The 18.6-year cycle.
But everything you’ve read so far has revolved around real estate and land prices.
What about stocks? And what, if anything, does the 18.6-year cycle have to do with stocks?
That’s the key. It has a lot to do with stocks. In fact, failure to understand the relationship between the two is why many investors fail.
And they don’t realize it’s the reason for their failure.
So how does it all fit together? I’ll explain now…
The 18.6-Year Cycle
But before we go on, welcome to Cycles Trading with me, Phil Anderson. My aim with this three-day-per-week e-letter is to introduce you to the most powerful knowledge for building wealth. That is, learning the importance of the 18.6-year real estate cycle and its key relationship to understanding stocks.
The fact is that no one else studies the market like this.
Most people are either “real estate people” or “stock people.” Very few are both. But by only looking at half the story, more often than not, they miss what’s really moving the market, and therefore miss the opportunity to profit from those moves.
By regularly tuning into this e-letter, I’ll help you understand the full story and show you how to make the most of any market. In today’s case, I’ll directly show you how the 18.6-year cycle impacts stocks…
We’re in the Second Half
As I mentioned in yesterday’s letter, right now we’re in the second half of the 18.6-year real estate cycle.
That will result in the cycle peaking in 2025-2026.
So what can we expect for stocks in this second half of the 18.6-year cycle, and which stocks in particular will do best?
Overall, you can expect stocks to climb much higher from here. Because that’s where we are in the cycle. We’re into the last two to three years before the peak of the 18.6-year cycle.
Specifically, in the second half of the real estate cycle, tech stocks have tended to underperform the more “rent-seeking” stocks.
[Rent-seeking is a term you’ll see a lot in this e-letter. In simple terms, it refers to a business activity where the sole or main purpose is to generate wealth and income without providing any additional productivity to the economy. A simple example would be a lobbying firm, which earns an income from someone else’s activity without contributing anything else to it.]
Those rent-seeking stocks set to benefit most include banks and real estate stocks. They’ll do better in the second half of the cycle than tech stocks on a relative basis.
But by the time we get to 2024, tech stocks will probably work that out. It wouldn’t surprise me if in the last two years of the cycle, tech stocks go all out into banking… because that’s where the money will be.
Once the tech stocks go in, all bets are off. The banking institutions will see the tech stocks starting to take their business, and banks have got to react to that. The banks will create a lot more credit, and they’ll make loans more available.
So you’ll see an adjustment. For the real estate cycle to finish, history says absolutely everybody has to be in at the end. Investors have to be maxed in, maximum optimism, all cash on the table. Everyone will be looking for loans from banks. That’s what’s happened in the past.
That’s the top. That’s what you’ll see. That’s when you’ll know.
But importantly, the market will tell you when it’s happening. You won’t actually need me to stand up and say, “This is the top.” Somebody else will do that for us.
Someone will say that the market’s never going to collapse… that real estate prices are never going down… that you should buy a house now because we’re in such a big bull market. That’ll be the top.
How to Ignore the False Alarms
My role is to help guide you through all the “false alarms” that you’ll hear before then… The commentators and so-called experts who are calling for a crash and recession now (the same experts and commentators who have gotten almost everything wrong the past few years).
If they say it two or three years from now, we could take them seriously. But not today. Because the timing isn’t right yet. We’re not in the right stage of the 18.6-year cycle for the downturn.
That won’t come until 2025-2026.
So right now, the message is clear. Buy stocks in the sectors that history tells us perform best at this stage of the cycle – banks (the rent-seekers) and real estate-related stocks.
Stocks like Toll Brothers (TOL) and Lennar Corp (LEN) still have room to move higher.
Those are the types of stocks to stick with until we start to hear the real “warnings” in the market. Not from those predicting a crash… but rather, from those predicting the bull market will never end.
Editor, Cycles Trading with Phil Anderson