this analysis, the market was trading at 6700. A 50% correction would result in a loss of 3350 points, wiping out most of the gains from the October 2022 lows.

No, that would not just be a blip. That is because volatility compounds the damage.

When looking at things in percentages, gains and losses of equal size do not cancel out. A 10 % gain and a 10 % loss still leaves you down. If you start with $100,000, gain 10 % to $110,000, then lose 10 %, you’re at $99,000. The sequence matters. High volatility drags on returns even if long-term averages look fine. That’s called volatility drag, and it eats away at portfolios quietly.

Drawdowns are more than temporary events. They are mathematical traps. The deeper the fall, the more challenging the climb. And every investor who ignores this does so at their own risk.

The Fallacy of Compounding and the Math of Time

Bear markets don’t just reduce your portfolio value. They rob you of time. Time is also the most valuable resource when investing. You can recover money. You can’t recover time.

Let’s assume that an investor wants an “average” rate of return over a five-year horizon. Since markets have volatility, we can inject a minor correction to see the impact of losses.

After three straight years of 10% returns, a bear market loss of just 10% cuts the average annual compound growth rate by 50%. Furthermore, it then requires a 30% return to regain the required average rate of return. 

There is a significant difference between AVERAGE and ACTUAL returns. The impact of losses destroys the annualized “compounding” effect of money.

To prove that, the purple shaded area shows the “average” return of 7% annually. However, the differential between the promised and “actual return” is the return gap. See the problem?

The differential between what investors were promised (and a critical flaw in financial planning) and actual returns is substantial over the long term.

Secondly, and most importantly, you DIED long before you realized the long-term average rate of return.

The chart box below shows a $1000 investment for various starting periods. The total return holding period is from 35 years until death using actuarial tables. There are no withdrawals. The orange sloping line represents the “promise” of 6% annualized compound returns. The black line represents what occurred. The bottom bar chart shows the surplus, or shortfall, of the 6% annualized return goal.

At the point of death, the invested capital is short of the promised goal in every case except the current cycle starting in 2009. However, that cycle is yet to be complete, and the subsequent bear market loss will likely reverse most, if not all, of those gains.

As such, if your plan is based on compounding returns over 20 or 30 years, even a short disruption can have long-term effects. This effect is worse for those nearing retirement. If a bear market hits five years before retirement, you don’t have time to wait. You may need to delay retirement, reduce your spending goals, or work longer. Worse, the damage is permanent if you’re already retired and drawing down funds during a bear market as every withdrawal during a downturn locks in a loss. Even if the market recovers, your portfolio doesn’t, because you pulled money out when prices were low.

This is the sequence-of-returns problem. If your first years of retirement coincide with a bear market, your odds of running out of money rise sharply. Studies show that retirees who withdraw 4 % per year and face a 30–40 % loss early in retirement have a much higher failure rate. The order of returns matters far more than average returns.

If someone suggests that you ignore bear market corrections, ask them if they have ever been through one.

Investors often plan as if markets will deliver average returns smoothly. They don’t. Bear markets distort the timeline, and time lost compounds into permanent gaps in your financial plan.

Strategies That Work When Markets Don’t

Understanding the real cost of bear markets is the first step. What matters is acting on that knowledge. Here are six strategies that help protect your portfolio and your plan when markets break down.

• Limit the downside. Avoiding significant losses matters more than capturing every bit of upside. A portfolio that loses less in bear markets recovers faster and compounds more. Risk management is return management. Limiting losses to 10 % instead of 30 % requires less time and less risk to recover.

• Maintain a cash buffer. Have two to three years of living expenses in cash or short-term bonds. This prevents you from selling assets at a loss during a downturn. A cash reserve acts as dry powder and protects your long-term investments.

• Rebalance with discipline. When markets fall, your equity allocation shrinks. A disciplined rebalancing schedule forces you to buy low and sell high. But only if you are disciplined to follow through when fear is high.

• Use tactical risk shifts. Reduce equity exposure when valuations are stretched. Add exposure when risk premiums are higher. Avoid going all-in or all-out. Stay flexible, but don’t chase trends. Focus on risk-adjusted outcomes.

• Protect in retirement. If you’re near or in retirement, reduce sequence risk. Lower your withdrawal rate during market stress. Delay big spending. Hold more conservative allocations. The early years of retirement are fragile. One significant drawdown can break the plan.

• Respect the cycle. Bear markets are part of investing. But they are not harmless. Don’t buy the narrative that “you’ll always recover.” That’s true for the index over decades. It’s not always true for you. Your time horizon is finite. Your goals are tangible. Respect that.

Don’t let the numbers fool you. A 20 % loss is not a bump in the road. It’s a reset. It costs you capital. It costs you time. And it drags your plan off course. The damage runs deeper than the headlines suggest.

