This Time Really Is Different
Business cycles wouldn't be cycles if there were not similarities in how firms confront changing market conditions over time. But as the current cycle nears its inevitable end, investors should not lose sight of the unprecedented technological, political, and liquidity risks that will make the next cycle uniquely perilous.
BOSTON – Respectable investors aren’t supposed to say, “This time is different.” But, given the market gyrations in recent months, they would do well to keep an eye on what really is different from the last time the business cycle turned.
The last time, of course, was the 2008 global financial crisis. Unlike then, today’s underlying economic data remain strong, suggesting that a looming recession could come and go before we have even had time to measure it. But that won’t help investors looking to assess the potential risks and rewards of the next cycle, which will likely be shaped by unpredictable shifts in liquidity, politics, and technology.
While academics convene conferences to analyze the legacy of quantitative easing (QE) by central banks over the past decade, investors want to know what the policy’s reversal will mean for future financial conditions. The major central banks have essentially stopped providing massive liquidity injections through bond purchases, and are now unwinding their balance sheets, albeit at varying rates.