Phil here…
I love receiving feedback or questions from subscribers… and 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, a reader has questions about my premium newsletter, The Signal…
Hi Phil, you have mentioned that The Signal portfolio will get defensive in a few years, towards the peak of the real estate cycle.
First question, once the general stock market peaks do you envisage The Signal making recommendations for commodity stocks?
And second question, once the general stock market decline starts do you envisage The Signal to be making recommendations on short positions?
Thank you for considering my questions.
– Gurpreet K.
Okay, Gurpreet, thanks for writing in. I’m mentioning that The Signal portfolio will get defensive in a few years. Well, let’s wait until we get there before we see what happens. It’s never my opinion on these things, the markets will tell us. Actually we are looking at commodity stocks now. I think there’ll be a few that break key highs shortly. I think I expect to be in a few in the next month or two once the general stock market declines.
Yes, we will be taking short positions, but Gurpreet, I don’t know if you’ve read my book, but you should have a look because actually land price peaks first and if the stock market’s going to behave and if the real estate cycle behaves itself like it should do, then land stocks will be well down whilst the general market’s still going up. So you would do well to get yourself educated there a little bit.
But yes, we’ll be recommending short positions and often there’ll be positions that will be contrary to the mainstream. It takes a bit of guts to take them sometimes. So I urge you to understand the cycle.
Next, a reader passes along an article that reinforces what I’ve been saying…
Phil, thought you might like to see this article about Warren Buffett which goes along with what you have been saying. Enjoying your work. Thanks.
– Patrice N.
Hi Patrice, thanks for emailing in. Yeah, we caught that article. Interesting I thought, but it didn’t surprise me that he’d bought in. In fact, he was probably doing so whilst the stocks were trending sideways in March and April, somebody had to be buying.
So when the news comes out, then I find out who it was. So that didn’t surprise me. Thanks for your feedback. I’m enjoying the work too, so keep writing in if you’ve got any questions.
Next, a reader asks an interesting question about cycles…
Phil, how do you read into the difference of 1.4 years between the 18.6-year real estate cycle and Gann’s 20 (which will accrue to 4.2 years in the 60 year cycle)?
– Dennis
Hi Dennis. Thanks for emailing in. That’s a tough one. I don’t quite look at it that way really. Anyway, I can answer it. I hope you’re ready for it.
If you’re looking at the 18.6-year real estate cycle, you have to look at the lunar node, the north node, that’s where that comes from. And Gann’s 20-year cycle, which is basically one-third of 60, that’s Jupiter and Saturn rotating.
I’m sorry to bring up the planetary stuff, but that’s where it comes from and they all fit in eventually.
But the real estate cycle is more important. So everything you do, always overlay the real estate cycle. That’s the most important thing. I hope that makes sense. Write in again if I didn’t explain that too well.
Next, reader Janis B. asks an important question about the down portion of the cycle…
Hello Phil, I’ve been reading your very interesting work about the 18.6-year real estate cycle. You say that it’s 14 years up and 4 years down. My question is whether you have any historical data for the average percent down? In other words, how far back does the 4-year down period send us?
– Janis B.
Hi Janis, thanks for emailing in. I’m glad you like my work about the 18.6-year real estate cycle. It is 14 years up, four down.
And historical data for the average percent down depends on if we’re talking stock market or real estate prices. If you’re talking stock market, the average retracement is about 47-50%. The stock market usually retraces the 14 years up halfway. So that’s your usual guide.
If you’re talking real estate property prices, that’s a much more difficult question. It’s not generic and different locations will decline by different amounts, but as a general rule, prices will decline more where there’s more available land. So cities like Denver, cities like Las Vegas, the more subdivisions, the more planning that it gets, the bigger the city expands, then the more likely those prices will collapse.
Sometimes the outer regions almost basically drop back down to zero where you can’t sell the plot at any price. But cities like San Francisco, Chicago, LA, those prices don’t decline as much because the land is more limited in supply. So I hope that makes sense to you.
Next, a Canadian reader asks why the real estate market didn’t correct there in 2008…
Hi Phil, here in Canada our real estate market didn’t correct in 2008 with the US,it just kept going up. What gives?
– Brendan V.
Brendan, thanks for writing in. You’re in Canada I guess then. Canada is the same as Australia, so I have to tell you that in Canada, like Australia, very little happens. Don’t take offense at that too much. It’s exactly like it is in Australia. Nothing happens in Australia. That’s why I’m no longer there. Yes, it didn’t correct much in 2008.
That’s because China dragged us out and commodity prices stay higher. So any countries that are commodity exporters, like Australia and Canada, didn’t see their prices decline much. So you’re right.
It’s America that leads the cycle and it’s America that you need to focus on. And this time after 2026, China will not be in a position to exert the same influence as it did. And I think the correction after 2026 is going to be a doozy. In Canada and Australia, it will depend on how their banks are placed.
I can’t talk about Canadian banks, I don’t know what’s been going on there, but I can tell you in Australia and the Australian banks, and it’s probably the same in Canada, they’re much better placed to weather the downturn.
Certainly the big four banks in Australia, unless they go on an absolutely manic, wild spending spree over the next three years, which they may well do, America’s the place to watch.
