Investment-related Cycles (in context of Capital Allocation)

 "Capital allocation without cycle-awareness is like sailing without watching the tides or weather."

Let’s map out the major cycles to be mindful of—including their interdependencies, leading/lagging roles, and how best to understand them.

 

🧭 Where to Start Understanding These Cycles

1. Interest Rate & Credit Cycles

• 📘 Read: Ray Dalio – Principles for Navigating Big Debt Crises
• Tool: Watch central bank policies (e.g., Fed, ECB); track yield curves and credit spreads

2. Commodities & Inflation

• 📰 Read: Goehring & Rozencwajg’s investor letters (deep commodity cycles)
• Focus on: Oil, Copper, Gold, Lithium, Food—commodities with long supply response lags

3. Economic & Equity Valuation Cycles

• 📘 Read: Howard Marks’ memos on market cycles
• Tool: Shiller PE Ratio (CAPE), business cycle indicators (e.g., ISM, PMI)

4. Geopolitical & Generational Cycles

• 📗 Read: The Fourth Turning by Strauss & Howe
• 📘 Read: Dalio’s Changing World Order
• Watch: Long-term historical arcs (empire cycles, generational beliefs, conflict patterns)

5. Innovation & Tech Cycles

• 📘 Read: Technological Revolutions and Financial Capital by Carlota Perez
• Understand: Each major tech wave follows an S-curve—early buildout, bubble, crash, consolidation, maturity

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🔄 Interconnectedness & Sequence

Think of them as nested and cascading:

1. Innovation or Geopolitical shifts → long-term setup
2. Interest rate & credit cycles → immediate impulse mechanisms
3. Inflation/deflation & commodities → amplify or suppress cycles
4. Equities, currencies, and valuations → reflect these waves
5. Behavioral cycles → determine investor response (herding, panic, FOMO)

📊 Practical Monitoring Tools (Free or Public):

• FRED (Federal Reserve Database): interest rates, inflation, money supply
• Trading Economics: global economic indicators
• Longtermtrends.net: excellent charts of valuation, debt, commodity trends
• Bridgewater or GMO research: thoughtful macro insights
• MacroVoices podcast or RealVision: expert interviews on cycles

 

Impact on Asset Classes

The practical manifestation of each cycle—what typically happens to different asset classes (e.g., equities, bonds, commodities) at various points in each cycle.

Cycle-Aware Allocation Case Studies

For Deep Dive on these Cycles, please check out this post.