If you ever have the urge to indulge in some sobering reading, I suggest going back to the mid-year economic outlooks for 2023.
Boy, times appeared very tough back then. Even though it was only a few short months ago.
Some of you may suggest that, as of now, not much has changed!
I guess it would depend upon where you reside.
But even then, it would obscure a deeper truth. And it’s that which motivated me to write this week’s newsletter.
I’d like to revisit some of these outlooks and forecasts from a few months ago.
Taking you back to the type of emotional headlines that abounded back then. And recount the predominant thinking of the masses as they tried to fully absorb the news.
And then, I’d like to show you the type of advice the Property Sharemarket Economics (PSE) team provided to our members.
Not as a way of downplaying the many issues and challenges that we were facing and still face in the future.
Believe me, some of these will persist right up to the peak then bust of the current cycle.
Instead, it’s to demonstrate to you how understanding the land market can really cut through the noise and set you on the correct track.
While all around you are struggling to work it out.
The collapse that never was.
When I looked back to remind myself what happened throughout 2023, I had forgotten just how much has happened.
It really has been an emotional ride!
I recalled many of the thoughts and feelings I personally experienced in those moments.
And it’s these types of reactions that lead so many astray when trying to correctly interpret what’s happening around them. Even though I am an experienced market analyst and trader, I am not immune to this.
So, it might interest you to see what the Property Sharemarket Economics (PSE) team was advising at the time each of these events occurred throughout the year.
I’m sure you can remember the following event.
Source – CNBC
This was, at the time, the apparent catalyst for anything from a crash in cryptos to a global bank run that would seize and bring down the financial system.
The pin-up child for this, so to speak, was Silicon Valley Bank (SVB).
Some ill-advised and overly optimistic investments in government bonds (right when the US Fed was ratcheting up interest rates) saw SVB announced a loss of $1.8 billion on selling US treasuries and mortgaged back securities.
This triggered a $42 billion dollar bank run in a single day!
Hence the record referred to in the above headline.
But it also triggered an avalanche of negative and ill-advised media narrative that resulted in dozens of emails from concerned PSE members wanting to know if “this time it’s different”.
There were so many people asking about this event that it spurred me to write a piece about it – “Silicon Valley Bank – a tragedy in 4 acts”. However, the advice we were providing our members at this time is perfectly summed up in the concluding paragraphs:
The reason why I’m so confident that we are not facing another GFC moment is due to the history of the 18.6-year Real Estate Cycle. With this knowledge, you would know that within the construct of a cycle it isn’t the time for systemic and global financial meltdown.
And the reason why is quite simple yet is almost unknown in the mass media. And it’s this. The US land market is strong. Which means the reasons why this bank collapse is specific to itself and not systemic is because the value of its real estate hasn’t fallen below the value of the loans outstanding.
Recall this was written back in March. There was another event that provided further proof of this.
As Federal authorities stepped in to provide liquidity and prevent a financial contagion event, their response to SVB’s problems included (a) guaranteeing all SVB deposits, (b) making additional liquidity available to banks, (c) injecting extensive liquidity into the economy, and (d) letting its balance sheet grow.
Why? As stated, land prices were not falling. There was ample capacity in both the government coffers and the banking regulators to step in and in short order contain the fallout. The moral hazard this behavior creates is perhaps best left for a future newsletter.
As of today, I feel confident in saying our stance on this was the correct one.
And I’m very happy to say our members benefitted at the time too.
Let’s play economic roulette.
So much for the SVB debacle.
But things started to get quite confusing. Soon after, we started to see mid-year economic news come out from various central banks and then end of year forecasts from many of the world’s foremost research houses.
Sure enough, the news was both concerning, optimistic and completely at odds with each other!
It was quite a confusing time to try and determine if central banks were bullish, bearish, or simply unwilling to admit they didn’t really know what was going on?
From March onwards we had news media reporting the fact that a recession was absolutely nailed on.
Source – Fortune
We then had the US Federal Reserve raise rates to a range of 5-5.25% in May, but in doing so dropped from its policy statement language saying that it “anticipates” further rate increases would be needed.
Something greeted with much enthusiasm as it seemed to suggest that the US Fed was in fact winning the battle with inflation.
