Secular Cycle vs Cyclical Forces

The secular cycle portends the positivism of growth, expansion and rising productivity. It also increasingly includes certain headwinds from changing demographics over the next 50 years.

Cyclical stimulus (monetary and fiscal) has managed to delay, defer and extend the full impact of the prior cycle's contraction. The question is whether such actions have got us over the hump or whether there will be a price to be paid? and if so, what the price will be?

The price is likely to be a rebalancing of labor/capital wealth distribution (probably through taxes) and lower growth. To some extent we have already seen some of those factors playing out: higher taxes and lower relative growth.

Current Economic/Market Flashpoints

Unprecedented debt accumulation in China, US, Japan, Australia, UK and other places.

The large decline in oil decimates one of the primary drivers of growth in the US.

The large decline in commodity prices due to the slowdown in China crushes Canada, Brazil and Australia.

Large residential real estate bubbles in Canada, UK, Australia, NZ and China undermine banks in those countries.

QE in Japan and by the ECB sets up a race to the bottom in the currency wars. US can't exit QE because it would blow apart global currency markets.

NIRP set up incentive structures leading to asset mispricings and misallocation of resources.

Financial repression and the failure to reform or clear markets is manifesting in deflation. 

Geopolitical instability with potential spillover effects: Ukraine, Syria, Grexit, oil squeeze on Iran & Russia.