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Everyone wants it to be over. The interest-rate hikes. The housing crash. The stock-market correction.

The reality: The worst, very likely, hasn’t hit yet.

This isn’t crazy conjecture. Crucially, central banks have yet to say they are done hiking rates. The Bank of Canada recently signalled it is getting close to that point, but there is no guarantee that a change of heart is just around the corner. The United States, meanwhile, is even further off. The betting money now expects the Federal Reserve to jack its rate above 5 per cent – and then hold it there through 2023.

At the same time, central banks are taking liquidity, or cash, out of the financial system. All the money they made available to prop up the economy has to be withdrawn, and doing so is a major headwind for credit availability.

Still not convinced? Take it from financial markets history. When there’s trauma, corrections tend to play out over multiple years.

As nice as it would be to rip the Band-Aid off quickly, do not fall for the next market bounce. History is littered with them, only for the real pain to eventually hit. The four scenarios below are reminders of just how long this unravelling could take.

The dot-com crash

The last time technology stocks were in a bubble, in the late 1990s, the Nasdaq Composite nearly quadrupled in value over three years. Then, after peaking in March, 2000, the infamous dot-com crash wiped out 78 per cent of the index’s value, erasing all of those gains and then some.

What’s rarely remembered is that the crash wasn’t linear. In fact, there were eight rallies during the correction – two of which saw the index jump more than 40 per cent. These rallies only prolonged the pain, and the Nasdaq didn’t bottom out until October, 2002, 2½ years after it peaked.

The Nasdaq’s current correction is already a painful one, with the index down 35 per cent from its record in November, 2021. But it’s only been one year, and the low interest rates that propelled the tech rally aren’t coming back soon.

Canada’s cannabis nightmare

Investors were warned, again and again, that there was no way Canada’s licensed cannabis producers should be worth as much as they were before recreational marijuana use was legalized in October, 2018. There were simply too many of them and the legal market was only so big – because the black market would take time to dissolve.

For the first few months after legalization, investors made up excuses for why the companies were still struggling. The real pain started to hit when market leader Canopy Growth Corp. fired its chief executive the next year. But even then, the sector’s shares didn’t completely collapse. The correction was more like a slow drip, because there were always reasons to have hope. Chiefly, some people thought (prayed) that the United States would also legalize recreational use at the federal level, especially after Joe Biden was elected President in November, 2020.

It never happened, and the Horizons Marijuana Life Sciences Index, which tracks Canada’s publicly traded cannabis companies, is down 88 per cent from September, 2018. It’s just that it took years for the bottom to fall out.

The 2008 global financial crisis

The first glaring sign that there was trouble with securities tied to the U.S. housing market came in August, 2007, when French bank BNP Paribas froze US$2.2-billion worth of investment funds with links to subprime mortgage assets. The banks said the market for trading these securities had completely dried up, so it was impossible to value its portfolios. Investors took note, and the S&P 500 started to sell off, but no one panicked.

The same was true when, seven months later, Bear Stearns collapsed. Again, there were concerns, but no one cut and run. It took six more months from that when Lehman Brothers went bankrupt in September, 2008, for true panic to set in.

Looking back, it was all so obvious. The housing market peaked in 2006 and soon after that subprime borrowers started defaulting on their loans. Not all at once, of course, but enough to make BNP freeze its funds. And that was the harbinger of so much more pain to come.

The current correction is vastly different, because global banks are in much better financial shape this time around. But there have been some warning signs. In November, Romspen, one of Canada’s biggest private mortgage lenders, with $3.2-billion in assets under management, froze investor redemptions, citing some trouble with loan repayments. One month later, Blackstone halted redemptions on its giant private real estate fund with US$69-billion in assets, after a wave of redemptions. Time to panic? Maybe not. But can’t be shrugged off, either.

The inflation slaying track record

This summer, two veteran economists released some stunning data about inflation in the United States. Going back to 1950, there have been four periods where a critical measure of inflation, the core personal consumption expenditures price index, needed to fall by three percentage points, like it does now. Crucially, across these four periods, the median time it took to do it was 59 months. As in, almost five years.

It has been so long since inflation has been a persistent problem that an entire generation doesn’t remember what it takes to tame the beast. Add to that the fact that the structural drivers of low inflation over the past three decades have evaporated in almost no time at all.

“The world looks a lot different now than it did during the past 30 years,” Bank of Canada Governor Tiff Macklem said in a December speech. “Greater geopolitical tensions and a backlash in some areas against globalization will make it harder to bring inflation down and keep it there.”

What that means: Anyone with a variable-rate mortgage praying that the central bank will start slashing this spring ought to come up with a Plan B.