A recovery in cyclical assets is underway.

What is the definition of a cyclical asset?

The textbook definition of cyclical assets is those assets moving in tandem with the economic business cycle.

But that definition is outdated in the age of central banks, where central bank liquidity has been the primary driving force of asset prices, particularly in the last decade in the wake of the 2008 financial crisis.  

Think about it. In the first quarter of 2023, January was the worst month for tech layoffs since the 2008 crisis, investments were shelved and consumer sentiment was depressed. Yet for investors, it would have represented the price bottom in cyclical assets, the optimum time to accumulate cyclical assets, and be greedy.   

cyclical assets
S&P 500 returns 2019

“The textbook definition of cyclical assets is those assets moving in tandem with the economic business cycle”

WEALTH TRAINING COMPANY

So there is a more relevant cycle influencing the price of cyclical assets, which is the central bank liquidity cycle.

In other words, investors started nibbling on risk assets in Q1 in anticipation of the Fed’s great pivot. 

Paradoxically, bank runs strengthened the belief that the Fed would capitulate to inflation, or spin a new narrative that inflation is under control, and start easing, which is bullish for cyclical assets. 

Bank runs were the trigger in Q1 for the Fed, a banking cartel, to pivot. Bank bailouts and the purchase of toxic assets are QE light.  

FED tapering

“investors started nibbling on risk assets in Q1 in anticipation of the Fed’s great pivot”

WEALTH TRAINING COMPANY

An updated definition of cyclical assets would be those assets moving in tandem with the central bank liquidity cycle and investor sentiment cycle

When the central bank liquidity cycle has fallen to a trough, the price of cyclical assets is at the bottom. Alternatively, when central bank liquidity peaks, when investor sentiment shows signs of irrational optimism, or when you see extreme extravagance, do not chase cyclical prices higher, instead sell. Dump cyclical assets when the system blows rich.

“Cryptocurrencies are also an example of cyclical assets”

Wealth Training Company

Jan 8, 2022 — 

A reality star who says she made $200K from selling her farts in Mason jars was the trigger that there is too much liquidity in the system, the central bank liquidity cycle, and cyclical asset prices have peaked.  

Cyclical assets define the asset type

Growth stocks and the NASDAQ technology index outperform when the central bank liquidity cycle is easing. 

Cyclical stocks are those stocks where the performance of the company is sensitive to changes in interest rate policy.

These are companies providing discretionary goods and services, such as travel, leisure, gambling, real estate, autos, and other big-ticket items. 

Growing businesses like inexpensive credit, which helps support business expansion. 

Cryptocurrencies are also an example of cyclical assets.

Moreover, some would argue that the Bitcoin price movement is positively correlated with central bank liquidity.  

So cyclical assets are those most sensitive to the central bank liquidity cycle.

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