Investment Cycles: Shorter And Less Profitable – May 23, 2022

A just-published report updated our analysis of the MRB Stylized Investment Cycle and the implications for investment strategy. The MRB Stylized Investment Cycle provides a starting point when building a multi-year roadmap, and even suggests what signposts investors should look for at major inflection points.

The cycle was particularly stretched out following the Great Recession since risk taking and consumer price inflation were slow to revive, and the scars from the fallout encouraged central banks to keep monetary policy extremely supportive. Ultimately it took an external shock (the 2020 pandemic) to end the global expansion and bull run.
In contrast to the 2010s, the speed of the current investment cycle has been unprecedentedly quick. Extreme monetary and fiscal policy reflation cut short the economic recession and bear market in the global stock/bond ratio. Likewise, forceful policy stimulus pulled forward financial asset gains, while fueling a powerful economic rebound, and the biggest outbreak of consumer price inflation in four decades.

We expect that inflation will be stickier than most expect, so the next risk-on phase is likely to be more modest and volatile than in the past. Likewise, higher inflation means that future investment cycles will be shorter and less rewarding than over the past 40 years.


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