Felix Prehn, an economist and founder of Goat Academy, explains why 2026 could mark a sharp downturn in markets. His analysis blends history, cycles in property, today’s debt levels, and new risks like AI. He breaks it down in clear steps so regular investors can protect themselves and keep growing their wealth.
The core idea: cycles repeat
Prehn highlights the “18‑year property cycle.” This is a pattern seen for over 300 years in multiple countries. About every 18 years, land and property values peak and then fall. The last major peaks were around 1972, 1990, and 2008. By this count, 2026 is the next likely peak-to-bust point.
Why it matters: land is fixed in supply. When credit grows, more borrowed money chases limited land, pushing prices up. Banks then lend more against those higher prices, which pushes prices higher still. This feedback loop can become a bubble. When buyers can no longer afford prices, sales slow. Speculators try to sell. Banks tighten lending. Prices fall, loans go bad, and the bust phase begins. This downturn often lasts a few years.
Why this time could be worse
Prehn points to several forces that could overlap in 2026:
- High debt levels: The U.S. carries very large public debt and pays huge daily interest. When rates rise, the value of older low-rate bonds drops, hurting bank balance sheets.
- Social strain: Wealth gaps are wide. When unemployment rises in a downturn, social unrest can increase.
- Global tension: Economic stress can spill into geopolitical conflicts.
- AI shock: Rapid automation can displace jobs and strain energy and infrastructure in the short term.
He calls this a “polycrisis.” That means multiple crises happening at once and making each other worse. History shows similar periods can create big shifts in wealth.
How governments usually respond
When debt gets too large, governments have limited choices. Prehn explains that printing money, harsh spending cuts, outright default, or large tax hikes all have severe downsides or are politically unrealistic. The most likely path is “financial repression.”
Definition: Financial repression is when inflation stays above interest rates for a long time. This quietly reduces the real value of government debt. Savers and holders of cash or fixed income lose purchasing power. Borrowers and owners of real assets benefit as prices and nominal earnings rise.
Historical example: In the 1970s, high inflation cut the value of cash and bonds. But owners of certain assets such as energy stocks, real estate, and commodities did well.
What this means for everyday investors
Risky in this setup:
- Cash sitting idle: Inflation can erode its value year after year.
- Long-term fixed-rate bonds: Their prices can drop when rates rise, and their fixed payouts can’t keep up with inflation.
Potentially resilient:
- Equities in selected sectors: Companies with pricing power and rising earnings can outpace inflation over time.
- Real estate with solid cash flows: Rents can adjust over time, helping offset inflation.
- Commodities and related producers: These often track inflation and supply-demand shocks.
- Certain cryptocurrencies: These can behave like speculative risk assets; careful risk management is essential.
Note on timing: Picking what to buy is only half the skill. Knowing when to trim or sell is just as important. Professional investors use rules for exits and profit-taking. Clear rules can help reduce emotional decisions.
Simple plan for the next 18 months
- Build an emergency buffer: Keep several months of expenses in a safe, liquid account. This is for stability, not returns.
- Reduce interest rate risk: If holding bonds, consider shorter durations or inflation‑linked bonds where suitable.
- Tilt toward real assets: Consider quality companies with strong cash flows, pricing power, and moderate debt. Review real estate only if cash flows are robust.
- Diversify globally: Spread exposure across regions and sectors to avoid single‑market shocks.
- Manage position sizes: Use clear maximums per position and pre‑planned exit levels to limit large losses.
- Review regularly: Reassess as economic data, earnings, and policy shift.
Definitions made simple:
- Inflation: Prices rise across the economy. Each dollar buys less.
- Duration (for bonds): A measure of how sensitive a bond is to interest rate changes. Higher duration = bigger price swings.
- Pricing power: A company’s ability to raise prices without losing many customers.
- Financial repression: A long period when inflation is higher than interest rates, which reduces the real burden of debt.
The bottom line
Prehn’s view is that 2026 aligns with a well-known property cycle peak, but today’s mix of high debt, social tension, global risks, and AI may magnify the downturn. If the likely policy path is steady inflation with controlled rates, wealth will shift from holders of cash and fixed income to owners of the right assets. A simple, diversified plan with clear risk rules can help regular investors protect and grow their purchasing power through the cycle.
For background on Felix Prehn and his work at Goat Academy, see this page: Felix Prehn Goat Academy.