Companies, and cycles

Mostly thinking out aloud, with US homebuilders vaguely in mind, as I look at mortgage rates.

You can just see how cycles play out, ad infinitum. Crazy demand for housing kicks off housing related construction. Supply chain kerfuffles and excitement make margins/working capital hard to manage. Mortgage rates rise by 70+bps, demand slows, and overextended companies get caught.


The point isn’t about whether 70bps does it or not, it’s the lags, the lack of visibility, the inertia, and the exuberance which combine, eventually, to do you in, as a levered entity into a downturn (or even just a pause). It is more a statement about how hard it is to run a company.

Similarly, in Australia, looking at today’s housing finance data release, we note a cycle that looks eminently unsustainable.


The whole point of drawing trend lines is to proxy whatever the real underlying driver of a series is (e.g. population growth, access to credit, household formation).

This quality of this credit boom is low, to our minds, and (deploys cliché) won’t end well.

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