Having visited both the US and Asia in recent weeks, it is clear that there is a more sombre mood with various issues weighing heavily on investors’ minds. Starting with the US, it evident that there are increasing concerns as to whether we are nearing the end of the current debt cycle and the resultant consequence for the economic cycle and by default, markets. This was highlighted by a number of managers but Ray Dalio, from Bridgewater, spoke on this specifically at a conference. Bridgewater has studied historical debt cycles (which are combination of short-term debt cycles within a long-term debt cycle) and identified the similarities between them. All follow very similar patterns. The key determinant in terms of consequences for countries is whether the debt is issued in local or foreign currency, with the latter significantly more vulnerable. The top of a short-term debt cycle usually occurs when elevated forecasts on asset prices are extrapolated into the future and these prices start to come down as those elevated forecasts are not met. The short-term cycle then repeats itself. Longer-term debt cycles take the debt levels higher each time the normal business cycle peaks. The late stage in the long-term debt cycle is when central banks struggle to stimulate the economy, effectively “pushing on a string” as Dalio phrases it.