That’s where the big correction’s going to happen and you want to keep your eye on the U.S. dollar to see what happens there after 2026 as well.
Next, a reader wants to know how I know a peak or trough has hit…
Phil, when you are referencing the peaks and troughs of Real Estate, like the 2012 trough, where are you getting the information that tells you when the peak or trough has arrived?
– KJ
KJ, thanks for emailing in. Well, land price information or housing data is behind the times really. It’s not forward calculated. It’s only calculated after the event.
So I’m only looking at the data for 2012. I only knew that was a trough by about 2013, 2014, but I know how the cycle goes. It’s 14 years up, four down. So land prices peaked in 2006 and 2007. So I was suggesting four years down, takes it to 2011. But when the data came in, it did come in 2012. So 14 years up from there takes you to 2026.
It really is that simple. So just don’t over complicate it.
Hey Phil, I am a firm believer in cycles. I have read “The Fourth Turning” and other works and it makes sense to me. For me, the biggest threat on the horizon for the U.S. is the BRICS meeting. For so many years, China, Russia and a host of other players have wanted to dethrone the mighty dollar. With reserve currency status we have had the privilege of being able to justify our debt. In my opinion, we have greatly abused that privilege, especially with all of the sanctions that have backfired. We have more countries than ever standing against the dollar. What are your feelings about this?
– Kent K.
Hi Kent, thanks for emailing in. Yes, you’re absolutely right. It is the dollar that will have to be watched and with BRICS, more people joining could be another brick in the wall, not sure, but if with the BRICS, if more oil producers join and more oil buyers join that trading areas, then the more likely it is that they will start transacting in local currencies.
But the far more important thing you have to watch is what happens to U.S. land prices, nobody’s going to have trouble and Americans won’t see what’s going on with the dollar, whilst land prices are going up.
So it’s after 2026 that you’d have to watch what happens with the dollar because when land prices start coming down, that’s when it suddenly occurs to people that the debts can no longer be paid. And if they have to be paid in a declining dollar, it’ll be disastrous for the U.S. So yes, you’re quite right Kent, I’ve got my eye on it as well.
The trick is the timing and that’s why I think The Signal is really important. And the real estate cycle’s more superior than anything else. So if you’ve read my book,The Secret Life of Real Estate and Banking, that will give you a primer on the timing and what to look out for as we go into 2026. Good question, thanks.
Next, a reader asks about war and the cycle…
Hello Phil, looks like the real estate cycle is set like clockwork…
I imagine it also takes into consideration what the BRICS countries are preparing for us and the arrival of the CBDC.
There are also tensions and risks of wars between China-Taiwan-USA and the war in Ukraine which is getting worse day by day. It is not easy to maintain confidence in this financial system while it draws around different apocalyptic scenarios…Thanks again for reassuring us and have a great week!
– Martine H.
Hi Martine. Thanks for emailing in. Yes, with the risks of war, watch the Kondratieff wave (K-wave). I’ve done a little bit on that. I hope to do more, we’ll get more out for subscribers. The risk of war, what really is the key is again to watch land prices and what happens in the U.S. once land prices start turning down at the end of the cycle.
After 14 years up from 2012, that really will start to drain the confidence in the financial system in the U.S. and that’s when you have to start looking at the different scenarios. And certainly it’ll be worth being well-prepared as we go into 2026. I will have a lot more to say about that… it’s too early yet, but it’s coming.
And a reader correctly notes that real estate has different sectors that act differently…
Mr. Anderson indicates that real estate will be healthy a bit longer, but real estate is a wide-ranging segment of the economy. There are multiple sectors. I think each of these sectors is going to behave differently in time for the next couple of years. For example, there are currently a lot of vacancies in older office buildings and older warehouse properties (at least in Albuquerque). Can he please expand on which sectors of commercial real estate may be hurting now, or which may be hurting next, or which combination of downturns may be the harbinger of the turning point in commercial real estate.
– Ken H.
Hi Ken. Thanks for writing in. Yes, what you say about multiple sectors of real estate is quite right, but may I say in return, the 18.6-year real estate cycle that I have developed, it’s generic and it’s done for the U.S. as a whole.
But as you’ve pointed out, every state in the U.S. is different to other states and they all have their own close pluses and minuses. And what happens to real estate is very much location-centric and also depends on what type of real estate it is. Usually though, as we go up into the real estate cycle towards the peak, most things tend to go up and peak at roughly the same time. But there are always going to be issues with certain sectors. And as you can see, some of the industrial real estate and some commercial will have a few problems.
And once government starts deeming that really old commercial property is not fit for purpose, they’ll have to redesign it or knock it down, whatever else. Those things are all quite normal parts of the cycle and it doesn’t worry me greatly. And when you mentioned there are a lot of vacancies in old office buildings, the vacancies themselves ensure that prices stay high.
It’s only if the building owner has to accept a much lower rental to fill the building, that the price comes down because then he has to actually officially revalue. So those vacancies are not a big deal unless the owner of that vacant building is forced to sell. And I don’t see a lot of forced sellers at the moment.
So I’m not greatly worried about that. But we’ll just have to see how the future lays as we’re going into 2026. But thanks Ken, good pointing that out for your question.
That’s all for this mailbag edition… if you have questions, send them to me at [email protected]. I’ll answer in a future issue.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
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