The Business Cycle

Since we often discuss the idea of stable earning power over the business cycle, some have mentioned that the business cycle is non relevant concept at the moment due to interest rates continuously being kept low in many developed economies. An interesting point. But one I disagree with. Firstly, interest rates on paper are being kept constant. In relaity, the cost of borrowing for the same company over the last few years has not been constant. Secondly, GDP has varied over the same time period, as has inflation. Interest rates are just one component which can be used to indicate the business cycle. Many factors including investment, total activity, credit creation etc can be used to show the evolution of the business cycle. The business cycle evolves whether or not interest rates are manipulated on paper at being constant and extremely low. I would add that considering the current macro sitation for many developed economies, the business cycle is likely to be shorter and more volatile relative to the historic average. This will translate into the average position in the portfolios we manage being held for a shorter period of time than we would historically (or in the future).