Low interest rate=>borrow against anything(house,stocks,cars,education)=>consume more than (low) wages: goods, travels; AND invest=>high sales AND margins=>super profits AND high valuation multiples(low IR, and consumer investment confidence), and low volatility (BTFD reflex)...
The system is self-reinforcing via the wealth effect; allowing lower relative wages (=>lower inflation, lower IR), leading to more sales/lower costs=> higher profits, more optimism, higher valuations, higher stock and other asset prices,more margin to borrow against,BTFD,low VIX.
When the process reverses,due to peak employment turning ever so little downward or due to higher interest rates or a "shock" (the later in the process, the less "shock" is required; ponzi loss, terror, random fluctuation..), higher volatility leads to selling and less borrowing.
The end of the positive cycle isn't caused by high valuations, but exessive leverage and forced selling create a feedback loop of less asset value, less optimism, higher rates on riskier (i.e.,all) loans, less consumption,lower sales,margins, profits,lower asset prices;and round.
Timing still hard; but with every step up the ladder of higher profits, lower IRs, higher multiples, more borrowing the expected return and the RISK of an outright crash increases. And with every step toward higher IR, lower leverage, lower valuation, expected returns rise...
The journey from sales 100, margin 20, valuation 20x, prices 400 to sales 80, margin 10, valuation 8, prices 64 isn't fun at all. Particularly not if you bought on margin or got a pay cut at the same time. BUYING att depressed levels is much more fun, given you have money left.
The trick isn't to time peaks and troughs perfectly. A smart investor, however, invests more when expected returns are higher (high unemployment, high interest rates, low sales, low margins, low profits, low valuations), and less when times are good=>the better the less at risk.
Even people claiming not to time markets still time stocks (buy cheap, sell expensive, switch from stock A to B, overweight industry X over Y). Even for them it's not a far stretch to go unusually (leveraged?) long in tough times, and scale down (even go short?!) in booms (ZIRP?)
