Here’s What Could Happen If This ‘Late, Late Cycle’ Meets A Joe Biden Market

The comments below are an edited and abridged synopsis of an article by Shawn Langlois

Traders may be gearing up for late-cycle investing, says AllianceBernstein strategist Richard Brink, but this isn’t your typical late cycle, and typical late-cycle responses might not apply this time around.

Here’s What Could Happen If This ‘Late, Late Cycle’ Meets A Joe Biden Market | BullionBuzz
Late Cycle Concept

“Today’s market has been shaped by extreme and unusual policies over a decade,” Brink wrote. “Fiscal stimulus, debt levels, deficits and demographics are adding some uncommon ingredients into the late-cycle stew. Taken together, these could extend the late-stage features of the current cycle for much longer than usual.”

The so-called late cycle refers to a period during the latter stages of an economic expansion, when growth naturally slows and some investors switch to a more defensive stance in their investment portfolios, in anticipation of lower returns.

Brink discusses the beginning of 1981’s supercycle, when the fed funds rate topped out at 19%. “Several things began to unfold that would dramatically change market dynamics for a generation,” he said.

Over that first 20 years, interest rates and inflation declined, baby boomers entered their prime earning years, and a wave of globalization and technological progress led to widespread productivity and profitability.

Then came the dot-com bubble, and the seeds of the housing crisis were planted, which led to another market implosion in 2008 that paved the way for what Brink calls the Great Beta Trade in 2009.

The rich returns of the past decade weren’t driven by economic or corporate growth, but by a flood of cheap and easy money. And, Brink says, therein lies the rub.

With it all coming to an end, the next decade won’t be good. The fiscal deficit will grow, the debt burden will balloon, baby boomers will retire and geopolitical tensions will mount. What’s an investor to do?

“There’s no precedent in modern financial history to help us navigate these conditions,” Brink concludes. Welcome to the uncertainty of what may become the late, late cycle. Good luck.

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