The End Game of a Supercycle

A Supercycle is supposed to be a circumstance in economic activity when normal business cycles of moderate good and bad times follow each other in something like a cycle. That's why we have stocks called cyclical stocks. But now, with the Supercycle, we're far from bad times for a long time. The normal business cycle didn't apply.

In a normal business cycle, there are times of expansion. Credit expands and production capacity increases. Then a state of overinvestment occurrs when no one can get enough return on their investment so the stock market tanks a little and people loose their job. Until there are sufficient under capacity and investment becomes attractive again.

But what if credit expands heavily? What if tools for making production more efficient grows rapidly in usage? What if such tools becomes absurdly cheap? Only a few decades ago, computers where rare. Internet itself is only 40 years. But think of it, how extremely fast we have managed to get to a point where communication and computer power is within everybodys reach. This extreme technological advance, it does something important.

By massive investment, we have created a technology that changes the rules of what business is and is going to be. That's what a Supercycle really is. It's a long process of cumulative investment in new technology so tempting we cannot resist overinvesting until one day, the technology we have built is so - for lack of a better word - strong that it changes the foundations of investment.

If you agree with the argument that the Supercycle creates technology so powerfull it changes the foundations of investment, then at some point - what I call the end game - the rule change of the market place is coming at us so rapidly, we can no longer now which investment will be profitable in the end. We enter a state with massive credit and little understanding of what kind of investment will be profitable under the new regime. In the new world order.

In Business 101 we learn that the point of a capitalistic system is that it allocates resources - mostly capital - to the parts of the economy where it is most usefull. As the world changes, and as we have experienced - credit explodes - we will have massive amount of money going into all sorts of investment allocated as if the old world was still in place. At least something very similar to the old world.

So, the end game of a Supercycle is not a happy end. It's an end where massive amounts of capital is invested in assets and enterprises as understood using the old worlds eyes and investment strategies, but those investmens will probably never give any good return given the new world order. Given the speed of change, it becomes too leate to back off. Heavy losses will occur in the end from malinvestment. On a grand scale. Inevitably. Such is the end game of a Supercycle.