Savvy investors don’t think in terms of percentages but rather in dollars. They think in years and goals rather than days and gains. Focusing on what matters, protecting your downside, managing risk, and preserving time keep you on track.

Bear markets will come. They always do. Your job is to survive them without losing the one thing you can’t get back: time.

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham.

Tyler Durden Thu, 10/09/2025 - 13:00

Bear Market Losses – A Dangerous Illusion

Authored by Lance Roberts via RealInvestmentAdvice.com,

When bear market losses occur, headlines talk in percentages: “The market dropped 20 %.” Investors nod. A 20 % decline sounds manageable, historical, and expected. As Ben Carlson recently penned:

“Bear markets have some symmetry to them, at least in the short-term. In the long term, bull markets versus bear markets are asymmetric. Things are not balanced.

Look at the gains versus losses. The bear markets are blips. To be fair, those losses don’t feel like blips when you’re in them. Bear markets can be brutal. Losing money is not fun. Seeing a large portion of your portfolio get vaporized can cause you to question your sanity as an investor. And yet…the bull markets completely overwhelm the bear markets. It’s not even close.

This certainly seems to be true when looking at a chart of “percentage returns. “ The chart below uses monthly, inflation-adjusted returns for $1000 invested in the S&P 500 index (data via Robert Shiller, Yale University)

However, looking at the markets this way and assuming that “bull markets” have dwarfed “bear markets” throughout history creates an “illusion of safety.” This is why such mainstream and mundane analysis is only used to deter concerns about market downturns and suggest that investors remain fully invested at all times.

But ask yourself these two simple questions:

• If true, why does no legendary investor “buy and hold” the market?

• Why does every legendary investor have one rule in common: “to buy low and sell high” in some form? From Warren Buffett to Paul Tudor Jones, the investing greats warned about the peril of market drawdowns and the risk to investment capital.

While Ben is correct in the overall analysis, the framing is misleading. As we will discuss in detail, the chart, originally put out by First Trust, hides the real damage to your portfolio, goals, and timeline. As noted, bear market losses, when displayed in percentages, obscure what it takes to recover. Furthermore, it ignores the most critical commodity of all investors: the “time” lost and the destruction of the “compounding effect.”

A 20 % or more bear market loss is not just a dip. It’s a reset. It drags down the current value of your investments and your future wealth. The more profound the loss, the more ground you need to make up, and the longer it takes. Investors think they can ride it out. However, many behavioral studies show this is not the case, and that investors eventually “sell” as the “loss avoidance” kicks in. That is when the real damage is done.

Most market commentary glosses over that. It speaks in long-term averages and smooth recoveries, assumes you stay the course and never sell, and that you’re not withdrawing funds. Those assumptions rarely hold up under pressure. Markets don’t move in straight lines. Neither do portfolios. Understanding the real cost of a bear market means looking beyond percentages.

Let’s explore the math.

The Math of Loss

Losses hurt more than they appear because recovery isn’t symmetrical. If your portfolio drops 20 %, you need a 25 % gain to get back to even. Drop 30 %, and you need nearly 43 %. A 50 % loss? That takes a 100 % rebound. These aren’t abstract numbers; they’re the reality of compounding in reverse.

Let’s assume that an index goes from 1000 to 8000.

• 1000 to 2000 = 100% return

• The index rises to 3000 = 200% return

• Going on to 4000 = 300% return

• …

• And continues to 8000 = 700% return

If an investor bought the index and generated a 700% return on their money, why worry about a 50% correction?

Here is the problem with percentages.

A 50% correction does NOT leave you with a 650% gain.

A 50% correction subtracts 4000 points, reducing your 700% gain to 300%.

Source: St. Louis Federal Reserve Chart by: www.RealInvestmentAdvice.com

As shown in the example, the small drawdown seems innocuous until you realize it clipped 4000 points from the index. The problem now becomes the issue of regaining those 4000 lost points to break even.

Understanding the math of loss is incredibly important.

Real life works the same. From 2007 to 2009, the S&P 500 lost over 56 %. To recover that, investors needed more than 113 % in gains. The market didn’t break even again until 2013. That’s six years to claw back losses. And that assumes no withdrawals and full participation in the rebound. Most investors didn’t make it. They panicked, went to cash, and missed the recovery.

Let’s reconstruct the chart above from the percentage gain and loss chart into actual point changes. In this form, we see that most of the advances in bull markets get subsequently destroyed in bear markets.

As of this analysis, the market was trading at 6700. A 50% correction would result in a loss of 3350 points, wiping out most of the gains from the October 2022 lows.

No, that would not just be a blip. That is because volatility compounds the damage.

