Reconsidering the 'boom and bust' business cycle; Warning from Investors Intelligence survey; Four days in Havana

1) Over the weekend, the New York Times published this insightful and important article that all investors should read and contemplate: Is the Boom-and-Bust Business Cycle Dead?

It focuses on two facts – first, that recessions have become far less frequent. As the article notes:

According to the National Bureau of Economic Research, the U.S. economy between the 1850s and the early 1980s experienced 30 recessions lasting an average of 18 months, with intervening periods of economic growth averaging only 33 months...

Since the early 1980s, there have been only four recessions, lasting an average of nine months, with economic expansions averaging 104 months.

The current period of job growth is in its 40th month.

And second, the modern U.S. economy looks far different from the old one. As the article continues:

Manufacturing and agriculture, now only a fraction of overall output, were once mainstays of the U.S. economy.

Today, manufacturing accounts for about $2.3 trillion of gross domestic product, employs about 12 million people and indirectly supports other local jobs. (Every manufacturing job, for instance, spurs seven to 12 new jobs in related industries, according to a McKinsey estimate.)

But the consumer-driven U.S. economy, mostly made up of services (health care, auto repair, nail salons, customer service, administration and so on), is almost $30 trillion in size.

As a result, the article notes that many economists and folks on Wall Street are wondering if the "unruly" business cycle they about learned in school – and witnessed in real life – has changed into something "tamer":

There is some evidence that the current spurt of economic growth may have not just months but several years to run, barring an external disruption (what economists call an "exogenous shock") or a return of high inflation that prompts the Federal Reserve to push the economy into recession.

The article goes on to explore the many arguments for and against this theory.

I always keep in mind that the four most dangerous words in investing are "this time is different"...

But I'm open to the idea that historical boom-and-bust cycles might not necessarily repeat themselves (at least to the same degree) going forward. This would be great news not only for investors, but all Americans!

This is yet another reason why – as I've said many times in recent months – I remain constructive on stocks.

2) "Constructive" doesn't mean "bullish," however...

One market indicator says that investors should have modest expectations going forward, which I think is probably right.

This chart, courtesy of Charlie Bilello's latest Week in Charts, shows that the percentage of bulls in the recent Investors Intelligence survey has moved up to 62.5%... which is the highest level since April 2021:

This is in the top 5% historically – after which, the S&P 500 Index has tended to underperform (though is still positive). Here's the table Bilello shared in the same Week in Charts post:

3) Sharp-eyed readers may have noticed that I didn't once discuss stocks, markets, or breaking news (as I usually do) in my five daily e-mails last week...

Instead, I wrote about how I became a Baker Scholar at Harvard Business School, why I'm glad I got a calcium score test, how to cultivate mentors, make friends, and develop deep relationships (and followed up with part 2 here), and how to become a "learning machine."

The reason for this is simple...

For the first time in more than 20 years, I was off the grid for a week – on a dive boat with 14 friends 40 miles off the coast of Cuba (more on this in tomorrow's e-mail).

Whenever I travel for work or with my buddies, I try to include my wife Susan either during or around the trip – so we spent four days in Havana before I met my friends.

It's a fascinating city with a rich history – many famous old stars like Frank Sinatra used to come regularly, and Susan remembers that her grandparents loved to visit.

Then, revolutionaries led by Fidel Castro overthrew the government in 1959... and in many ways, the country has been in a time warp ever since.

While the government has allowed some economic liberalization in recent years – small- and medium-sized private businesses are now legal – 65 years of communism has taken a terrible toll.

There has been a massive brain drain, most buildings are in disrepair, and there are very few cars (other than the beautifully restored pre-1959 American cars that serve as taxis for tourists in Havana – see pictures below).

The country is dirt-poor: a doctor earns $50 per month, a teacher earns $20 per month, and people are going hungry (see this AP article: Rationed food kept Cubans fed during the Cold War. Today an economic crisis has them hungry).

That said, crime is low... and I didn't see the squalor and desperate poverty that I've seen in much richer countries like Mexico and the Dominican Republic.

And because wages are so low, everything is crazy cheap.

A delicious meal – drinks, appetizers, lobster, dessert, and tip – at a great restaurant in Havana only cost us $35! And our entire trip – including four nights at a beautifully restored boutique hotel (La Distancia), guide, vehicle, and all activities, and most meals – was only $1,575 per person.

Here are pictures of our hotel, which is owned by Italian investors (Americans aren't allowed to invest in Cuba):

Our guide filled our four days with visits to the old town (a UNESCO World Heritage site), restaurants, art galleries (there's a thriving art scene... you can't bring cigars or rum back to the U.S., but art is fine), monuments, a dance troupe (video of them here), and a garage where an entrepreneur restores old cars and then operates them as taxis.

Here are some pictures:

However, before you book your trip (which I highly recommend), you should be aware that American law prohibits Americans from going to Cuba solely to be tourists.

If you just go to Cuba on your own, a U.S. Customs and Border Protection officer might question you upon your return and, if you're very unlucky, you could get hit with a $7,500 fine (though enforcement appears to be nil).

But Americans are allowed to go to Cuba for 12 purposes, which are outlined on the website of the U.S. Embassy there.

The key one is "support for the Cuban people" – a loophole so big you could drive a truck through it.

We were supporting the Cuban people in all sorts of ways (legitimately – it wasn't phony): We stayed in a privately owned hotel, not a government one... bought art from local artists... ate at privately owned, not government-owned, restaurants... and visited and donated to an after-school music program for children. (Needless to say, we tipped generously... And for the first time in years, I had to rely on cash – credit cards don't work, so you need to bring enough U.S. dollars of various denominations there to last your entire trip.)

In summary, while we normally travel independently, for Cuba I highly recommend using a travel agent. Ours was an American who lives in Cuba, Joslin Fritz of Custom Latin Travel. If you contact her (you can send her an e-mail here), tell her I sent you!

I posted more pictures from the trip on my Facebook page here. And tomorrow, I'll share details and pictures from my dive trip... Stay tuned!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.