Heresy Financial: The Next 40-Year Economic Cycle has Begun
Markets move in cycles. Some can be rather short, such as market seasonality throughout the course of a year. Others can last for years, like a typical economic cycle. A few cycles can be measured in years, if not decades.
Those bigger cycles tend to have smaller counter cycles within them. But understanding where you are in a long cycle can help prepare to capture the best profits from the primary trend.
Longer cycles tend to reverse a pattern that has been underway for decades. One such trend that may be reversing today is the interest rate cycle.
The last cycle started around 1980, when short-term interest rates peaked in the United States and other nations. Then they began to generally decline overall. They reached their lows during the pandemic, with some countries even offering bonds at negative interest rates.
In a reversal, interest rates could rise over time. That could reflect a variety of issues. One such problem today is the rate of inflation and how “sticky” it is. Higher rates may be needed to keep a lid on inflation.
Higher rates may also help countries act more responsibly in terms of debt issuance. With more discipline in place, the age of trillion-dollar deficits may come to an end.
A trend to higher interest rates overall could lead to slower economic growth in time, as well as lower average market returns.