Ever noticed how Google Maps won’t be able to pinpoint your exact location in built up areas with skyscrapers?
The buildings block your GPS signal somehow, and your pinned location starts floating between city blocks.
Same thing happens with the Business Cycle.
The Business Cycle is like a Map for financial markets — but just like Google Maps in a big city — your position is never certain.
See, global markets move in four year cycles of contraction and expansion, with each 12 month stretch representing a ‘season’ of sorts…
And depending on what season you’re in, you should either be buying, selling, or holding specific assets.
What’s cool is – these seasons are predictable.
They’ve been repeating over and over again for decades, and are driven by central bank monetary policy (which is publicly trackable).
It works something like this…
Let’s start with the Business Cycle trough:
Economic growth slows → markets/businesses/households begin to struggle → central banks lower rates and hand money out to banks → this puts money back into everyone’s pockets.
(Whether through access to loans, or lowered interest payments on existing debt).
Which takes us back up to the peak of the cycle:
Growth picks up → there’s more demand for goods → which causes prices to inflate → to battle inflation, central banks tighten rates → that pushes growth and market prices down again.
(And the whole process repeats once again 🔁).
Here’s the trough and peak of the Business Cycle visualized:
“Ok, but what’re these ‘seasons’ you speak of?”
Here’s how to characterize the seasons of the Business Cycle…
Spring – A disinflationary boom:
Inflation is falling due to the previous season's tightened monetary policy, while at the same time, growth begins to recover as the early stages of loosened monetary policy start to take effect.
This is known as “early-cycle” and generally precedes the bottom in crypto markets.
Summer – An inflationary boom:
Central banks continue to loosen monetary policy which started in the Spring and the economy really starts to pick up, entering an expansion zone.
Inflation begins to rise and near the end of this phase central banks begin taking their foot off the pedal (aka still printing money, but in smaller amounts).
Fall – Stagflation:
Growth peaks as central banks completely take their foot off the pedal and begin to tighten policy toward the end of this phase.
Inflation continues to rise but its rate of increase slows down. This phase generally marks the top in crypto markets and would be considered “late-cycle”.
Winter – A Deflationary Bust:
Monetary policy is as tight as it gets, slowing down the economy and forcing growth into its contraction phase while sending inflation lower.
Times are tough and in some cases, these slowdowns lead to recessions.
Now, here’s the key to leveraging this new found knowledge:
Depending on what season we’re in, you should be allocated to different assets with different risk profiles.
(E.g. Winter = risk-off, Summer = risk-on).
Knowing this can save you a lot of potential pain.
It’s a little lengthy to get into here — so we’ve created a free guide that will walk you through each season and the exact percentage allocations to make in each.
So you can buy (and sell) the right assets, at the right times, with a solid level of confidence.
Just click below → leave your email → and we’ll send you the full guide 😊
Take control of the cycle. Get your free guide now! 📥
This post is commissioned by Milk Road and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.
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