By Phil Anderson, Editor, Cycles Trading with Phil Anderson
If you hear that “the world’s largest” something is going to happen, it’s a sign…
The world’s largest industrial complex, the tallest building, the longest “sustainable urban highway…”
When you see headlines mentioning the “largest, tallest, longest,” you know that we are in the late stages of the 18.6-year real estate cycle.
Why?
I Call It “The Cantillon Effect”
The name goes back to the 18th century.
James Cantillon was an Irish banker and an economist. He suggested that the supply of money and credit in the economy will affect prices.
It should sound familiar to you… if more money is available in the economy, it grows faster.
But eventually, this oversupply of money leads to inflated prices, or “booms.”
And those invariably turn into busts.
As I describe in my book, The Secret Life of Real Estate and Banking, the world’s tallest buildings, for example, were the single most reliable indicator of a cycle peak.
Such as 40 Wall St (Bank of Manhattan building) and the New Waldorf Astoria, completed in 1929…
(The Great Depression happened shortly after.)
Or the World Trade Center, which was finished in 1972/1973…
Or the Petronas Towers in Malaysia, completed in 1997.
Petronas Towers in Malaysia
Source: Shutterstock
(These were completed right before the 1998 crisis.)
The Pattern Continues
CNBC reports:
Samsung Electronics said Wednesday it plans to invest 300 trillion Korean won ($228 billion) in a new semiconductor complex in South Korea, which the government says will be the world’s largest, as part of an aggressive push by the country to take a lead in critical technologies.
The world’s largest semiconductor complex… sounds familiar.
This is exactly what happens when money is cheap, and we’re in the second half of the cycle.
You may argue that interest rates are higher now… and this is true. But really, interest rates are getting closer to “normal.” The last few years have been outliers.
And for a corporation like Samsung, what matters is not where interest rates are… but how cheap its investment capital is.
And the immense tax breaks that the Korean government announced (up to 35%) lower its cost of capital. In other words, lower taxes make investment capital cheaper.
And it has become much cheaper for corporations willing to build tech infrastructure… not only in Korea, but also in the U.S.
Governments continue creating pockets of cheap money… and it continues driving the cycle until its inevitable bust…
Look for that in 2026.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson