THE ICE AGE BEARS

The long-term trend for planet Earth is a cooling one.

Earth started out as a molten ball and over hundreds of millions of years began to cool, eventually forming a crust and creating an atmosphere and the oceans.

Currently we are in the middle of an Ice Age, in fact it has been so since last 2.6Million years.

The Earth has experienced five major ice ages and this one is called the Quaternary. 

These ice ages have witnessed alternating periods of glaciation averaging 70000-90000 years and interglacial warming periods of 10,000-30,000 years.

The current interglacial event began 12000 years ago.

At the peak of the last glaciation, about 18,000 years ago, there were ice caps and glaciers over two miles high covering Detroit and much of North America, Europe, and the southern parts of South America and Africa.

For the last million years or so these have been happening roughly every 100,000 years – around 90,000 years of ice age followed by a roughly 10,000 year interglacial warm period.

An ice age is triggered when summer temperatures in the northern hemisphere fail to rise above freezing for years. This means that winter snowfall doesn’t melt, but instead builds up, compresses and over time starts to compact, or glaciate, into ice sheets.

THE LONG-TERM BULL CYCLE

The 30 year chart of BSE-SENSEX has been like the long ice age interspersed with interglacial bear markets:

The four stages of the economic cycle are expansion, peak, contraction, and trough.

During the expansion phase, the economy experiences relatively rapid growth, interest rates tend to be low, production increases, and inflationary pressures build. The peak of a cycle is reached when growth hits its maximum rate.

Peak growth typically creates some imbalances in the economy that need to be corrected.

This correction occurs through a period of contraction when growth slows, employment falls, and prices stagnate. The trough of the cycle is reached when the economy hits a low point and growth begins to recover.

As visible above, while the long-term trend is positive, business cycle keeps playing out overtime due to variety of reasons.

Same plays out for the market-long term positive trend with short-term drops.

What Should the Investors Do?

Long-term investors need to understand these cycles and how they should react to the drops when the start the journey.

Investing for objectives and not market timing is crucial

Recognise the pains of the cycle while avoiding exaggeration of both growth and decline factors

Using the troughs to strengthen long-term savings is an opportunity-instead of being fearful be brave

Stick to the asset-allocation

Finally, STAY THE COURSE