Phil here… This holiday season, my readers and their feedback is my greatest gift.
So today, I’d like to take some time to respond.
As always, if you have a question, feel free to drop me a line at [email protected]. Just know I can’t give personalized investment advice.
First up, reader Manu B. asks good questions about the behavior of the cycles…
Hello Phil, I’d like to ask you regarding the interest rate cycle. In two years when the markets have peaked, will the mortgage interest rate fall? If so how much?
Also how will the prices decrease in housing? I can guess it will be gradual decrease or do you think otherwise?
– Manu B.
Hi Manu, thanks for writing in. This is a difficult question to answer at the moment. Normally in all prior cycles, and if you’ve read my book, The Secret Life of Real Estate and Banking, it would give you a good historical precedent, which I think you should do considering this question because it’s apropos.
Normally the Fed is behind the curve, so as the economy gets stronger into 2006, 2007, there’d be talk of interest rate rises.
The economy will already be underway by the time the Fed realizes that and then they’ll have to start interest rates falling. That would be the normal approach. The Fed’s always behind the curve though, and if history is to repeat after the peak, house prices will fall for about four years. So you don’t need to panic in the meantime if you’re on the right side.
Having said that, location matters. Some areas fall more than others and usually the areas that see the biggest fall is the areas that have the most land available and the most subdivisions or plottings have been done. That’s geographical location specific.
However, this cycle coming up, you’re going to have to watch what the U.S. dollar does and we’ll have to see. If there’s call around the world for less dollars and people start to not want the U.S. dollar, the Fed might find itself in a position where it actually may not be able to lower interest rates.
It might have to keep them higher than normal to protect the value of the dollar and attract capital. We don’t know the answer to that yet. We’ll have to see what happens. I do urge you to read my book, that’ll give you some historical perspective, but you have to always watch for something new.
Next up, I love hearing from reader Sunny G. again!
Hello Phil, thank you for answering my question in the recent newsletter!
I wanted to personally say how unbelievably thrilled I was that you answered my question… Literally still can’t believe it! Yes, that email is forever “saved.”
Thought this was interesting content with data supporting the hypothesis for a “soft landing” heading into 2024 which is aligned with Phil Anderson’s hypothesis of a bull market in 2024. In the market, the narrative for bullishness is still mixed, but I see it slowly leaning bullish.
– Sunny G.
Hi Sunny, thanks for emailing in the response to a response. That’s great. Yes, you’re starting to see now it is like I thought would happen because it is history repeating.
Talk of a recession starts to disappear and then they start to qualify… and soft landing becomes the phrase. I think that’ll soon be forgotten, too. I think things are pretty bullish and in 2024, like I said, probably a month or two months ago in a Postcard, I thought the next move on interest rates would be down.
So markets start to price in a rate cut now. that’s because the Fed is always behind the curve. They left rates too low for too long and as soon as participants start to say they’ll be high for longer, that’s pretty much the top.
So they’ve gone too far high this time. So I think they’ve got to find a middle rate. Next move will be down, I think, which will be bullish for markets.
And I wish I could be as optimistic about the future as Daniel T., who asks about applying AI to land…
Phil, what are your thoughts about the application of machine learning or generative artificial intelligence to the use of land world-wide? Further, Google claims to have a quantum computer that is 200 million times faster than current supercomputers. Surely the coupling of quantum computing and application of AI to land and sea use will be the answer to a sustainable, healthy, and wealthy future?
– Daniel T.
Hey Daniel, thanks for emailing in. That’s a good question. I wish I shared your optimism about a sustainable, healthy, and wealthy future.
Surely what everybody forgets is that all of us, despite the enormous application of and prodigious creation of machinery and human help, we’re still working a 35-hour week, still being requested and asked to come into the office.
Habits die hard.
But you have to know earnings. Land price always takes the gains, well should I say the economic rent, the earnings of land will always take the gains.
No matter what we invent, no matter how much we do, if the rent of land is still permitted to be collected privately and if we allow the unfettered collection of that earnings of land into private hands… and then permit that capitalized earnings price to be used as the backing for a mortgage and credit creation by a bank, then it just won’t matter how much quantum computing we get and the application of artificial intelligence to land and wherever else.
It will continue to push up the price of land.
So therefore the only people will see benefits from it are the owners of land. I’ll say one more thing. When the land price cycle turns after 2026, this is when you see businesses really start to cut down. They’ll have to have a lot more expense cutting.
This is when you’ll see the real application of AI to cut out a lot of jobs. Then people will start to notice what AI is doing, so watch for that. Good question Daniel. But remember economics has been corrupted quite deliberately. Nobody realizes that the economic rent of land takes the gains and the earnings of land.
Next, I tell Angela O. that most stocks fall during the burst… even income producing ones…
Hi Mr. Phil, I am a subscriber of your Cycles Trading. I read every article from you religiously. My question is, we are supposed to get out of the market at the right time before the burst. What do you suggest we do with the income-producing part of our portfolio? Your advice will be highly appreciated. Thanks for your solid guidance.
– Angela O.
Hi Angela, thanks for writing in and thanks for following me. I appreciate that. I do believe the market will give us plenty of warning before the bust. We’re a long way from there yet, so markets have got to go up yet big time, at least get into all-time new highs and higher before we even think about them busting and banks have got to start creating a lot more credit yet, so we’re nowhere near that amount.
Income producing part of the portfolio… That’s very hard to know because often it’s going to be stock specific, but prices of most stocks will fall except those that do well in a recession. Very hard to say at the moment. I would ask me that question in a year or two’s time. Okay, send it back in. Thanks for writing in.
That’s all for today. Feel free to email me at [email protected]. I love getting questions from subscribers.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
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