Rachel’s note: Rachel Bodden here, managing editor of Cycles Trading with Phil Anderson.

Today, we’re passing along a conversation that Daily Cut editor Chris Lowe had with Phil while they were both in South Florida earlier this year…

We have some new readers on our file, and we figure this is an excellent way to get to know Phil and what he’s all about.

Read on for more…

Chris Lowe: You’ve been called the greatest living economic forecaster of our time… if not all time. How did you first become interested in economics?

Phil Anderson: I’ve always had a bent for economics. I don’t know why. At 12, while the other lads in my class were swapping football cards and playing marbles, I was collecting the business news. Sad, I know. But there you have it. I still have my first cutting from a copy of the Sydney Morning Herald from 1974. It was highlighting an economic downturn in Australia, where I grew up.

Some pundits were saying taxes were too high, causing businesses to fail. Others blamed a weak banking system. Others still were pointing the finger at inflation. And I remember wanting to know which of these camps was right… if any.

I ended up earning an accounting degree and taking some economics classes as part of that. But could I satisfactorily explain to myself what caused the 1974 recession once it was in the rearview mirror?

Not at all.

This was a major issue for me. I thought, “I’ve got to do something about this. I’ve got to find the answer.”

It seemed to me that if you understood what drove economic cycles you ought to be able to make accurate forecasts. And that’s not how it works in mainstream economics. You get all these different forecasts. And all of them are completely wrong.

So, I thought the best thing to do was to prove it either could or couldn’t be done.

Chris: How did you do that?

Phil: When I finished university, I wanted to see the world. So, I spent 20 months backpacking. Starting in Europe, a mate and I walked, hitched, drove, took trains, and donkeyed our way from Switzerland, through Russia, to Beijing, then back eastward to Tibet. From there, I went to Nepal and then India.

What I learned is that people are the same worldwide. We all want a house on some land where can raise kids without interference from government.

That led me to the revelation that economics has more to do with land than anything else. The problem is that mainstream economists hardly factor in land at all. To them there are just two factors of production – labor and capital. But I realized you can’t know anything about economic cycles without understanding the role of land.

That’s when I started learning about real estate and land values. And I came across The Power in the Land. It’s a book by a British journalist and economist called Fred Harrison that came out in 1983. It shows that land speculation is what causes economic crashes.

That changed my life. I saw that you could start making decent forecasts using Harrison’s insights.

As it turned out, roughly two decades later, Harrison was one of the first people to predict the 2008 global financial crisis. In 2005, he commented that the next property market “tipping point” was due at end of 2007 or early 2008. And he warned that the only way prices could be brought back to affordable levels was a “slump or recession.”

Chris: What did he base these predictions on?

Phil: He was one of the first people to identify a property cycle. He traced it back for hundreds of years and concluded it went in 18-to-20-year cycles.

He was researching the British property market. I realized there was more interest in the U.S. real estate market – it’s what leads the world. I thought I could make a business out of that. So, in 1991, I set up my own economic cycles research business.

I’ve been doing that ever since. And I’ve never looked back. My forecasts have had the added advantage of allowing me “retire” early. I still enjoy sharing my research with my subscribers. But I don’t have to work to be financially free. And that’s what I want my subscribers to be able to do as well.

Chris: Can you explain how that works?

Phil: After I read The Power in the Land, I did my own research. And I discovered that land prices in the U.S. – as Harrison observed in the British property market – collapse every 18 to 20 years. So do the banks. But it’s land price that goes first, not the banks.

After understanding this cycle, it became possible to make accurate market forecasts. Here are just a few of them, if your readers want to have a look…

Now, there were a few other people who correctly forecast the real estate banking crash that began 2007. But they’d been forecasting a crash for years at that point. And if you forecast the movement of a clock, you can know nothing and still be right twice a day.

I’m the only one I know of who picked the time without making heaps of prior forecasts. And I was the only person I know of who not only forecast the crash, but also that things would improve in 2009.

Chris: What does this cycle look like? And what drives it?

Phil: Well, the first thing to understand is that cycles are all around us. The moon cycles every month from full moon to new moon and back again. The seasons are also cycles. And there are many other cycles we don’t notice – especially in markets.

We know that booms and busts happen. What we mostly don’t notice is how they happen. But with real estate, we typically get a seven-year recovery from the previous bust. Then we get a one- to two-year mid-cycle slow down. Then we get a bull phase that lasts five years. Finally, we get a two-year bubble that leads to a four-year decline again.

Chris: But you don’t just forecast cycles in the real estate market. You also forecast stock market cycles.

Phil: That’s right. Most people don’t see the relationship between the two. They either forecast the real estate market or the stock market. But I tell my subscribers that real estate investors need to understand the stock market. And stock market investors need to understand the real estate market. Because they’re closely related.

And I’ll give you two examples…

At the bottom of the 18-to-20-year cycle the stock market that leads the way into the next upcycle. The bottoming of the bear market in stocks in March 2009, for instance, was the clue to real estate investors that the cycle was finished and we’re into a new one.

Now, if you’re a real estate investor, knowing this a huge advantage. You’ll have more backbone when you’re buying at those extreme lows sitting on that information.

And at the top of the cycle – which we’re going to go into over the next couple of years – it’s the land market that peaks first. So, if you’re a stock investor, you should be watching land prices and the prices of stocks that operate in the real estate business.

So, if we go back to the 2007 peak, the homebuilders and the land developers peaked in 2005. That was a hint for stock market investors to start to get more defensive with their portfolios.

I’ve never understood why I’m the only person doing this kind of work. It’s extremely valuable information whether you’re investing in stocks or real estate… or both.

Chris: Do you have any ideas about what may cause the next downturn?

Phil: One trigger may be people losing faith in the U.S. dollar. Let’s say a few big countries – China, Russia, Iran, and Saudi Arabia maybe –stop using U.S. dollars for trade. That could be a trigger. The Fed could then find itself unable to lower rates in a recession because it must protect the dollar. And you can see where that could lead.

This is why I do what I do. I try to get people prepared. And that’s why I’m thankful to be with Legacy Research now. We’ll be able alert our subscribers ahead of time.

Chris: Do you have ideas about how our readers can protect their wealth as these cycles continue?

Phil: The first step is to understand history… and the cyclical nature of financial markets. If you look at history, you can see how people got caught out in the past. Don’t repeat those mistakes.

Clearly, you don’t want to buy real estate with debt at the top of the market. If you do, you’ll be in negative equity by the time the downturn happens. And that’s when banks panic.

During the next downturn, your bank is not going to ring you up and say, “How can we help you?” It’s to call you and say, “You owe us money. Pay it up now or get out of your house.” They’re just not going to be friendly.

And the same thing goes for the stock market. You want to keep a close eye on a downturn in land and real estate values. And be more defensive in your portfolio.

But crucially, we’re not there yet.

We may see interest rates drop a little in 2025, like what happened in the 1920s. But if history is judge, 2025 or 2026 is when we’ll see the top of this current cycle. Just as we saw cycles top in 1955, 1973, 1989, and 2007.

Despite all the doom and gloom in the press, this is one of the best times during the cycle to be an investor. It is the “growth at all costs” stage. So, I expect markets will turn upward from here.

This is great news for the investors who understand these cycles. Put simply, we have been granted more time to make money.

Chris: Thanks, Phil. Those are fascinating insights.

Phil: Thanks, Chris. It was a pleasure.

Like what you’re reading? Send your thoughts to [email protected].