For the 18.6-year real estate cycle to continue, you need liquidity.
In the past, liquidity mostly came from banks. They were the default providers of credit.
And they still play a role in the credit cycle.
But there’s a new player in town – and it will help push the real estate cycle to its peak…
It’s called “private credit.”
What’s Private Credit?
The term covers non-bank loans. In other words, loans that are issued outside of the regulated banking system.
The main lenders here are private equity companies with access to sophisticated investors, including pension funds and other institutions.
They take investors’ money and lend it out.
Because of their “alternative” non-bank status, they lend to riskier borrowers… and earn higher interest rates on their loans.
And this industry has been booming… never mind the interest rate hiking cycles that sent most markets into a tailspin.
Between 2013 and 2023, it more than tripled in size.
This industry is thriving despite the high-interest-rate regime. From Bloomberg:
The industry took off around 2016, when interest rates were at rock bottom and investors were hungry for higher yields. But even now, with rates around 5%, private credit is going strong. It did well last year when almost everything else went south. While there is no index for the entire sector, the Cliffwater Direct Lending Index, which tracks nearly $280 billion of private loans to small and midsize companies, was up 6.29% in 2022. That compares with losses of about 19% for the S&P 500, 11% for junk bonds and 1% for leveraged loans.
Having delivered this sort of performance last year, private credit will find no lack of investors.
What Does It Mean for the 18.6-Year Cycle?
I’ve said it repeatedly: the real estate cycle will be powered by credit and liquidity.
Now that mainstream banks are staying away from making high-risk loans, markets have come up with a business structure designed for this specific purpose.
However, there is a problem.
Private debt isn’t as regulated as the mainstream banking system… and most major players are private equity companies with an appetite for leverage.
So what do we have here?
An under-regulated, non-transparent source of potentially trillions of dollars in liquidity that’s run by leverage-hungry asset managers.
What could possibly go wrong?
Remember this: we are looking at the second half of the 18.6-year real estate cycle.
Private credit will play a role in accelerating it into its final stage.
The fact that the players in this space are unregulated and aggressive will make the run-up to the eventual turn of the cycle fast…
And the eventual crash an event of epic proportions. But we’re still several years away…
What to Do During the End of the Cycle
In the meantime, the end of the cycle is a time that I call “The Eleventh Hour.” And it can truly make or break your retirement.
Back in April when everyone was so fearful of markets, I was the only person forecasting a rise.
But I am used to going against the grain…
And readers who listened to me on my first-ever appearance in the U.S. media and joined me at The Signal just three months ago – have already booked a 51% winner.
And we’re nearly tripling the performance of the S&P 500…
On Wednesday, July 26 at 8 p.m. ET, I’ll be back in the U.S. with another forecast… and more stocks to leapfrog your wealth forward.
Sign up right here to automatically join me.
Otherwise, where will you be three months from now?
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
P.S.To prepare you for the event, I want you to give you the Eleventh Hour VIP Pack.
It’s a series of three reports that give you the background you need to follow along when you join me for the Eleventh Hour event.
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All you have to do is upgrade to VIP – which is easy and free. You can do that right here.
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