2026 Predictions
My name is Max Rudolph. My interests are the interplay between risks and opportunities when making decisions. My training is as an actuary and value investor. I feel the dominant risk today is the massive subsidization government has provided to the markets through loose fiscal policy.
The content of this newsletter is meant to be educational and thought provoking. Nothing in it should be interpreted as investment advice.
I contribute to a podcast and Substack under the Crossing Thin Ice banner and also have a personal Substack. I have followed Warren Buffett for over 40 years. I believe you can manage risk and return within a growing economic pie where all can win.
I have a history of anticipating material risks long before they appear, using mean reversion, experience and a respect for history and trends to provide foresight. In 1999 it was an essay about falling interest rates. In 2004 I first wrote about pandemics and their likely shocks to the economy. In 2005 I expressed concern about RMBS securities backing deferred annuities. In 2015 interest rate scenarios (both directions) were a concern, leading to a 2019 discussion of low economic growth scenarios and a paper in 2023 about deteriorating demographics and the impact on growth. For 18 years I conducted a survey of emerging risks.
Each January I post predictions for the year and revisit those from five years ago. Late in the year I review the results.
Disclosure - please remember that these predictions are for fun and to encourage discussions across topics and their interactions, over long time horizons where mean reversion and trends have time to play out. If I really knew what was going to happen, I would not share that information with you! My writing is meant to be educational and thought provoking. It does not constitute investment advice. You must do your own research to make personal investment and risk decisions (or hire a financial advisor), considering your unique financial circumstances, and not hold others (especially me) responsible for your own financial planning or lack thereof. If you don’t accept these conditions, you should stop reading now. Keep in mind that this is NOT investment advice. For those still with me, Enjoy!
Predictions for events tied to the next few years
Risk managers should learn about higher order thinking and complex adaptive systems. The future will not trend linearly from the past as these risks interact with each other. Here are my top concerns today. Some can be delayed by increasing fragility through running the economy hot, but this makes the eventual correction more damaging.
Geopolitical tensions
US erosion of the Rule of Law
High debt to GDP levels
Nearing the end of the credit cycle
Infectious diseases
Climate change
This is the third piece I created that looks at where we are in the world today. In a Crossing Thin Ice podcast titled Muddling Through 2026 and an SOA article Infrastructure Contribution to Economic Growth I argue that stability and soft infrastructure have provided a base for success that has been eroded. Central planning, uncertain policies and the willingness to ignore previously agreed to contracts and legislation all put the US in a more fragile place. Debt to GDP ratios and political belief in Modern Monetary Theory (MMT) resulted in fiscal dominance and a Fed that is mostly noise and ineffective as it postures and reduces regulations. Historically, deficits have grown during periods of crisis, so debt reasonably grew following 2008 and 2020 but also during boom periods when it should have contracted. The debt needs to clear and larger corrections are inevitable. We are losing the ability to manage those corrections.
I continue to see similarities today with the late 1930s, but with the United States accepting the role of Germany. The mid-term elections are likely to be coerced in some way. Direct cancelation or fraud is possible. Indirectly voters can be discouraged from voting in many ways. It’s possible that fair elections will not be held or the winners seated. Will Trump remain healthy enough to dominate politics, and if not how does that play out? The remnants of DOGE and Project 2025 are leading to reduced reliability, certainty, stability and change driven by a few. Inflationary pressures will be offset by disinflationary economic policies that slow the economy. A policy designed to restrict energy access to China (e.g., Venezuela and Iran) could make Asia a war zone (similar to Japan’s reasoning in 1930s) with tipping points reached for acceleration of global warming.
