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 question about the inverted bond yield…
Hi Phil, would the current inverted bond yield markets have any influence on the timing of the 18.6-year real estate cycle? Kind regards.
– Robyn E.
Hi, Robyn. Thanks for emailing in. Whilst the inverted bond yield is important, the land market is actually more important. So yes, a bond yield inversion can forecast recession coming, but it’s not infallible.
Your key takeaway and the key thing to look for is this: with everything you do, with everything you see, everything you look at, and all the indicators you watch, you must always overlay the 18.6-year real estate cycle. And that’s 14 years up, four years down.
So 14 years up is measured from the bottom of the real estate market in the United States which is 2012. That should take us to 2026, if history repeats. And it’s the bond yield inversion around this time you want to watch for. Nothing else.
Next up, a question about the Australian cycle in relation to the U.S…
Hi Phil, I’m a Kiwi living in Sydney. I follow your e-letter because cycles make sense to me. My question is, how far behind the U.S. cycle is the Australian cycle?
– Shirley C.
Hi, Shirley. Thanks for emailing in. It’s a fairly simple answer, actually. The Australian market has historically been about one year behind the U.S. So if you watch the U.S. market, that gives you pointers to work out where the Australian market is, roughly. I urge you to save for a house. It’s a key thing to do that as soon as possible and then retire well.
Reader Alan F. asks about why so many writers are forecasting doom and gloom…
Hi Phillip, there is presently a lot of stuff in financial newsletters about an approaching significant market downturn. In one of your previous newsletters you implied that, going by market cycles, you did not expect any major market downturns until 2026 when there would probably be quite a significant downturn again. Is this information reasonably accurate?
If so, why are so many people writing American financial newsletters suggesting there is quite a major downturn on the near horizon?
– Alan F.
Hi, Alan. Thanks for emailing in. Good question. Easy answer. The real estate cycle, or at least the question of land, has been quite deliberately written out of the economic textbooks.
I’m going to say more about that in my Postcards From the Cycle. [If you’re not a member of The Signal, you can check out a subscription here.]
But before the first World War, it was widely accepted that economics had three factors of production: land, labor, and capital. After the first World War, it was conflated to just capital and labor and merged land with capital so that nobody would end up seeing the effects of land.
This was quite deliberate by the wealthy elite in the U.S., so take note of that.
Also, you asked why are so many American financial newsletters suggesting there is quite a major downturn on the horizon? That’s also an easy answer, but it’s difficult to put into practice sometimes. First… doom and gloom sells. So that’s what the media will push.
But really, the key is to always overlay the 18.6-year real estate cycle on everything you see and everything you know, because history shows it’s the land market you have to watch, and nothing else.
History shows that from the bottom in 2012, you get 14 years up of rising land prices, which you may care to know is 168 months. It’s almost been perfect most times throughout history. And nobody takes account of this because again, the land market’s been deliberately written out of economics.
The second thing is, very, very few people have ever learned to read a chart. I did a Postcard about this. And so whilst so many people in March were looking at the banks collapsing, we were watching charts like semiconductors, housing-associated stocks, and those stocks were moving sideways at highs. They weren’t going down, they weren’t going up.
They were trying to break upwards, but of course every day in March when the market was moving down, nobody was prepared to put their money where their mouth was and buy. But if you knew how to read charts, it was fairly clear that these sectors were looking fairly strong. But unfortunately, everybody gets carried away with their emotion, so nobody watches and learns how to read a chart. I would urge you to learn how to read a chart, look at the work of W.D. Gann, like his books Truth of the Stock Tape and Wall Street Stock Selector, and seek it out for yourself. Again, thanks for emailing in.
Next, reader Sheryl S. wonders if office REITs (real estate investment trusts) have further to fall…
Phil, you state that the property market collapse hasn’t happened yet and that based on the 18.6-year cycle, the lows are still some time away. On the other hand, blue-chip office REITs that own trophy assets have seen their stock prices plummet over the past few years with current stock prices at 2008 levels. Are you implying that these types of stocks still have more room to fall as public investors become even more bearish? Thank you.
– Sheryl S.
Hi, Sheryl. Thanks for emailing in. Good question. These sorts of things are always about earnings. And so at any point in time, regardless of what the real estate cycle is doing, there’s always going to be stocks going up and down based on earnings or management decisions, poor decisions, good decisions, etc.
So yes, some of these stocks have seen their prices plummet. It happens for various reasons, but this is not going to upset the wider 18.6-year real estate cycle where you get 14 years up of rising land prices. And I still think that’s the play. Some of those stocks have time to recover a little bit.
As for the blue-chip office REITs, every cycle’s a little bit different. This time, the mid-cycle recession was driven by a pandemic.
For having technology to work from home and people not going back to the office, that is going to affect, within the cycle, the office REITs.
You can always know some of that in advance by learning to read a chart. That’s where W.D. Gann comes in and I urge you to study up on that. I go into it more in my premium newsletter The Signal, but a good place to start is Truth of the Stock Tape and Wall Street Stock Selector. Again, Sheryl, thanks for writing in.
A reader inquires about an accessible version of my book…
I am really eager to read your book, The Secret Life of Real Estate and Banking however I am unable to read hardcopy. I would like to see if there is an audio version or PDF of the book available?
– Hamid H.
Hi, Hamid. Thanks for emailing in. Yes, I’ve had a couple of questions from people looking for an audiobook or PDF. I’m only the author and my book is actually owned by the publisher. I have asked the publisher to try and work out a PDF copy and an audio copy. It’s in process, but it might be a few months away yet.
Lastly, a reader questions how distressed commercial real estate might affect the 18.6-year cycle…
Hi Phil, I haven’t heard you say much about the commercial real estate market which appears to be very concerning due to many reasons. Do the residential and commercial real estate markets generally move in tandem or do you think weakness in commercial real estate might prematurely disrupt the 18.6-year cycle? Will this adversely affect banking and commercial real estate stocks and possibly spread to the overall stock market in spite of strength in the housing/homebuilder market?
– Joel D.
Hi, Joel. Thanks for emailing in. The housing market and commercial real estate markets don’t necessarily move in tandem. And yes, in this particular cycle, as we go into the second half with the pandemic and people working from home, it’s affected the commercial markets, but I don’t think it’s going to upset the real estate cycle as such. We’ve still got a few years to run yet. I think you’ll find that delinquencies don’t go too much in the commercial field.
Also, commercial real estate is only a small part of the whole… And the office market’s only a small percent of the whole commercial market.
I also think you’ll find around the U.S., the mayors in a few big cities will more than likely start offering incentives to have distressed commercial real estate repurposed into housing. And because what’s going on in my view is not systemic, the banks will be able to cope with this by being more supportive to the owners of such real estate. I’ll probably do a Postcard about this. Thanks for the suggestion and for emailing in.
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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