1/ Lars Tvede writes in his book "Business Cycles: History, Theory, and Investment Reality" about a phenomenon he calls "The Principle of Bubble Rotation", which he explains as: 
2/ Essentially, he's saying that "what outperformed in the last cycle will not outperform in the next" and gives three reasons for this "cycle-skip"...
3/ One is Psychological: Investors who've been burned buying into a bubble are unlikely to be eager buyers of those same assets in the next.
4/ I call these "event echoes", where the psychological scarring from a deleterious event causes lasting change in investor preferences that typically takes a full cycle to reset.
5/ Second is the Capital Cycle: Bubbles are born of overly optimistic expectations about the future. This sentiment attracts capital as well as eager competitors which leads to over investment, lower margins, and greater future supply.
macro-ops.com/the-capital-cy….
macro-ops.com/the-capital-cy….
6/ Third is Regulatory: The regulatory cycle is always fighting the last war. It's typically enacted after the damage of an unsustainable feedback loop has been wrought. The banks post GFC is a perfect example. The process typically takes a full cycle to reverse
7/ Bubble Rotation and Cycle-Skip isn't a hard and fast rule but can be a useful heuristic in understanding why some assets are out or underperforming others. The winners of the last cycle and their current anemic performance serve as good examples.
8/ And then of course, tech's outperformance today has had the benefit of a full Cycle-Skip. Using this lens, we can look out over the next 5-10 years and broadly get an idea of what will perform well and what won't.
9/ None of this is new. Bagehot wrote about the plethora➡️ speculation ➡️ devouring of capital ➡️ panic loop well over a hundred years ago.
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Commodities will absolutely benefit from Cycle-Skip following the turn of this one.
That sector will benefit from all three drivers of Bubble Rotation (1) shoddy sentiment = depressed valuations (2) CAPEX Cycle (energy & metal companies have cut capex by more than 40% over last decade) and (3) regulatory/ESG will drive a MASSIVE structural undersupply.
