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Shall we get back to basics this week?
I’d like to review some data which accompanied the recent speech by US Fed chairman Jerome Powell.
And look at some of the mass media responses to it.
Which I could gleefully add to the ever-growing list of entries in a book entitled “Just how wrong can these people get?”
On Wednesday, the US Federal Reserve chairman reported that the US Fed are “almost done” when it comes to its historically fast interest rate rise campaign.
I’m sure many of you feel like saying “well, it is about bloody time!”
And I’m one of them. I mean, I’ve written to you before about the ‘too far for too long’ mentality when it comes to central banks and interest rates.
In fact, any subsequent rate rises from here would in my mind simply reinforce this fact. But we aren’t there yet.
But what precisely ‘did’ the data tell us, what kind of reporting was done by the media on it and most crucially, how does it all tie together viewed through the lens of the 18.6-year Real Estate Cycle?
These are uncertain times, for most. It feels like it can go either way as evidence seems to suggest major divergence is apparent here.
Can we cut through all this doubt and uncertainty to chart a clear path forward?
Let’s find out.
Positive or Negative charge?
Now, if I’m finding it hard to sleep, I’ll go and listen to a central banker speak.
So, I will not endure you to such lengths!
Instead, let’s focus on one subject, which is the one everyone is hanging on every word for.
After a series of rapid interest rate hikes over the past 18 months, the Fed can now “proceed carefully”, Mr Powell said – a sentiment he repeated at least a dozen times during a press conference that followed the central bank’s decision to leave rates unchanged.
So yes, this one theme made up the majority of what Powell spoke about.
Cue an avalanche of so-called economic experts and market commentators coming out of the woodwork to offer their opinions and views.
I won’t dwell on all that. Let me instead just focus on an example which seemed to typify much of the sentiment of those reporting upon the speech.
Here’s the example from Bloomberg Economics’ chief US economist, Anna Wong:
“Even though the [Fed officials’] dot plot [predictions] shows another hike this year, we see a number of potential adverse shocks to growth between now and end-year that could derail that plan.
Economic uncertainty and disruptions from the UAW strikes and looming government shutdown may push the Fed to postpone a hike to 2024 – or even nix it completely.”
For context, the UAW strikes are about United Auto Workers’ walk out on September 15th after Ford, GM, and the unions failed to reach agreement on pay rises.
This continues to rumble on. In fact, US President Joe Biden is expected to meet with these striking workers. Hence the amount of media attention these strikes are garnering.
And then of course we had the now bi-annual threat of government shutting down, again.
So, what do you think about all this? Are you inclined to be positive given the forward guidance offered by the US Fed chairman of their rate rise cycle being done?
Or the alternative being pouted by the media that you really should be negative and downcast on things given “adverse shocks” and strikes at car manufacturers.
Personally, I see valid points made by both.
I just don’t “see” the economy the way either of them does.
At this juncture, I will offer you two choices.
One, you make the decision to stay behind the curve, always reacting to news and not make decisions until you get confirmation bias from your favorite economic and financial commentator.
Or two, understand the true drivers involved and by extension begin to trust what 200 years of real estate history will tell you what’s about to happen next.
The real estate cycle is unequivocal about this.
Here is what the cycle is telling me. It is telling me that both the US Fed chair and media are right.
You didn’t expect that answer, did you?! (and with reason, my role has generally been to point out how wrong both are on an almost-weekly basis!).
Let me explain myself.
I do believe the data behind the Fed’s decision to soon end its rate rises are accurate. However, I also believe the problems and underlying issues that the Bloomberg article articulated are also true.
I will get into the data shortly but let me expand on why they can both be right.
We are entering, indeed have already begun, the second more speculative half of the current real estate cycle.
What history shows those who care to study it is this: the divergence between the speculative behavior and the ‘real’ economy starts to widen from here.
The narrative shifts quickly and is irrevocably positive. No-one is now interested in reading about bad news and instead start to experience FOMO (the “fear of missing out”). Our ability to access easy credit and either spend or invest it drives every and all business decisions.
Both will in time leave their own indelible mark on this cycle.
It’s now simply a matter of “when”.
And I will tell this to you over and over until I’m blue in the face; only knowledge of the 18.6-year Real Estate Cycles can deliver you that timing.