The current administration is following a Nazi playbook, with ICE resembling the brown shirts and the executive branch actively pushing for its own advantage. A goal is to reduce stability and make it seem normal so meaningful policies can be quietly changed. The rule of law and feelings of empathy are continuously being challenged and chipped away. Former closely allied countries will form pacts with those who respect their values (or at least pretend to). Immigration policy could be solved by revisiting the compromise Manchin put together. Safety nets for lower socioeconomic groups and those with a disability are threatened and racial profiling hides behind a premise of improved safety. Someone needs to do their job and provide oversight. Tear gas is not allowed in a war zone but has been deployed indiscriminately against internal residents. This is not normal.
Federal government has changed the guidance in confusing ways, saying enough that makes sense (avoid highly processed foods) to provide some perceived credibility for changing health and safety policies that had minimal cost and outsized benefits. Vaccine schedules tied to Denmark, a country with strong universal health care, makes little sense. Potential epidemics abound with H5N1 and Ebola type diseases active in Africa. A cost benefit analysis, using evidence-based science, shows existing vaccines pay for themselves by reducing future health care needs, even before the impact of deaths is considered. Measles and polio will return (needlessly) to the United States and Canada. Long COVID studies have been shut down. Over 10,000 STEM scientists are no longer working for the government. It’s hard to imagine the global economy being more stable because of this.
Extreme weather events are increasing in frequency and severity. Methods to measure global warming and climate change are being shut down. The thought seems to be that if it’s not counted then what the government makes up must be true. The US has a long history of being the reliable partner for accurate measurements but we are walking away from this honor purposefully. Absent some temporary impacts from la Nina, pollution or a volcanic eruption, global temperatures will increase, currents will slow, drought conditions will expand and hurricanes will return to the US east coast and Gulf of Mexico. The trend is bad and insurance sustainability in some locations is at risk.
The US economy will be run hot in 2026 through the fall election, setting up a greater economic fall and making stagflation more likely over the next couple of years. Interest rates that drive other assets (10-year Treasury) will have a lot of pressure upward until the deficit spigot is turned off. This is all interacting with international posturing and tariff policy.
High levels of government debt and increasing defaults will return to financial news cycles over the next several years. Politicians have implemented MMT but ignored the constraint to balance budgets necessary to avoid inflation. Those who avoid leverage and credit risk will outperform. I have never felt so close to a major recession. The financial system did not clear following 2008 and the 2020 pandemic deferred closure. Non-banks, including private equity, pension plans and insurers, have made risky asset bets with shaky ratings backing some of them. 2026 refinancings, Treasury debt financing, the impact of student loans and health care premium increases will all slow profitable growth.
I often provide my thoughts on Berkshire Hathaway, and 2026 is the first year with Greg Abel as CEO and without Todd Combs. Their cash position has grown to about $400 billion, with more created as Combs’ portfolio is likely liquidated. I expect a focus on operations and, during the next correction, BRK to buy up private equity positions for pennies on the dollar following the Marmon structure.
General happenings
I see many potential scenarios that scare me over not-too-distant time horizons. I worry about erosion of the rule of law, de-dollarization, biased constitutional interpretations and being overrun by those confusing politics with gun ownership. I have never seen things done that seem designed to reduce the footprint, power and strength of a country, much less the strongest country in the world with the reserve currency. The strategy is confusing if the goal is to grow a country for all its people. Over the next 50 years a Mad Max scenario is possible, with climate change and social breakdown interacting. Feedback loops are real in a complex adaptive system. Demographics and debt do not favor China (or many developed countries) or Russia. Extremism appears to be part of each century’s cycle, so a review of Germany in the 1930s and America in the 1850s is in order. I’m not sure it can be avoided but I think survivor bias has led Neil Howe to think every fourth turning comes out okay for the US – it’s not guaranteed. Science wins wars and immigrants innovate. As in WW2, existing capabilities will quickly become obsolete during new conflicts. The war in Ukraine is teaching us new tactics and weapon systems. Ships and tanks have become targets and little more if you can’t protect them.
Climate change is this century’s driver, as a force multiplier, along with demographics, interacting with economic and geopolitical uncertainty. The new administration is reducing regulations and encouraging acquisitions, initially fueling a stock market surge but leaving a state less safe and more fragile.
