CYCLES, an event or set of events that happen repeatedly at regular time intervals, are an integral part of human and natural existence.
Most people have at least a passing familiarity with the biblical book of Ecclesiastes, probably written in the 3rd century before Christ. The author writes “All things have their season” and, more literally, “There is a specific time for every activity under heaven.”
Often we relate this to the “time to be born and a time to die” idea, but it is much deeper than that. It is about cycles.
Our “ancient” ancestors knew clearly that cycles were all round us and that they were important. Multiple civilizations built structures to help them keep track of the cycles. People needed to know the duration and timing of natural cycles in order to survive. A crop planted at the wrong time of the year would have meant disaster and death.
Animals and birds migrate at regular cycles. Fish spawn according to cycles. Rivers flood at regular intervals that could be measured and tracked. The cycles that our ancestors could not figure out—eclipses and comets—created panic. Their economies depended on understanding and following these cycles.
Even the most advanced ancient civilizations never said: “We are so smart. We can break and control the cycles.” Yet that is what “modern” governments have tried unsuccessfully to do for the last century.
The business cycle is the expansion and contraction in the amount of business activity over a period of time. This cycle is ignored only at extreme peril.
About a decade ago, a few bakers in the US started making cupcakes and found a successful market. Success breeds competition and more cupcake bakeries sprouted up. For a few years everyone, the good as well as the bad bakers, was getting rich baking cupcakes.
But consumer tastes are always changing. The cupcake business peaked and started to decline. The first to go were the bakers producing the least desirable product. Then others decided to cash out and move on to other ventures. At the bottom of the “cupcake cycle” were those bakers who had the better products and a sustainable market share.
That is comparable to the lechon manok and the pearl shake business here in the Philippines.
But two decades or more ago, the experts in the government decided that they could control and manipulate the business cycle. Japan would not let their economy naturally contract and flush out marginally unsuccessful businesses after the peak in the 1980s. The result was that the “bad businesses” have been a drag on the Japanese economy, and public funds were used to support the losers. The same thing happened in South Korea leading up to the 1997 Asian Financial Crisis.
Imagine if the Philippine government had taken the same approach to the “pearl shake business cycle.” We would have hundreds of pearl shake kiosks, none making any significant profits and both public and private money would have been diverted away from more useful and new enterprises like siomai kiosks for example.
The US National Bureau of Economic Research says the average cycle in the US is 60 months up and 11 months down. However, as we have seen, government intervention can change that time period usually for the worst.
A nation’s general business cycle can be smoothed if capital can easily flow from one sector into another without government interference. While pearl- shake kiosks are in decline, a rise in the siomai business could keep the fast-food kiosk business growing. That is what has happened in those economies like the Philippines’s that are not pushed in a particular direction by the government.
Successful business owners can feel the changes in the business cycle and can make profitable adjustments. It is like a restaurateur who knows when it is time to make changes to the menu to keep the business growing.
Stock markets also have cycles that are usually not realized or ignored by even professional investors. Our local market runs on approximately a four-year up and one-year “not up” cycle. We are on year two of the up phase.
On a personal note, I had to visit the dentist last week. My good friend Dr. Anselmo Tripon Jr. scolded me for not having been in since 2010. Dental work is not high on my list of priorities. But Dr. Jun is the best dentist on the planet. I know because I have been to dentists all over the world. I rarely make a personal recommendation, but he really is the best. His clinic is in Makati at Bel-Air Dental Care. Trust me on this one.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter
@mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.