The Debt Cycle and how to use it wisely.

Having lived through five economic cycles during our adult life we find each one to some extent resembles the other.  There is the build up where business is going well and the animal spirits reach a apex. Greed trumps fear and people borrow heavily to take advantage of increased opportunity, interest rates rise due to demand and debt is high.  Then the recession occurs and almost all of a sudden fear trumps greed and interest rates tumble due to the lack of borrowing and lack of business activity.  One thing to remember in a business boom is "risk happens fast." 

One of the most important parts of the business cycle is the borrowing cycle.  High interest rates mean increased borrowing, and low interest rates mean decreased borrowing.   However smart investors and the most successful investors understand one takes advantage of the moments where there is the proverbial "blood in the streets."  When others are running from borrowing, smart investors take advantage of low rates and borrow money.  

Right now debt, or the fear of debt, is making the idea of borrowing supposedly not smart. But in truth right now is a great time to borrow money. Borrow to invest in income producing assets not consumer purchases.  Interest rates are still low and likely to stay that way for at least another year.  So experienced companies, long term thinking corporations, and smart individuals are taking advantage of this generational low interest rate moment and borrowing money. Much of this borrowing up to now has been corporations refinancing debt from higher rates to long term low rates.  Helping them with profits long term.  Some individuals have been buying homes and locking in sub 5% rates too. Simply put the experienced and the smart see this as an opportunity and not a time to be fearful. Note much of this borrowing is for good capital investment that can appreciate in value , not consumer spending which loses value. 

The best way to view this is to do exactly what the crowd is not doing, borrow when rates are low and lend when rates are high.   The best ways for the individual to take advantage of the high point in the cycle is to buy high grade corporate bonds, good quality municipal bonds, and even some long term US treasury bonds and leave stocks.  When the business cycle goes down and business activity pulls down interest rates the bonds you earlier bought will have appreciated in capital value and that is the time to sell.  Sell the bonds and use and borrow money for stocks and capital investments of course. 

One final note during this business cycle the Federal Reserve has been quite active in holding down rates for a longer period. So caution is wise as to how quick rates move upward and how much this round. 

So the point here is to think and be wise and take the present time to do some borrowing. Borrowing and lending money against the cycle is one way the rich get rich and stay rich.