House Prices First, Stocks Second.

We’re obliged to report that US house prices rose by 10.9% in March, year-over-year. It was the biggest monthly increase in house prices in seven years. Is this evidence that Phil Anderson is right?

Phil’s basic thesis — which you’ll read about later this week — is that there is an 18-year property cycle in the US. When your editor sat down to talk with Phil in March, he made the simple claim that new highs on the US stock market were confirmation that a new property cycle had begun. He went on to say it would be bigger than the last one.

Naturally, as a fully committed bear on Australian house prices, Phil’s view is disconcerting to your editor. But he has further claimed that the Aussie market follows the US market with a lag. We won’t give away all the details. But when we met in early March of this year the Dow Jones Industrials had just made a new all-time high. Phil said that was exactly what you’d expect for where we are in the cycle.

The Dow made another new all-time closing high yesterday in the US. We’ll leave it to you to decide if this confirms Phil’s forecast for Australian real estate. In the past, we’ve rubbished the Dow as a useful indicator of the intrinsic value of securities. It’s a price-weighted index that favours expensive shares.

But Phil’s point is pretty simple: the banks will create as much credit as society allows. This credit will go into property prices first and stocks second. The only possible complication to a new boom, in his world view, is that China may have its own credit/property cycle and that China’s cycle may hold more sway over Australia than the US. Stay tuned for more details this week.

Dan Denning
for Markets and Money

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From the Archives…

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How a Slowing Chinese Economy is About to Hand Australia a Pay-Cut
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