Source: Reuters
But that optimism didn’t last long. By July, the IMF stepped in with a very pessimistic forecast for the global economy for the remainder of 2023. Because the world’s three largest economies were slowing down.
Source – IMF.
Just to take you back there, this was a time of headlines about inverted yield curves; in some cities house prices were falling. There was ongoing cost of living pressures, persistent inflation, slow growth from China and other economies and of course the war in Ukraine.
An enormous amount of news to digest, and most of it was bad!
It was back then where we received plenty of correspondence about all of this. The emotion was predominately of fear, the questions laced with real doubts about the ongoing economic health of the world.
So, the PSE team did the one thing that no-one in the world back then was doing. We viewed everything that was going on via the lens of the 18.6-year Real Estate Cycle. What could we glean from placing the land market first and foremost in our research?
An advantage unlike any other
The result was communicated to our members via a few PSE member emails including the one I shall exclusively quote below from Akhil Patel on May 8th, 2023.
What the hell is going on? One might ask.
As far as I am concerned, as you know, the reason is down to where we are in the land cycle, something that no one ever uses as the primary contextual factor for market action.
The market action is taking place against the backdrop of a fairly stable land market…the US land market has not collapsed.
Why?
There is huge demand for land…huge infrastructure investments have pushed up the demand for and price of newer locations.
But it’s also consistent with what you find in the second half of the cycle: the rest of the world, in terms of its credit creation activities, catches up with the US (which leads the world in the first half).
And as the cycle becomes increasingly global, it’s global liquidity (not just what the US is up to) that becomes a driving factor.
Let confusion reign for those who are not interested in studying the land cycle!
In short – the US land market, and thus the real estate cycle, was tracking on time.
It was not time for a land led recession or depression. This strength would continue to attract large amounts of credit creation and thus most of the issues we experienced earlier this year would pass in time.
Was anyone else offering this type of advice between March and July this year?
I’m paraphrasing some but even though we acknowledge the problems in the system and the pain being felt by many, the strength being shown in US land prices meant that, should history repeat, the cycle would remain on track throughout this.
And so, to the present. If anything, the news has become far more grim and potentially deadly. Markets dislike uncertainty and there is plenty of that about.
I asked Akhil Patel to provide his thoughts to you at this crucial time last week, which you can read here .
So, we watch to see what happens next. In a way that no-one else can do.
Because when push came to shove, we trusted in the cycle, and relied upon our own proprietary set of economic indicators to help us navigate these tough times.
This is the incredible advantage knowledge of the real estate cycle can give you.
So, what are you waiting for? The remaining years of the current cycle promise to be every bit as volatile as 2023 has been.
It’s time to educate yourself and steer a steady path through it all. And that’s what the Boom Bust Bulletin (BBB) is designed to help you with.
Give me the opportunity to take you in depth into the cycle.
Learn about the history of both the 18.6-year Real Estate Cycle and the real reasons why interest rate rises, house prices, and stock markets are so indelibly linked.
It will teach you how to decipher the news that we get bombarded with every day to focus solely on what truly matters.
No more negativity and noise, just the science of the economic rent and the timing inherent in the real estate cycle.
This is all you need to succeed.
This is not an exercise in self-congratulatory pats on the back. Trust me, the more volatile things get, the more work the PSE team needs to do to keep abreast of it all and try to identify the truth.
In other words, I expect to be kept gainfully employed for the next few years!
Rather, I hope you take this in the correct context and see for yourself what a little knowledge can do when applied at critical times like what we lived through this year.
Imagine tapping into this knowledge while all around you lose their heads consumed by the negative media narrative. And then compounding that by making emotional financial decisions.
That’s how the BBB can help.
As a Boom Bust Bulletin member you will receive 12 monthly editions a year detailing all the key turning points of the cycle, a deep dive into the most important markets across the globe and ways that you can personally benefit from this knowledge.
All derived from our unique and proprietary research – which you’ll not find anywhere else.
Plus, you’ll receive exclusive invites to BBB member-only webinars when we run them.
All this for just US $4 a month, less than a takeaway coffee.
Best wishes,
Darren J Wilson
and your Property Sharemarket Economics Team