Similar past periods need to have both economic and geopolitical concerns. From these four, the scenario I am hoping for is 1973. People lost money but not lives. We have borrowed from future generations – this will have to be repaid. One source of uncertainty today is the overreliance on global leaders; Trump, Xi, Modi and Putin. A loss of any in this fragile geopolitical environment would increase uncertainty, although each of them brings negatives to the table. It seems possible that the economic scenarios could interact with a geopolitical one, creating disastrous outcomes for many.
1939 ego leads to war, Fourth Turning
1858 final prelude to civil war, Fourth Turning
1973 nifty 50, guns and butter set the table for stagflation
1929 melt-up before collapse with shadow banks providing easy credit
In the US, potential scenarios range from recession to stagflation to a civil war or instigation of a major international war. Portraying an image of strength absent humility and crediting predecessors rarely ends up well. While a transactional mentality can work in the short run, this creates incentives for opponents (old and newly created) to strike. It will take a generation or more to rebuild trust after such a period. My generation has failed and will leave the world in a worse place than it found it.
The lack of defaults over the last 15 years has created the stability necessary for Ponzi schemes to flourish. A recession will flush them out. Stability breeds instability.
Outlier (Qualitative) Scenarios
Here are some outlier scenarios I think are more likely to happen than consensus in the next few years. I have written about many of these topics in stand-alone articles.
Financial/geopolitical
Cyber-terrorism or physical attack impacts the banking system/grid
China faces major disruption driven by demographics
Democracy loses its hold in developed countries
European Union has geopolitical reset - breaks apart or changes partners
Reaction to economic stresses, tariffs and falling trade leads to global depression
Middle East conflict leads to deglobalization due to unsafe trade routes
S&P500 down 40-70% from YE25 over 2-3 years, combined with high credit defaults
Global GDP collapse as MMT reaches its natural conclusion
Inflation above 10% or deflation
Physical
Space junk knocks out a satellite used for public communications or military
Atmospheric rivers and drought/wildfires create havoc
Earthquake (or volcanic eruption) hits somewhere along the US west coast
Super volcano becomes active somewhere in the world (e.g., Yellowstone, multi-year global crop failures)
Carrington solar storm event knocks out electronics on a wide scale
Water insecurity, aquifer depletion and global current slowdown
Global warming leads to forced migration, extreme weather, sea level rise and ocean acidification
Loss of biodiversity
Health
Microplastics/PFAS/monoculture crops increase mortality/morbidity
Novel spillover virus or existing disease develops drug/vaccine resistance
Previously controlled disease (e.g., polio, smallpox, measles) becomes epidemic
Vector borne illness expands territory and virulence
Antibiotics fail to work against common bacterial infections
Current Concerns/Predictions
Politics and the economy: No one in charge is a fiscal hawk. The Trump team will continue to respond to those who can afford to pay for favors. Democrats need brave leaders as some will be attacked. A recession (or worse) seems inevitable. Central planning by a few in the executive branch does not optimize anything, and small businesses are hurt the most by rapidly-changing initiatives like tariffs where owners have to react to increased uncertainty. Inflation on items that are the main components of life, like housing, especially for young adults, are driving affordability concerns. Consumer protection from the CFPB is being replaced by fixed credit card ceilings. This won’t work as well, if at all. Immigration policy and geopolitical flash points like Greenland are worsening Trump’s popularity, so we’re likely to see election interference. Instability is growing and the President’s health and cognitive abilities have been questioned. He will be 80 years old in June.
Geopolitical: Countries with aging populations and low fertility rates should avoid war scenarios as conflicts will have lasting negative repercussions. China will be stressed by both demographics and concentration of power at the top.
