Short Structural, Long Cyclical

by Mr Juggles

Time is tough. People struggle to understand it. We can make sense of what’s happening now, can kind of remember what happened in the recent past, and can’t fathom the long-term. All of this is probably because of Twitter or because people no longer write each other long, boring letters like they did during the Civil War or ancient Greece or whenever. For whatever reasons, our attention spans are not only short, but also narrow, able to understand history only as if looking at it through a roll of paper towels.

It is increasingly apparent that everyone — investors, politicians, businessmen, consumers, etc. — have mistaken cyclical trends to be structural in many different areas. We are now at a crescendo as the long arc of history turns and heads back down in the other direction. This is a great opportunity to take advantage of people for whom the short term (the last 1 year, the last 3 years, the last 10 years, the last 30 years, depending on context) is the only relevant term. This is most everyone. It’s a rather large opportunity.

Some facts:

  • Global interest rates are not in secular decline. They have been in a 30yr cyclical decline and the 30yr reversal is now in process.
  • China is not locked in a structural vendor financing agreement with the US & EU. They are ending a long, cyclical run with an under-priced currency.
  • Europe’s imbalances are not the result of a structurally strong, responsible Germany and spendthrift periphery. They are the result of a cyclical trade imbalance due to domestic policies that increased German exports and savings rates while the inverse was true in Span, Greece, etc. The swing is coming back the other way now.
  • Keynesian intervention was not a structural improvement in the operation of the modern fiscal and monetary apparatus. It was a cyclical increase in leverage, starting from a time of low leverage and great demographics. Prepare for the payback.

To quote myself from The Model Business Model: “What is that expression? How does it go? Shit’s way different at this point in history, dude?” Maybe, just maybe, it’s not so different. Maybe we’re just lacking the benefit of the full context.

Recommendation: Short the so-called structural trends. Get long the true, underlying cycle.

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  1. Guest
    April 10th, 2012 | 10:34 am

    WTF is this, a serious post?! You post like, 10 times a year now, and it’s not even funny? I have to think about this stuff all day, I expect you to make me laugh. Bah.

  2. April 10th, 2012 | 11:53 am

    Listen, Guest, if that is your real name (I doubt it), you’re a guest here, so act like one. We’ve always balanced our portfolio with both abstract humor and serious finance. These are the basics of our financial theory. We’re always trying to find the right mix, but it’s a process and you have to be sure to evaluate our entire portfolio, not just one wayward holding.

  3. RichL
    April 10th, 2012 | 11:13 pm

    You may wish to add tax rates to the cyclical turn. From 92% down to Mitt’s 15% and the tech firms sub 10%, actual tax rates have been pushed down too far.
    It’s a joke that a deficit-ridden government is the home of the worlds most profitable corporations. Fixing it is just a matter of pushing some of that mountain into that hole. And that would have happened already if we didn’t have possibly the worlds most corrupt politicians.

    I’m pleased to inform you that you’ll be contributing more of the winnings from your analysis to your government, unless you have already purchased your own legislator.

  4. Brian
    April 11th, 2012 | 9:01 am

    any suggestions on how to go long cyclical?

  5. April 11th, 2012 | 11:56 am


    What were income tax rates 100 years ago? Time really is tough.

    You could look at it as tax rates have been pushed way too high (especially in the 50’s and 60’s), depending on what timescale you use. It’s a bit of canard to equate higher marginal tax rates with higher tax receipts, and it’s super-complicated for something that most people think is super facile. It’s similar to the income inequality issues — it seems super simple, but it’s actually incredibly complex (absent social revolutions that rewrite all the rules and would amount to a lose-lose situation for everyone, e.g. a simple solution with an incredibly complex result).

    When that 91-92% marginal rate was in effect (1950-1963), individual federal income tax receipts as a % of GDP averaged 7.5% . When the new 35% marginal rate was in effect (2003-2010), tax receipts averaged…7.3%; if you exclude 2009 and 2010 because of the Great Recession, that latter number would be…7.7%. The pre-WWII numbers would be an order of magnitude or so less than either. Context matters.

  6. jd
    April 12th, 2012 | 11:10 am

    yes, we do have the most corrupt politicians.

    it’s the “chicago way”.

  7. To The Hilt
    April 16th, 2012 | 7:16 pm

    Ha! It’s Opposite Day, idiots!

    This whole post may or may not have been factually correct or funny. That’s the whole joke and you’re the only one who doesn’t get it. I bet you feel like a dufus, now, dufus.

    Yes, I’m talking to you.

  8. Doofus
    April 24th, 2012 | 1:38 pm