Where Are We in the Current Cycle?

Glad you asked!  This is such a great question.  It makes you look smart for asking it.  You recognize that the market is cyclical and your question implies that you’re so savvy that you can sync your investing to take advantage of the market’s ebbs and flows.  You’re a force of nature and I commend you for it, especially since you preceded the question with several minutes critiquing the Federal Reserve and expressing concern about today’s geopolitical situation.

I love that you asked me because now it’s a chance for me to cite a bunch of bullshit statistics that prop up my world-view and make us all feel better about ourselves.  Best of all, no answer I give is going to suggest taking any real action on your part.  It’s a win-win.

So Where Are We in the Current Cycle?

Definitely the late innings, but it may only be the beginning of the late innings.  This late in the cycle you expect several sectors to outperform, namely the ones that did well lately.  Meanwhile, early-cycle sectors such as the ones currently lagging will not perform as well.  Be prepared to rotate out of late-cycle names and into end-cycle sectors before the post-cycle at which time you’ll want to start pre-cycle positioning.  Timing these asset allocation shifts is difficult in this point in the cycle, but also during all other time periods.  We can expect GDP to be muted going forward due to headwinds from several macro factors, but that’s off the table if tailwinds boost GDP higher than expected.  This GDP prediction will come in especially handy for those of you who have a large allocation to GDP in your portfolio.  The prudent outlook is to be cautiously optimistic on stocks as a whole, but I’m constructive on the stocks that will outperform going forward.  Expect markets to rise and fall in line with price movements.

Okay, What Was That?

The above was the question you have to sit through on EVERY market outlook conference call/webinar.

During the question and answer session, someone will get on their soapbox about the Federal Reserve and how it’s obvious that their latest move is completely wrong.  This guy’s clients probably eat this stuff up, but everyone stuck on the conference call with him is rolling their eyes.  The concern regarding today’s geopolitical landscape is another inane talking point.  Today always looks dangerous, but we’ll view it as a golden age in 15-30 years.  Meanwhile, we all nod our heads at the folks shouting about Brexit and “trade wars” as if they are existential crises, just so they’ll stop talking at us sooner.

From what I can gather, the keys to responding to nonsensical questions like ‘where are we in the current cycle’ are to claim victory over the recent past and be vague about the future.

To claim victory over the past, you don’t need to provide any sort of evidence that you predicted what happened (although it does help if you fell ass-backwards into a correct prediction).  All you need to do is recite what recently happened as if it was obvious.  “…and with the uncertainty around the government shutdown over, this sparked the stock market rally, as we all know…”  Nobody’s going to raise their hand and say “I didn’t know”, regardless of how tenuous the conclusions seem.

Being vague about the future is all about hedging your bets.  See the 40% rule.  Present a binary scenario and assert a likely outcome, but leave plenty of room so that if literally anything else happens, you can claim you were right.  Use words like ‘cautiously optimistic’ and ‘constructive’ that imply commitment to a viewpoint, but in hindsight can be read either way.  When in doubt, say something that sounds smart like ‘the markets will be driven by price movements’.  Yes, this is something an idiot would say, but when it’s surrounded with financial jargon, no one will catch it.  After a certain amount of time on a conference call, we’re all 40 IQ points dumber anyway.

Where Are We, Really?

We’re at the point where there isn’t a true concern so the media is casting about for bogeymen.  When the next market disruption does come, it won’t be because of anything we’re talking about today.  Why did the market plummet in the fourth quarter last year?  No one freaking knows and it rallied (RALLIED!!!!) despite the bad news of the government shutdown.  Stop worrying about cycles or innings and focus on what you can control instead.