Top or Bottom of Cycle?

After a nearly decade-long bull market, the prevailing consensus has been that we are at the top of the business cycle, and about to enter into a period of downturn. The bear market is coming. It has already arrived, some even say.

Perhaps.

But this is no standard top-of-cycle situation. From early 2003, to its high in late 2007, the S&P 500 had gained around 85%, climbing to 1557 before crashing to a low of 735 in 2008, erasing all the gains it had made since the dot com crash.

This 85% bull run appreciation over just under five years compares poorly to the bull market of post-GFC. In September of this year, the S&P 500 stood at over 2900. That’s a 400% increase from its 2008 low.

So by the paradigm of boom-bust cycles, we’ve experienced a huge boom, markedly greater than the last one, and now, we’re waiting for the bust. More importantly, in a macroeconomic cycle of leveraging and deleveraging, the past decade since the financial crisis has seen the lowest interest rates in modern history. Corporate debt is largely rising. Household debt has increased. And more worryingly, considering the Eurozone crisis was not a financial crisis but a sovereign debt crisis, public debt has also gone up.

After a booming stock market, and a decade fuelled largely by debt, we are surely, unequivocally, top of cycle. Right?

The problem is the following. While US stocks have indeed boomed, the story in Europe is quite different. The FTSE 100 is up around 80%…