The best way to get a decent idea of what’s going to happen next is with knowledge of the real estate cycle. We’ve covered that extensively in Cycles, Trends and Forecasts, and recently here in Markets & Money as well.
If you’re new to the cycle, and once you’ve started to try and assess the movements for the first time, it’s not always that easy to identify where you are (in the beginning).
One of the best ways to get around this is through the study of listed companies’ corporate earnings reports. And even better, learning to read their charts while you do it.
Especially listed US stocks. These are by far the most important ones to look at.
Here’s an example for you: Blackstone Group [NYSE:BX].
BX reported profits for the first quarter of 2017 on 20 April. The results were subsequently reported in The Wall Street Journal. Here are a few quotes from the report:
‘Blackstone group LP’s first-quarter profit more than doubled as the firm took advantage of buoyant markets to sell a record $16.6 billion worth of private equity, real estate and other assets…’
And this one:
‘…the New York asset manager is still benefiting from economic growth and healthy investor appetite for equities and corporate debt and other assets. Blackstone’s buyout and private equity businesses sold a combined $12.9 billion of assets during the quarter at an average 2.6 times what the firm paid…
‘…meanwhile, the firm invested $11.7 billion in the first three months of the year marking its second-biggest quarter ever for putting new money to work.’
‘Blackstone said it would pay a dividend of 87 cents a share, its second highest dividend ever…’
‘…earnings rose to $461.8 million or 69 cents a share, from 159.8 million, or $0.23 a share, in the same period a year earlier.’
This really does tell you a lot.
BX is now the world’s largest fund manager of real estate assets.
The guys who run this operation are not idiots. They know what they are doing. They may not understand the total real estate cycle exactly, but they do know how to work off rough seven- to nine-year cycles for this business.
They know to buy when there’s blood on the streets, and to sell when everyone else gets greedy.
Note they’ve sold $12.9 billion of assets during the quarter at an average of 2.6 times what they paid. This indicates just how much real estate around the world has gone up. It also shows you what could be done when you know how to invest with the cycle.
(My real estate holdings have done about the same the past seven years, so the BX return is nothing out of the ordinary.)
They’re still buying, you may care to note.
The second highest dividend they’ve ever declared confirms for you that the real estate cycle midpoint slowdown (expected from 2020 into 2021) is edging closer.
There is also a very good learning exercise with BX and what it reports.
Here’s a sample (non-selective, I might add) of what BX has reported in years past (emphasis is mine):
‘Blackstone, the US alternative investment group, on Thursday reported a 23 per cent rise in third-quarter profits, buoyed by gains in its real estate portfolio.’
Financial Times, 29 October 2010
‘Blackstone Group’s first quarter profit surged as the alternative asset manager reported higher assets under management and stronger revenue…’
Financial News, 18 April 2013
‘Blackstone, the biggest firm in the business of leveraged buyouts, reported on Thursday that its second-quarter profit — measured as economic net income, which includes unrealized investment gains — rose 89 percent, to $1.3 billion, from the period a year earlier. Driving the surge in profit, the firm’s largest buyout fund crossed a critical threshold to allow Blackstone to start collecting profit from it.
‘The earnings amounted to $1.15 a share, far exceeding the 71 cents a share expected by analysts surveyed by Thomson Reuters.
‘Blackstone grew even larger in the quarter; its assets under management rose to $279 billion, a 21 percent increase from the period a year earlier. The firm said it had returned $50 billion to its investors over the last 12 months.’
The New York Times, 17 July 2014
If you really want to learn what all this means, always take the time to compare such information (like that from above) to the chart.
Now here’s the BX weekly chart, going back to the IPO of 2007.
[Click to enlarge]
Price simply went up as the earnings grew. Exactly what to look for in any stock.
More importantly, it told you what the real estate cycle in the US was doing: recovering.
This confirms for you the turning of the cycle, and how each stage of my real estate clock is progressing.
This is not rocket science.
It is the science of the Economic Rent.
Meanwhile, right throughout 2010 and beyond, all of the pundits and so-called ‘experts’ were happily telling you another recession was imminent.
Once you learn all this, you’ll realise you have to stop listening to those who know less than you do about the world and how it turns.
For Markets & Money
Editor’s Note: This is an edited extract of a piece originally published in Cycles, Trends and Forecasts.