Bottom Of The 10th / Top Of The 11th?

As economic cycles go, since 1945 the average expansion (US economy) has been 58 months. The longest was from 1991 to 2001.

The most recent expansion began in 2009 and in baseball terminology, is now well into extra innings. As I suggested on BNN Bloomberg a couple of weeks ago, it may well have already ended but for the "Trump Bump" (circled in yellow above) which has added a round of fiscal stimulus that likely extended the expansion. But, as history shows, at some point the economic expansion is always followed by a contraction and this time will be no different.

In terms of the US equity market over this cycle so far:

Early in the cycle, less confident investors need to be convinced that indeed things are going to get better (many were scared off by the volatility of 2008-09). Earnings (EPS) usually have to lead stock prices higher to convince investors to participate. Taking higher levels of risk through this period (when actual risk is really quite low) is prudent.

As the cycle progresses and investors become more confident, share prices begin to take the lead as earnings are now expected to grow. But as the cycle moves into its later stages, with investors extremely confident, stock prices get ahead of themselves (too expensive) and the risk of a reversion to the mean increases and the risks associated with equity ownership become significantly greater. This is a time to be reducing exposure to stocks.

Emotions play a big factor in all of this. As I suggested in my discussion with Paul Bagnell (BNN Bloomberg), we don't "advise" clients to take risk off of the of the table, we do it for them. If we left it to them, the euphoria of seeing stocks rise (as they did in January), may provide a false comfort and the ensuing tumble (as they did in February) a scare that may result in panic.

As portfolio managers, we manage the risk because that is what we are paid to do. So it is no surprise that while the benchmark we use to measure ourselves against is up less than 1% in 2018 to date (after a tumultuous 1st half of the year), our High Rock Private Client portfolios are (depending on their allocation strategy and length of time as clients) well above 1%.

Our longer-term client (5 year) return per unit of risk taken (after fees) remains well above that of any of the benchmarks (before fees):

We are obviously doing something right by taking risk off of the table: reducing risk in this late stage of the cycle to protect our clients (and ourselves) from the inevitable end of the cycle and still getting better than benchmark returns.

As the regulators insist we state: past performance is not a guarantee of future returns. However, as most of you know, we at High Rock work darn hard to get the best possible risk-adjusted returns for our collective portfolios. 

Some of the "chief" economists research and/or opinions that I have read lately were only graduating with their economics degrees at the beginning of this cycle. How can they possibly advise on how a cycle will play itself out?

We do not give investing advice. We give wealth advice and build portfolio strategies for our clients in keeping with their specific needs, goals and time lines (which may be over many cycles into the future). We manage the risk using our vast experience of doing so, over many of the past economic cycles (at least since the early 1980's).