Ask The Experts - October 2025
All answers are provided by 5i Research.ca
Q: After going through multiple recessions, depressions and big drops in the market do you or your cohorts have a reasonable guess when the next one may occur and what would cause it? The day, month and year it might happen? How big a drop percentage wise? How long will it last? Would AI be able to come up with an answer to this?
A: Ah, if only this could be done, and timed accurately. But even the 'experts' have been predicting a recession for three years now.
Historically, recessions are not long. The average duration now is about 11 months. Recent ones have been either mild, or very brief (i.e. Covid). Investors globally have learned to 'buy the dip'.
But in a real recession, markets can certainly fall, 10%, 15% or 20%. 2008 of course was much worse. One of the problems with predictions is that sentiment plays such a big role. Companies sort of just start backing off on hiring and spending, for whatever reasons, and this causes a trickle-down impact. Inflation and high interest are big factors in most recessions, but some can be caused simply by a crisis-of-confidence. If consumers get worried, they also back off spending, and we get a downward economic spiral.
If we were to guess, and that's what it is, we might call for one in late 2026, as tariff effects trickle down and AI takes over some jobs. We would not expect a long or deep recession, and interest rates moving lower would likely keep one under a year. We doubt AI will be better at any predictions, as psychology plays a big role and the 'numbers' do not always make good predictions.
Q: I have been reading about "Stablecoins" in recent articles about Crypto. Do you see Stablecoins replacing cash as official currencies around the world? How much, in your estimation, do you think the Genius Act (the bipartisan bill recently passed in Congress) will affect the financial world as we know it?
A: To most individuals, the financial world may not change that much on the surface, but behind the scenes, and to those in finance, the systems and financial plumbing may change drastically. Currently, financial institutions, banks, operate on centralized databases for keeping a ledger of bank accounts, transactions, etc. These methods have been working fairly well for decades, but they can be quite inefficient and require a lot of manual effort. Conversely, decentralized blockchains remove a lot of manual efforts as well as providing a trusted method for recording and viewing financial transactions.
A shift may not happen overnight, but we feel it is a long-term logical move, as decentralized tech can make financial institutions a lot leaner.
We think the adoption of stablecoins will grow, but to most consumers, the change will likely be invisible. If banks begin to replace the 'digital dollars' in everyone's bank accounts today with stablecoins, the difference to consumers is virtually nothing, but to the financial institutions, this can create a more cohesive, seamless system. Essentially, $1 in someone's bank account is the same regardless if it's backed by a stablecoin or through a centralized database (the current system).
It is unclear how the first steps of mainstream adoption will take place, but we believe the large banks will start using them on an inter-bank basis first, and then it might be rolled out to individuals years later.
Q: When is it considered a market correction? I currently have money sitting on the sidelines, waiting to buy a discount but unsure if a 5% drop is validated as a true “discount”. Would you be waiting for a certain drop in percentage before buying a dip? I understand that involves perfect timing which is impossible. Any help is appreciated.
A: A pullback is generally defined as a short-term decline, typically less than 10%, and lasting days to weeks on average.
A correction is a more moderate decline, roughly 10% to 20%, and can last weeks to months.
A bear market is a decline of 20% or more and can last months to years.
We feel the most appropriate response is that 'we would rather be approximately right, than perfect' in our entries. Given the market has risen so much, there is a possibility for a 3% to 5% correction or so, but we do not know when this could happen, and we would rather get exposure earlier to the market in a potential 'melt-up' or 'grind higher' scenario than waiting for the perfect entry.
As investors, we always need to be prepared for market declines, and overcoming the fear of temporarily losing money in a decline helps us get exposure to the market sooner, potentially capitalizing on any upside in the markets. Investors can also always 'average in' to the markets on the way up.
Q: A colleague of mine, who is both a student of history and risk adverse, has suggested there are significant parallels between what is occurring in the market today and market conditions leading up to the 1929 Great Depression. In particular, he points to what he believes to be grossly inflated P/E values across all sectors of the North American market. I do not share his views and would be interested in your thoughts regarding both my colleague's historical comparison to the late 1920s and current P/E values. Thank you.
A: We feel parallels can be drawn between several periods in time, and there are some similarities for leading up to 1929 and today. Rates were raised to fight inflation in the 1920s, margin debt rose into 1929, there were trade disputes, and some level of technological change.
Although, while P/E levels were elevated into the 1920s, we have a very different set of companies today. Tech companies make up the majority of S&P 500 earnings, and these are very lean companies relative to the industrial, heavy CAPEX names of the early 1900s.
In addition, there are several financial tools that are available today that were not available in the early 1900s, which led to the great depression and why the financial markets took so long to recover. The Fed was established in 1913, and so its tools were not widely experimented with. Whereas today, we have QE, repo facilities, forward guidance, interest rates, etc. In the 1920s, there was very little government intervention during the economic crisis, whereas today we have fiscal stimulus measures that help prevent long economic drawdowns.
In the 1920s, there was limited credit market activity, whereas today, it is a fully global financialized system.
Largely, there is always something to be concerned about in the markets, but what we know from history is that optimists make more money than pessimists, and the markets usually move up and to the right more so than any other direction. Pessimists sound smarter, but we would rather make money than be 'right'.