Stocks and general economic conditions: Stocks in aggregate are wildly overvalued, especially in the US. The federal debt has pumped up asset prices of all kinds, from stocks to houses. Buffett’s ratio of the Wilshire index to GDP is at record highs. I continue to maintain a CD/Treasury ladder over 2 years and have reduced my money market fund exposure by buying Treasury bills. I still nibble at stocks to add to my base positions but have sold some positions and historically have used tax harvesting to build up a capital loss pool so when acquisitions take off it won’t be a taxable event. I expect a crash of at least 40% over the next several years.
Jobs: Loss of seniority, return to work policies, existing mortgage and health care are road blocks to natural job turnover. We need to make it easier to move locations for climate migration to be optimized. Employers have been locked in because they don’t want to incur initial onboarding and training costs. Jobs have been sticky, with limited hiring and firing, but layoffs will increase going forward.
Residential home market: Need a supply solution that occurs before boomer mortality creates opportunity. That’s too slow, and data center construction is taking needed resources.
Oil: WTI oil at the end of 2025 was about $60 per barrel. I have no ability to predict the price of oil, but expect it to cycle higher at some point to at least $100 due to geopolitical tensions. US shale oil supplies in the contiguous states will run out sooner than expected.
Credit risk: I worry that the end of the cycle is near and those retail investors last to participate in new asset classes will suffer large defaults. Shadow banks, including insurers, are among them. Liquidity matters. Private equity can’t sell the firms they bought at a profit and low-interest rate loans are rolling over. Regs allow them to defer market valuation adjustments until they actually sell a company. In a recession investors will push to have their money returned, making transparent the liquidity problems.
Currency/Inflation/Interest rates: US policies are weakening the dollar as it ceases to be the preferred flight to safety option. A better long-term strategy would be to welcome immigrants legally and use them to reinvigorate US manufacturing capacity in the Midwest. Current incentives make it hard for communities to move to a new location and backfill population. Current immigration policy will blow up stability of the food supply.
Tax policy: Lowering taxes on the wealthy increases wealth inequality and moves in the wrong direction. Taking the cap off social security, making it all taxable, both when collected and paid out, and eliminating the lower dividend/realized gain rates (with deductions to companies paying dividends) would be steps in the right direction.
Earthquakes, storms and drought – the US is overdue for a major quake on the west coast. There is no longer a season when wildfires are not common in areas such as California and Australia, and smoke does not stop at borders. Wildfires, hurricanes, hail and atmospheric rivers have dominated the US property insurance discussion.
Levee failures in California and on major waterways, water poisoning in big cities, cyber hackers, transportation of oil and oil-based products via rail through urban centers (e.g., downtown Chicago) are all regional risks. Causes can be accidental, man-made or natural.
Terrorism – the risk of internal or foreign terrorism is high. Assassination attempts are increasing in the US. It feels like 1968. Immigration policy and indiscriminate attacks against sovereign nations puts us all at risk, both at home and when traveling abroad.
Farming – small farmers are being pushed out, leaving food production to oligarchs and big companies. Trade policy uncertainty is making it hard to plan for the next crop cycle, and inflation is impacting all of a farm’s inputs. Taking away USAID hurts US farmers and increases the likelihood of negative feelings toward the US. We are entering a long-term period where red meat will be scarce and expensive, with unintended consequences. Will this be an opportunity for farmed insects to enter the food supply?
Top Actuarial Issues
As I move farther away from traditional actuarial work, I don’t feel comfortable making a full bullet list but I do still have general concerns.
Models suffer from unknown knowns, where historical data is not predictive. Building stochastic assumptions from this data is particularly short sighted when conditions are not stable. With debt-to-GDP over 120%, our models should consider data points including hyperinflation periods of the Weimar Republic and Zimbabwe.
Long duration products in unstable periods create systemic risk through ALM mismatches, trending claims and credit risk. Asset assumptions are not stable beyond 20 years due to global warming, demographic trends, geopolitical tensions and technological breakthroughs. Product time horizons need to shorten.
