For years, I have cautioned investors not to over-react to recessions, which are a normal, routine part of capitalism. They come and go. A recession is not the same thing as a bear market in stocks, but they often occur together.

If you enjoy being afraid, be fearful of a financial crisis instead. They are harder to predict, come on more quickly than recessions, and usually do more long-term damage.

Last October, we had a bear market in stocks, scaring many investors out of the market, which bounced back nicely. This October also looks like another bear market for stocks. One difference this year is that there is more concern about a potential financial crisis, like the last one in 2007/8.

For the last fifteen years, we have enjoyed very low interest rates – abnormally low interest rates (remember ZIRP for Zero Interest Rate Policy). The current rapid increases in interest rates hurt the economy but not as much as most people feel. Eventually, it will . . . but not anytime soon.

For most of that time, pundits have worried about the “inverted yield curve” which means that long-term interest rates are lower than short-term interest rates. Called the “term structure of interest rates”, since long-term holders of debt face greater risk than holders of short-term debt, they deserve higher returns. Greater time to maturity equals greater risk and therefore deserves greater return. If an inverted yield curve predicts an imminent recession, a normal yield curve should be bullish – so, why are you afraid the inverted yield curve is becoming normal?

The chief characteristic of a financial crisis is a rise in credit problems. In 2007/8, it was a rise in mortgage-backed securities (MBS) and derivatives. So far this year, the only suspicious increase in credit problems is in consumer credit cards. The collapse of three small banks in the first quarter didn’t trigger any panic.

With a financial crisis, there is always the possibility of a “black swan” event, which is an unusually large financial event that should have been predictable but was not. If that happens, I expect it will be a good time to buy stocks, not sell them.

I do expect the bear market in stocks will continue another month or so. That does not mean a recession for the economy. The underlying economy is remarkably strong. Today’s JOBs Report showed 336 thousand jobs were created last month, compared to expectations of 170 thousand jobs. Third quarter GDP growth was also more than expected almost 3.5%, although expected to decline in Q4.

In a rising interest-rate environment like this, good economic news is bad for the stock market, because it makes the Fed more likely to increase interest rates even faster.

If you cannot handle volatility in your portfolio, maybe you should increase cash now. Of course, if you’re a long-term investor, you should cut off the television and go back to sleep.