When looking at things in percentages, gains and losses of equal size do not cancel out. A 10 % gain and a 10 % loss still leaves you down. If you start with $100,000, gain 10 % to $110,000, then lose 10 %, you’re at $99,000. The sequence matters. High volatility drags on returns even if long-term averages look fine. That’s called volatility drag, and it eats away at portfolios quietly.

Drawdowns are more than temporary events. They are mathematical traps. The deeper the fall, the more challenging the climb. And every investor who ignores this does so at their own risk.

The Fallacy of Compounding and the Math of Time

Bear markets don’t just reduce your portfolio value. They rob you of time. Time is also the most valuable resource when investing. You can recover money. You can’t recover time.

Let’s assume that an investor wants an “average” rate of return over a five-year horizon. Since markets have volatility, we can inject a minor correction to see the impact of losses.

After three straight years of 10% returns, a bear market loss of just 10% cuts the average annual compound growth rate by 50%. Furthermore, it then requires a 30% return to regain the required average rate of return. 

There is a significant difference between AVERAGE and ACTUAL returns. The impact of losses destroys the annualized “compounding” effect of money.

To prove that, the purple shaded area shows the “average” return of 7% annually. However, the differential between the promised and “actual return” is the return gap. See the problem?

The differential between what investors were promised (and a critical flaw in financial planning) and actual returns is substantial over the long term.

Secondly, and most importantly, you DIED long before you realized the long-term average rate of return.

The chart box below shows a $1000 investment for various starting periods. The total return holding period is from 35 years until death using actuarial tables. There are no withdrawals. The orange sloping line represents the “promise” of 6% annualized compound returns. The black line represents what occurred. The bottom bar chart shows the surplus, or shortfall, of the 6% annualized return goal.

At the point of death, the invested capital is short of the promised goal in every case except the current cycle starting in 2009. However, that cycle is yet to be complete, and the subsequent bear market loss will likely reverse most, if not all, of those gains.

As such, if your plan is based on compounding returns over 20 or 30 years, even a short disruption can have long-term effects. This effect is worse for those nearing retirement. If a bear market hits five years before retirement, you don’t have time to wait. You may need to delay retirement, reduce your spending goals, or work longer. Worse, the damage is permanent if you’re already retired and drawing down funds during a bear market as every withdrawal during a downturn locks in a loss. Even if the market recovers, your portfolio doesn’t, because you pulled money out when prices were low.

This is the sequence-of-returns problem. If your first years of retirement coincide with a bear market, your odds of running out of money rise sharply. Studies show that retirees who withdraw 4 % per year and face a 30–40 % loss early in retirement have a much higher failure rate. The order of returns matters far more than average returns.

If someone suggests that you ignore bear market corrections, ask them if they have ever been through one.

Investors often plan as if markets will deliver average returns smoothly. They don’t. Bear markets distort the timeline, and time lost compounds into permanent gaps in your financial plan.

Strategies That Work When Markets Don’t

Understanding the real cost of bear markets is the first step. What matters is acting on that knowledge. Here are six strategies that help protect your portfolio and your plan when markets break down.

• Limit the downside. Avoiding significant losses matters more than capturing every bit of upside. A portfolio that loses less in bear markets recovers faster and compounds more. Risk management is return management. Limiting losses to 10 % instead of 30 % requires less time and less risk to recover.

• Maintain a cash buffer. Have two to three years of living expenses in cash or short-term bonds. This prevents you from selling assets at a loss during a downturn. A cash reserve acts as dry powder and protects your long-term investments.

• Rebalance with discipline. When markets fall, your equity allocation shrinks. A disciplined rebalancing schedule forces you to buy low and sell high. But only if you are disciplined to follow through when fear is high.

• Use tactical risk shifts. Reduce equity exposure when valuations are stretched. Add exposure when risk premiums are higher. Avoid going all-in or all-out. Stay flexible, but don’t chase trends. Focus on risk-adjusted outcomes.

• Protect in retirement. If you’re near or in retirement, reduce sequence risk. Lower your withdrawal rate during market stress. Delay big spending. Hold more conservative allocations. The early years of retirement are fragile. One significant drawdown can break the plan.

• Respect the cycle. Bear markets are part of investing. But they are not harmless. Don’t buy the narrative that “you’ll always recover.” That’s true for the index over decades. It’s not always true for you. Your time horizon is finite. Your goals are tangible. Respect that.

Don’t let the numbers fool you. A 20 % loss is not a bump in the road. It’s a reset. It costs you capital. It costs you time. And it drags your plan off course. The damage runs deeper than the headlines suggest.

Savvy investors don’t think in terms of percentages but rather in dollars. They think in years and goals rather than days and gains. Focusing on what matters, protecting your downside, managing risk, and preserving time keep you on track.

Bear markets will come. They always do. Your job is to survive them without losing the one thing you can’t get back: time.

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham.

Tyler Durden Thu, 10/09/2025 - 13:00