And what a priceless advantage it can be.
Since the very first one of these newsletters to you I have stated the greatest single wealth event in history is still ahead of you.
That the US economy would lead the world into this amazing time of financial growth and investment fortune.
But it was never just my own ramblings. It’s the history of the 18.6-year Real Estate Cycle that’s telling me this. And I’ve been listening since 2012.
Because of this, I know what I should be expecting to occur before it happens. I have the confidence to correctly frame the news I read using the lens of the cycle.
And frankly, I think that’s precisely what I have tried to help you do through the pages of this weekly newsletter.
You would know that talk of a recession in the US, at this time (well, over the last 12 months actually), did not conform with the timing of the cycle. I’ve provided amble evidence to demonstrate this point of view to you this year.
I explained that the turning of the cycle told you to be looking for news of the strength of the economy, the US consumer, and the expansion of bank credit instead.
THAT is what real estate history is unequivocal about. 2023 should see the seeds for strong economic growth underpinning massive spending by government and eventually the private and banking sector into a roaring consumer-led economy.
So, yes, I can indeed see how both sides here are right.
It’s just that I can contextualize when they will be right.
It’s all happening like clockwork!
So that leads us to the data. What precisely has been happening on the ground in the US?
The US economy has so far been robust in the face of the Fed’s historic tightening campaign, from nearly zero per cent in March 2022 to 5.5 per cent in July, which was a 22-year high. Consumer spending remains strong, and the labour market has been steady, though jobs’ growth is starting to moderate.
Though, this moderation is in fact what the US Fed wanted all along.
In a nutshell, despite this record interest rate hike, the US economy has shown great “resilience”. (That’s what commentators are calling it; in fact, it’s not resilience, it’s exactly what happens at this point in the cycle). It has been due to a combination of US government stimulus and rampant consumer spending.
It is resulting in a reported forecast of 3% GDP growth for this last quarter alone.
But…what about the inverted yield curve, what about the debt levels, I hear you ask.
The real estate cycle told me that it wasn’t time to be overly concerned by either, so I wasn’t. And I’ve been proven right.
Look at some facts concerning this 3% GDP growth.
The average US mortgage holder is still paying 3.6 per cent, half the going rate on new mortgages.
Some pandemic programs remained surprisingly active, including tax credits of up to $20 billion a month to help companies retain and insure employees.
Early in COVID-19, the government suspended student loan payments, putting up to $8 billion a month in the pockets of the young. This created a more than $2 trillion boost to savings which consumers have been gleefully spending.
And then of course the simply incredible expenditure by the Biden administration amounting to the most ambitious expansion of government since Franklin D Roosevelt.
Of the nearly $8 trillion in new spending since 2021, some $6 trillion went to the military, entitlement programs and the president’s “new American industrial policy”, subsidising US companies to compete with China.
Companies are jumping at the subsidies. The computer and electronics industry alone announced $100 billion in new construction plans in the second quarter, up tenfold from the same quarter two years earlier.
This is incredibly bullish!
It’s here that the question now becomes one of: if the history of the cycle told us to expect this, what comes next? And how do I benefit?
For you it starts with what the Boom Bust Bulletin (BBB) is designed to help teach you.
You are going to give me the opportunity to take you in depth into the cycle.
You are going to 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.
Once you know this you will be able 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.
Here’s something you can now look to happen over the next 6-12 months.
The US consumer is going to become an even more important barometer of economic growth. The debt jubilee on student debt is due to expire soon. Now maybe it’s going to be extended but for now let’s assume it doesn’t.
If it does resume, expect whatever remaining stimulus savings for US students to be directed into paying that off.
Once they do though, they will continue spending. Why? They will replace savings with lending – credit creation. When one form of debt eats up your liquidity, replace it with another form of debt.
Another sign the era of easy credit has arrived. Learn to interpret the news, like above, so you know when and how to position yourself against the crowd.
So, you never trade or invest against the trend when it comes.
That’s how my Boom Bust Bulletin can help.
As a Boom Bust Bulletin member you will receive a long-form newsletter every month 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.
This 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
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This content is not personal or general advice. If you are in doubt as to how to apply or even should be applying the content in this document to your own personal situation, we recommend you seek professional financial advice. Feel free to forward this email to any other person whom you think should read it.