The Economic Recovery You Might Not Know About

If you follow the financial news you’ll hear about the problems from all over the world. You name it, we can talk about it. Greece, China, the collapse in oil and other commodities, the fall of the Aussie dollar and the terms of trade…the list goes on.

Should you worry about all this? Not really. I don’t anyway, because the indicators I track are showing that the world is slowly building up a recovery — just as it’s done throughout history.

The Telegraph recently reported on a ‘UK housing crisis’ — but it’s not what you might think. The supply of bricks is too low!


It seems that the UK is facing a severe brick shortage, the lowest brick stocks in living memory. In the article, dated December 28 last year, Martin Warner, chief executive of Michelmersh Brick, states:

Every brick we can make has already been sold up to three months in advance – the UK brick makers can’t supply demand at the moment.’

Also this quote from same article, regarding Europe,

The strong demand from house builders has seen brick makers rush to bring back facilities. Weinerberger, Europe’s largest brick maker, is reinstating two mothballed factories that will produce 200m-plus bricks a year.

Suffice to say, this is not forecasting economic collapse for the immediate future, despite what the mainstream is yammering on about.

Have a look at the monthly chart of Dulux [ASX:DLX]. Dulux produces paints, and includes well known brands such as Selley’s adhesives, Cabot’s deck coatings and much more.

A nice rise in Dulux
Source: STEX
This stock is strongly tied to the Aussie housing market and continues to flirt with all-time new highs. If the price of the stock is going up, this means it is being bought up in expectation of stronger earnings in the future. Again, this is hardly forecasting imminent economic collapse.

You might not hear a lot about them, but there are some enormous economic gains that are coming via technology, like 3D printing for example. Sam’s Volkering’s Revolutionary Tech Investor is a wonderful source for all this type of information.

Technological advances will cause products to become not just a little bit cheaper to produce, but a lot cheaper. Investors who understand the economy as so few do — see here for details — can capture these gains.

To further emphasise the point that great wealth is being produced this cycle, I point to an Australian Financial Review article dated January 6, 2015, which ran the headline, ‘Rolls-Royce reports record sales as U.S. remains largest market’. The article states:

Rolls-Royce Motor Cars Ltd. delivered more vehicles in 2014 than ever before in its 111-year history, marking the fifth consecutive annual sales record for the ultra- luxury brand.

This gives you some guide for the economy at large. It seems the rich really want to spend their money at the moment. Five consecutive years of records. Again, this is not forecasting economic collapse for the immediate future.

On top of that an article from Sky News,dated January 7 this year, reports:

US aerospace giant Boeing has reported a banner year in 2014 for aircraft sales, breaking records for new orders and deliveries.

Boeing said it booked 1,432 net orders for commercial aircraft last year, with a list price value of $US232.7 billion ($A251.77 billion), topping its 2007 previous record.

The company’s backlog of unfilled orders climbed to 5,789, also an all-time high.

Does this sound like a forecast for economic collapse in the immediate future to you?


Oil prices tumbling to multiyear lows

The plummeting oil price is a huge boost to consumers and bullish for the global economy. Oil collapses in the past have ignited great economic comebacks.

Crude oil.JPG
Source: Business Insider Australia
And the post GFC recovery has produced more billionaires than ever before.

Enormous wealth creation is promised for this cycle. You must come to an understanding of where that will manifest. To give you an example, at an economic conference I attended last year, expert after expert prattled on about credit creation creating the boom and being the cause of the subsequent bust. This impression is false. Here’s an idea — perhaps it is the cycles in land price which create the boom bust cycle.

You need to consider first and foremost the property market and the effect it can have on the wider economy.

The 2008 collapse brought down property prices all over the world. Most economies around the world experienced roughly four years of declining house prices. That means in recent years people need less to buy in. The result, lower mortgages.

Therefore, after paying the mortgage, there’s a little bit left over from the weekly pay packet to fund other areas of the economy. And away we go again…and the cycle repeats.

Conversely, at the very height of the boom house (land) prices are bid up so high that after paying the mortgage there’s absolutely nothing left over to fund other areas of the economy. At that stage of the cycle businesses start to slow, people start to get laid off, and, well, you know the rest. Subprime mortgages were the core of the GFC. And at the core of subprime mortgages were unaffordable land prices.

As the property boom goes up, the amount of credit created against it skyrockets. When property prices fall, the banks go down with it.

This is in essence the boom-bust cycle we are locked into and doomed to repeat. Once you come to an understanding of this cycle, that it must repeat, you can use this knowledge to your advantage. The 18 year real estate clock, which you can read about here, can guide your investment decisions as we progress through the cycle. I urge you to come to an understanding of the 18 year real estate clock. It is suggesting we have a huge cycle coming up.

So there you have it. Despite all the talk of QE III, government debts and defaults, deteriorating demographics, and impending stock market and property collapse, it seems the market is telling us otherwise.


Terence Duffy
for Markets and Money

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Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

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