Kris’ note: One of the great pleasures of writing the Daily Cut is having access to all the analysts and gurus at Legacy Research. The past year has been a busy one, with the addition of some new talent.
One of our new additions this year is Phil Anderson. He’s the market forecaster who retired in his 40s and travels the world thanks to his ability to interpret where markets are at in an 18.6-year cycle.
Phil received instant acclaim this year when he predicted the market moving higher amid the banking crisis in March. In this interview, colleague and former Daily Cut editor, Chris Lowe, spoke to Phil in early April.
In the interview, they looked in more detail at the cycle, and how it’s set to play out.
Q&A With Chris Lowe and Phil Anderson, Legacy Research Group
Chris Lowe: You’re not a household name. But you’re arguably the greatest economic forecaster of our time. You predicted all the major market moves throughout your 30-year career. That includes the dot-com crash in the early 2000s, the 2008 Great Financial Crisis, and the pandemic-induced crash in 2020, plus the recovery that followed. How did you first become interested in economics?
Phil Anderson: I’ve always had a bent for economics. At 12, while the other lads in my class were swapping football cards and playing marbles, I was collecting the business news. Sad, I know. But there you have it.
I still have my first cutting from a copy of the Sydney Morning Herald from 1974. It was about an economic downturn in Australia, where I grew up.
Some pundits were saying taxes were too high. Others blamed a weak banking system. Others still were pointing their fingers at inflation. I remember wanting to know which of these camps was right… if any.
I ended up earning an accounting degree and taking some economics classes as part of that. Could I explain to myself what caused the 1974 recession once it was in the rearview mirror?
No, I couldn’t. Neither could my economics professors. This was a major issue for me. I thought, “I’ve got to do something about this. I’ve got to find the answer.”
It seemed to me that, if you understood what drove economic cycles, you ought to be able to make accurate forecasts. But that’s not how it works in mainstream economics. You get all these different forecasts. And all of them are completely wrong! So, I thought the best thing to do was to prove it either could or couldn’t be done.
Chris: How did you do that?
Phil: I came across a book called The Power in the Land. It’s by a British journalist and economist called Fred Harrison. It shows that land speculation is what causes economic crashes.
That changed my life. I saw that you could start making decent forecasts using Harrison’s insights.
As it turned out, roughly two decades later, Harrison was one of the first people to predict the 2008 global financial crisis. In 2005, he commented that the next property market “tipping point” was due at the end of 2007 or early 2008. And he warned that the only way prices could be brought back to affordable levels was a “slump or recession.”
Chris: What did he base these predictions on?
Phil: He was one of the first to identify the length of the real estate cycle. He traced the British property market back for hundreds of years and concluded that you could trace boom-bust cycles in the real estate market on average every 18.6 years.
After reading Harrison’s book, I did my research. And I discovered that land prices in the U.S. also collapse, on average, every 18.6 years. So do the banks. But it’s land price that goes first.
After understanding this cycle, it became possible to make accurate market forecasts.
Chris: You don’t just forecast cycles in the real estate market. You also forecast stock market cycles. How does that work?
Phil: Most people either forecast the real estate market or the stock market. But I tell my subscribers that real estate investors need to understand the stock market… and stock market investors need to understand the real estate market. They’re closely related.
I’ll give you two examples…
At the bottom of the 18.6-year cycle, the stock market leads the way into the next upcycle. The bottoming of the bear market in stocks in March 2009, for instance, was the clue to real estate investors that the cycle was finished and we were into a new one.
If you’re a real estate investor, knowing this is a huge advantage. You’ll have more backbone when you’re buying at those extreme lows sitting on that information.
And at the top of the cycle – which we’ll shift into over the next couple of years – the real estate market peaks first. So, if you’re a stock investor, you should be watching land prices and the prices of stocks that operate in the real estate business.
If we go back to the peak of the stock market in 2007, the homebuilders and the land developers warned it was coming. They peaked in 2005. That was a hint for stock market investors to get more defensive with their portfolios.
Chris: Where are we now in the cycle? We’ve even seen trouble in the banking system. This has led a lot of analysts to conclude that markets are toast. Do you agree?
Phil: Gosh, no! First, what happened with Silicon Valley Bank (“SVB”) is a unique case.
SVB lent to Silicon Valley, not to real estate firms. And what brought it down was a run on deposits… and not toxic loans like in 2007 and 2008. So, it’s easy for the Fed to backstop the banks. And that’s what it’s done.
It’s painful for the people involved… especially SVB shareholders. But it’s not that hard on the economy in general. Besides, the boom-bust cycle is 18 to 20 years long. So, we’re not due another crisis until mid-decade.
Chris: That goes against the grain of what a lot of people are feeling. There’s a lot of bearish sentiment right now. How can you be so sure we’re not at the peak of the cycle already?
Phil: When the cycle peaks, and we get the next big downturn, your bank is not going to ring you up to say, “How can we help you?” It’s going to call you and say, “You owe us money. Pay it up now or get out of your house.” They’re just not going to be friendly.
That will be the cue for you to become more defensive with your portfolio. But we’re not there yet. If history is judge, 2025 or 2026 is when we’ll see the top of this current cycle.
Despite the doom and gloom in the press, this is one of the best times during the cycle to be an investor. It is the “growth at all costs” stage. So, I expect markets will turn upward from here.
This is great news for the investors who understand these cycles. Put simply, we have been granted more time to make money.
The last time I saw a moment like this was 20 years ago. And I went nine for nine on the investments I recommended to my subscribers. And average peak gain on those trades was 485%. I was also able to buy distressed commercial real estate for pennies on the dollar.
That’s what I mean when I say the opportunities here are transformational… if you’re prepared.
I retired in my 40s thanks to my ability to predict markets. I was able to act on major swings before they happened instead of reacting once the turning points passed.
And I passionately believe that others can do the same. That’s why I’m so happy to be working with Legacy Research and getting my message out to as many folks as possible.
Chris: Thanks, Phil.
Phil: My pleasure, Chris.