When our position in the various cycles is neutral, the outlook for returns is “normal.” When the cycles are positioned propitiously, the probability distribution shifts to the right, such that the outlook for returns is now tilted in our favor. Our favorable position in the cycles makes gains more likely and losses less so. But when the cycles are at dangerous extremes, the odds are against us, meaning the likelihoods are less good. There’s less chance of gain and more chance of loss.
