The final day of World War D was drawing to a close. Former banker and analyst Satyajit Das spent an hour and a half telling us all that the world financial system was damned no matter what happened. He showed us an almost endless stream of graphs, statistics and figures to say why. There isn’t enough growth and there is too much debt. Das suggested the most likely scenario is complete stagnation for a long time to come. It was a similar message, in the end, to the one he gave two years ago at the previous Port Phillip Publishing conference, After America.
It certainly made an interesting contrast to the next speaker, who said the biggest boom of all time is brewing. It won’t be tomorrow, but the setup is coming. That was forecaster Phil Anderson. It certainly wasn’t the first time Phil had made the big call. In 2008 he was, he said (trying to be as humble as possible), the only person in the world who said US real estate would bottom around 2010/11 and US stocks would soon climb after that. Looking back now, he nailed exactly what happened.
This prediction, we should add, wasn’t made down at the local golf club. The evidence was there for all too see in a 2008 article in Money Week, one of Britain’s largest financial magazines. How did he do it?
Well, you have to understand the economic structure said Phil. And that what happens is based on the economic rent. (You can see what Phil means by that if you click here ). When the economic rent is enclosed, every scrap of evidence over 200 years of US history, 300 years of British history and 400 years of Dutch history suggests you get a real estate cycle. The pattern averages out at 18 years, with generally predictable results.
The 18 year property cycle concept is nothing new. Three notable researchers had concluded the same thing last century and written books about it. They predicted the big booms and busts — and timed their investments accordingly. To our knowledge, at least one of them died rich. One of them is still alive today and predicted not only the collapse in 2008, but the preceding one in 1991.
Phil explained that if you haven’t read their books you’re at a significant disadvantage as an investor. (Phil talks about them in his latest video.)
One of Phil’s slides showed the shape of the typical real estate curve as it played out over nearly 20 years. Then Phil overlayed that atop evidence from the UK from preceding cycles. The fit was pretty snug indeed. Phil gave attendees the most reliable indicator he’d discovered to watch for the next peak. It’s been accurate since 1800. The secret is not to buy in the ‘winner’s curse’ phase, he explained. That’s when you’ll end up in negative equity. That’s a very nasty place to be as so many Americans, Spaniards and Irish found out.
Here’s a caveat from Phil: the cycle will never repeat exactly. Otherwise it would be obvious to everybody. Something will always muddy the water sufficiently to blur everyone’s vision. Read: China. Phil’s take on that: slowdown probable, collapse unlikely.
But Phil’s not just a real estate man. In fact, he says himself it’s only a fraction of what he studies and tries to illustrate for people. It’s just in Australia people gravitate to the property angle. But the key, he says, is to understand the interplay stocks have with the land market, and the dance of interest rates and commodity prices. If you can tie them together coherently, you can read the markets in a very effective way. That’s why he studies — and trades — them all.
Actually, that last part was not in Phil’s speech. That’s some insight we got after his presentation when we interviewed him on camera. That’s bonus material for people who buy the World War D DVD. But there’s not just Phil. Our various editors sat down with Jim Rickards, Will Bonner, Richard Duncan, John Robb, Byron King and Satyajit Das.
So that was World War D. The conference is over. But the issues have just begun. Stay tuned.
for Markets and Money