Rachel’s Note: Phil Anderson’s going live on Tuesday, April 11 at 10 a.m. ET to bring you an urgent broadcast about “The Eleventh Hour.” Make sure you go right here to reserve your spot. You’ll be added to the guest list automatically.
Then, read below where he shows the link between the real estate cycle and the stock market… and why most mainstream pundits are wrong about what’s coming next for both stocks and real estate.
It was 1991. And London had a problem…
The city was experiencing a surge in homelessness.
And an enterprising duo, John Bird and Gordon Roddick, hit on a solution.
They founded The Big Issue. It’s a magazine created exclusively for homeless people to sell and generate an income from.
The model was a success.
Since 1991, vendors in Britain have sold 220 million magazines.
If you stacked all the magazines on top of each other they’d stretch for 455 miles. That’s well beyond the International Space Station.
And all that sales data revealed something…
Vendors learned quickly they could sell more magazines on busier street corners. If they were on quieter streets, they sold fewer copies… even with the same amount of labor.
Some vendors bid for the top locations. Others were willing to defend their spots with violence.
It’s a simple observation: Certain pieces of land produce more value independent of labor.
And it’s the key to understanding the 18.6-year real estate cycle I base my forecasting on.
You see, land values dictate the course of economies and markets. This insight can be enormously profitable. Because it has helped me predict every major market move since I discovered this cycle 34 years ago.
I know that’s unbelievable… but saying anything else would be less than the truth.
Here’s short list of some of my accurate calls…
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Housing crash in the early 1990s
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Dot-com crash in 2000-2002
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Bull market in stocks from 2003-2007
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The housing crash in 2008 and the global financial crisis (“GFC”)
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The bottom in stocks in March 2009 after the GFC
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The bull market in stocks in the 2010s
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The pandemic-induced crash in early 2020… and the recovery
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The sell-off in 2022
I can get a whole lot more specific with these calls. But these are the broad strokes.
How is this kind of accuracy possible?
Ricardo’s Rent
I’ve made it my life’s work to understand how economies and markets really work.
What I discovered is that market moves are not completely random. They move in cycles. History repeats.
It all comes down to the land market, which rises and falls every 18 to 20 years. This charts the direction of economies, markets, and everything in between.
If you’re skeptical, I don’t blame you. But allow me to prove it. And to do that, we need to meet David Ricardo and understand his Theory of Rent.
Born in 1772, the British economist Dave Ricardo a key figure in understanding the 18.6-year cycle.
In 1817, he observed that wheat prices were increasing at the same time as arable land prices.
This posed an interesting question. Was the rising value of wheat driving up land rents? Or was the rising land rents pushing up the price of wheat?
Ricardo determined that the rising price of wheat was pushing up the value of land. The more farmers could fetch for their wheat at market, the more they were willing to pay to rent land to grow it.
Like the magazine vendors who were willing to bid on preferred locations, farmers knew that the profit opportunity was higher even with the same amount of labor.
And this relationship between land prices and the economy isn’t restricted to farming.
Boom-Bust Market
All economic activity is dependent upon land. It’s the foundation the rest of the economy sits on top of.
Agriculture is an obvious example. But even the digital economy requires land.
E-commerce giant Amazon owns 16.7 million square feet of land for its distribution facilities. Airbnb boasts 4 million homes on it’s network.
And as Ricardo’s theory tells us, people are willing to bid up prices for the most productive land.
Farmers will bid up land that yields more crops. Amazon will bid up land close to its customers. Airbnb renters want homes in hip locations. And this bidding for and purchasing of land that makes a market.
All markets, by their nature, have booms and busts. But the land market and the stock market are joined at the hip. So the booms and busts in the real estate market have knock on effects in the stock market, too.
And you can use how they interact to accurately forecast each market…
How to Read the Real Estate Cycle
That’s because the two cycles interact in a predictable way…
At the bottom of the 18.6-year cycle, the stock market leads the way into the next upcycle.
Take the bear market in stocks in March 2009. This came after the roughly 50% selloff in the S&P 500 following the 2008 crisis (which I called, by the way, to within 4%). And it was the clue to real estate investors that the cycle was finished and were into a new one.
Now, if you’re a real estate investor, knowing this is a huge advantage. It helps you have more backbone when you’re buying at those extreme lows.
That’s what I did at the bottom of that cycle. I got together with some other investors. And we bought commercial properties for pennies on the dollar – an investment that is still paying off today.
And at the top of the cycle, it’s the land market that peaks first.
So if you’re a stock investor, you should be watching land prices and the prices of stocks that operate in the real estate business.
If we go back to the 2007 stock market peak, you’ll see that homebuilders and the land developers peaked in 2005. That was a hint for stock market investors to start to get more defensive with their portfolios.
We’re going to hit the top of the cycle mid-decade. But we’re not there yet.
Real estate and stocks won’t crash for years yet. There has never been a crash at this stage in over 200 years of following this cycle.
If you’re interested in hearing more… I’ll go into all of this on Tuesday, April 11 at 10 a.m. ET during my briefing about the Eleventh Hour.Go right here to make sure you don’t miss out.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
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