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The Four Stages of the Business Cycle: Where are We Today?

The Four Stages of the Business Cycle: Where are We Today?

April 25, 2023

There are four stages of the business cycle in America, namely expansion, peak, contraction, and trough.

  1. Expansion

The expansion phase is the period of economic growth when the economy is expanding, and the gross domestic product (GDP) is increasing. During this phase, businesses are experiencing growth, and unemployment is low, leading to a rise in consumer spending. The expansion phase is characterized by an increase in production, employment, and income.

  1. Peak

The peak phase is the period when the economy reaches its maximum growth level. During this phase, the economy has reached its maximum level of output, and employment is at an all-time high. Consumer spending is also high, leading to a rise in inflation. At this stage, businesses are operating at maximum capacity, and the economy is at its highest level.

  1. Contraction

The contraction phase is when the economy is slowing down, and economic activity is declining. During this phase, businesses experience a decrease in production, leading to a decrease in employment and income. Unemployment increases, and consumer spending decreases, leading to a decrease in GDP. This phase is characterized by a decrease in economic activity.

  1. Trough

The trough phase is the lowest point of the business cycle, where the economy reaches its lowest level. During this phase, the economy is experiencing a recession, and unemployment is high. The trough phase is characterized by a decrease in production, employment, and income. However, this phase marks the end of the contraction phase and the beginning of the next expansion phase.

Today, we believe we are currently in the contraction phase with high inflation and the M2 money supply falling every month. In this environment continue to focus on  diversification across asset classes including precious metals such as gold and silver, defensive stocks, alternative investments such as hedge funds, private equity and other non traditional asset classes including cash or T-bills when they are paying 4 to 5 percent, like they are now.

Be prepared for continued volatility: During the contraction phase, market volatility can be high, and fluctuate rapidly. Be prepared for short-term fluctuations, but most importantly keep your focus on your long-term investment goal.

It is important to note that these guidelines are general in nature, and investors should carefully consider their own financial situation, risk tolerance, and investment goals before making any investment decisions. Consulting with a financial advisor can also provide additional guidance and insight.

In conclusion, the business cycle in America is a natural process that occurs over time. It is essential to understand these stages to make informed decisions about investment, employment, and other financial matters. The business cycle has a significant impact on the economy and affects the lives of individuals and businesses. By understanding the stages of the business cycle, individuals and businesses can prepare themselves for any potential impact and adjust their strategies accordingly.