Cycles

Seasons. Quadrants. Cycles. Call it what you will. But experienced and skilled investors understand that there are cycles to economics, markets, behaviours, and even politics.

Experience and history has taught us that rule number #1 is to ignore cycles at your (wealth) peril.

The purpose of this update is to highlight to you what is going on behind the popular narrative that sellers of investment products and their cheerleaders focus on: the headline numbers, and then only the initial release.

Why? Because by the time the headline numbers show there is a problem, the cycle and markets will have likely priced a large portion of that risk.

Yes, the final recognition by the crowd of the trend already appearing beneath the surface will eventually see a momuntum in prices. Perhaps violently given the extreme baked-in optimism, naivety and passive management of risk.

It is this spring-back of the rubber band—the reclibration of the pendulum—that provides the prepared with opportunities to buy. But equally, I suggest, even more importantly, is not participating in the wealth-destroying losses from historically unsupported highs of valuation at this point in the cycle.

First and second revisions of macro data releases get no airtime, and headline numbers continue to be framed as 'bad' numbers are 'good'. 'Good' in that the narrative is sold that this means rates must soon be cut.

Disturbingly, we are living with the side effects of too-loose-for-too-long fiscal and monetary policies. That is, the vast majority of investors, many of whom have never experienced an economic cycle in their working lives, are now, like all drug overdoses, solely focused on the next stimulus hit.