Regulators continue to react negatively to private equity involvement with insurers, but rules-based regulations mean that the markets will correct any value destroying behaviors. I believe the risk is systemic to the industry due to guaranty associations. It is time to focus on return OF principal.
Insurers need to stress test credit risk and liquidity against historically tail scenarios.
Health care – weight loss drugs present new challenges of high cost and positive results. Look at longer time horizons – savings are in the future but cost is now. I expect life expectancy to increase due to GLP-1 drugs and fall due to everything else until discontinuous advancements occur tied to cancer or cardiovascular diseases.
Too often non-actuaries speak for actuaries on actuarial topics – using terms like actuarialism? We can’t be afraid to speak up for ourselves.
2021 Predictions
I posted my first annual financial predictions in 2007. Each year I look back five years and share comments I made that seem interesting in hindsight. I have deleted sections but not changed the wording in what remains. In many respects my thoughts are similar today as in January 2021, just as the COVID vaccines were about to become available and Joe Biden was inaugurated as President. The remainder of this section is from my 2021 “predictions.”
The previous 12 months have been historical. Events included COVID-19, of course, but also Black Lives Matter protests and a record setting year for hurricanes, wildfires and drought. Brokers decided to conduct an experiment where trading is free.
As the year went on, I followed up on some references to Nazi propaganda being regurgitated by the Trump camp and was surprised at how consistent it was. The Big Lie, telling whoppers, is effective as a political tool. Another is to accuse your enemies of that which you yourself are guilty. That one seemed to ring true as elections were challenged. Please watch for these types of non-truths and challenge statements made using common sense and logic.
The pandemic will accelerate trends like automation. It has also been tough on mental health. Suicides are up but especially worrying are those involving health care workers. They have been on overdrive for a year and some people still think the virus is a hoax.
General happenings
The financial markets continue to move toward a major correction or currency default. Warning signs are everywhere if you look. The government thinks they can keep the party going forever. They can’t. We elected a president in the US based on who he wasn’t. Will Biden be up to the task? How do we build infrastructure and rebuild supply chains and build redundancy? Will higher shipping costs create inflation before trading practices reform?
I tend to think farther out on the time horizon than most, and I see scenarios that scare me. One where bullies with guns take what they want, destroying the economy and civilization as we know it. The Fourth Turning shows additional signs of its appearance each year.
Economic imbalances have built up. Politicians have abdicated responsibility to do their job and raise taxes. This year I read an interesting article about budget cycles making the argument that you balance the budget so you are prepared for war, when you have to run deficits. None of our politicians seems to understand that. I’m not as concerned about the deficit spending that is designed to keep people fed or build infrastructure, but if you already have a large deficit there is no reason for a tax break.
The US continues to live off their reserve currency status, and this gives politicians an excuse to spend and blame the fallout on others. Modern monetary theory (MMT) is the strategy of both parties. Active investment strategies will outperform passive ones when a recession hits. Major government subsidies remain in the system. Think about a scenario where the US no longer is the reserve currency.
Berkshire Hathaway now has over $130 billion of cash available to invest, and seems to buy back stock to stay in that range. He buys and sells other investments that net out while he waits. Warren Buffett is incredibly patient, the closest to a rational investor I have seen.
In the US, if we want to grow GDP, we need to either become more fertile (going the wrong way during the pandemic) or open our borders to productive migrants.
The political climate in the US and abroad seem to be at a tipping point, and it’s not clear which way it will go. I worry most about violence against people who believe in the rule of law and property rights.
Hopefully these annual letters look at things from a slightly different perspective than you see from others and make you think. That is my goal.
Happy New Year!
Warning and disclaimer: The information provided in this newsletter is the opinion of Max Rudolph and is provided for general information only. It should not be considered investment advice. Information from a variety of sources should be reviewed and considered before decisions are made by the individual investor. My opinions may have already changed, so you don’t want to rely on them. Have fun!