GMO explores late cycle risks, arguing the U.S. economy is far weaker than headline data suggests and increasingly split between productive and stagnant sectors. The paper challenges consensus optimism, highlighting that 25–30% of Russell 3000 firms are unprofitable and warning that leverage-driven buybacks may be masking deeper fragility.
The Late Cycle Lament: The Dual Economy, Minsky Moments, and Other Concerns
GMO
James Montier
Research
18 Pages
Key Takeaways
Dual Economy Reality: Productivity gains are uneven, with all job growth in low productivity sectors while income gains skew heavily toward the top 10%, distorting perceptions of economic strength.
Earnings Growth Disconnect: Historically ~6% earnings growth contrasts with implied 9% annual growth needed to justify valuations, requiring real growth near 7%, over 3x the long-term average.
Leverage Driven Markets: Corporate debt in listed firms has grown ~10% annually since 2007, with debt reaching ~20% of GDP, increasing systemic risk and potential for a Minsky-style unwind.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
