Sandwiched between the high-drama and fame of the “Boom” and the notoriety of the “Bust” exists a market phase that goes unnoticed.
Often overlooked and elusive, I call it the “Echo“.
This uncelebrated period is often overlooked, lost in the dramatic oscillations of the business cycle.
But make no mistake…
It’s during this apparent lull, this quiet echo, that silent fortunes are being made by smart investors.
Are you feeling doubtful or intrigued watching stock markets and tickers? That’s precisely the sweet spot.
We’re about to peel back the layers of this mysterious market phase and expose the hidden goldmine that even seasoned investors often miss.
Prepare to decode the Echo, the enigma of market cycles.
This knowledge isn’t just power, it’s your competitive edge.
The Boom, Bust and Echo
Everyone knows about the “business cycle.”
Booms are succeeded by Busts which yield new Booms. That’s what analysts always focus on.
Equities (and the businesses that underlie them) traverse an endless series of peaks and valleys. A stock rises on the back of strong company results, and plummets when things turn sour.
Or investors simply tire of a stock, come to see it as overbought, and a selloff results. Sectors, and indeed whole markets, follow the same pattern.
For instance, lithium prices saw a major Boom last year, rocketing up 6x in the span of a year. And right now, we’re in the middle of another Boom – the AI Boom, spearheaded by models like ChatGPT and Stable Diffusion.
- As a result of the AI Boom, computer chip maker Nvidia shot past $1 trillion market cap… despite flat revenue growth and a decline in profits last year.
The $1 trillion market cap club includes tech industry giants like Amazon, Apple, Google, and Microsoft – household name companies with 10x or more the revenue of Nvidia.
For the markets to give Nvidia the same valuation as the tech titans shows just how much investors think the AI Boom will benefit Nvidia, as they make the chips that AI models run on.
Going back to the cycle – during a Boom, there’s a general sense of euphoria, a feeling that the market will continue notching new highs forever. Of course, it can’t.
There will inevitably come a Bust, after which gloom sets in, and investors begin to fret that it’s never going to turn around.
And they’re just as wrong.
I’ve not only studied markets intensively for many years now but have become one of the largest financiers in the resource sector over the last decade.
Eventually, I was driven to the conclusion that the traditional way of analyzing cyclical sectors is badly flawed.
There’s more to a cycle than just Boom and Bust, bull and bear…
There’s also a sideways market that always appears somewhere between the last Bust and the next Boom. It is neither.
Yet it’s an integral part of the process, with unique and definable features.
It’s the third, most critical part of every cycle, and it’s never been properly described before, which is why I coined the term Boom, Bust & Echo for the resource markets.
Understanding the Echo
Some of what you read next might sound very familiar right now…
During this period, the market is in what seems like a dead zone. It’s shunned by the mainstream. Yet what’s actually happening is entirely normal, and an integral part of the natural evolutionary process of all business cycles.
Understanding how it works can make the difference between succeeding and failing in the markets.
I’ve tried to explain the concept to friends of mine in the investment business, and at investment conferences where I’ve been the keynote speaker. I’ve gotten the distinct feeling that my words are just bouncing off and returning to me, as if I were shouting into a lifeless desert canyon.
I’ve coined this neglected phase “the Echo”.
It’s not a Boom or a Bust, yet it’s an essential transitional stage. Though counterintuitive, it’s in this overlooked market phase where real fortunes are crafted.
- Profit opportunities abound at this time.
- Enormous wealth is created during the Echo, more so than during either of the other market phases.
Despite its ignored status, the Echo holds unique, predictable traits and untapped wealth. Regrettably, most stay away until they see clear signs of another Boom, a safer time to invest. The Brother-in-Law Indicator explains this in all its hype-y detail.
But, understanding and identifying your position in the Echo allows for better investment decisions.
As a natural resources investor, my concept of Boom, Bust & Echo emerged from the volatility of this sector.
To understand this cycle, you need to let go of traditional economic models. The Echo is non-linear, fluctuating, and evolving. Perfect timing isn’t required; awareness of your relative position in the Echo is.
- By patiently waiting for the Echo to end, you position yourself for maximizing profits during the following Boom.
The Echo isn’t a quick rich scheme, but a strategic phase that, with patience and understanding, can be your most rewarding investment period.
Characteristics of the Echo
Now, let me briefly introduce some of the Echo’s basic characteristics.
To capitalize on Echo, understand its existence, happenings, and exit signals. Unlike Booms and Busts with their stark peaks, the Echo lacks distinct highs and lows.
Emerging post-Bust, it serves as a calm period where the market steadies after considerable volatility.
It’s a quiet time, but don’t be deceived. The industry is teeming with unseen activity, largely ignored due to its subtle nature.
Here are a few of the important markers that always appear during any Echo period:
- Consolidation—this occurs both within businesses, as they streamline and implement greater efficiencies, and between them, as the strong eat the weak. M&A will occur at zero premiums during the Echo. Big premium M&A is usually a sign of a bull market top.
- The liquidation of bad debt—many companies will take on excess debt during the euphoria of a Boom and get squeezed during the Bust. In the Echo, those who can afford to pay down their ill-advised debt will do so; those who can’t will go under.
- Re-capitalization—those who’ve maintained solid balance sheets and merit re-financing will get it, and will also be able to float new shares if they need to.
- Increasing market share—on the part of those who are healthy enough and visionary enough to do it.
- And defining the fittest—the best of the best, those who not only survived the financial Bust debacle but are strategically poised to catch the next Boom.
It’s also the time during which informed investors can swoop in and take advantage of highly attractive buying conditions.
As the old finance truism has it, the cure for low prices is low prices (i.e., the market is self-correcting; a fall of prices to unreasonably low levels will inevitably trigger a rise).
During an Echo, the seeds of the next Boom are slowly germinating.
But no one notices, and the stock of even the strongest companies goes on sale in the bargain basement.
And that’s where an alligator investor absolutely shines.
Regards,
Marin Katusa
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