The world’s No. 1 investor just made a bullish bet on the U.S. housing market…
Warren Buffett is one of the most successful investors of all time.
In the 1960s, he began buying shares of an obscure textile company, Berkshire Hathaway. And he transformed it into a holding company that owns a range of businesses from insurance… to utilities… to retail.
It also invests in publicly listed stocks.
Since 1964, it’s delivered a total return of 3,787,464% for investors.
A $10,000 investment in Berkshire Hathaway back then would be worth about $379 million today.
So, it’d be foolish to ignore what Berkshire is up to.
And on Monday, it disclosed new investments in the three U.S. homebuilder stocks.
Berkshire said it now owns 6 million DR Horton shares worth $726 million… nearly 153,000 Lennar shares worth $17 million… and 11,112 NVR shares worth $71 million.
All told, that’s an $814 million bet on a surging housing sector.
If you’ve been steered by mainstream opinion, this will shock you…
The consensus narrative was that the housing market would crash this year due to rising mortgage rates and a looming recession.
Here’s just a selection of the bearish headlines in the press…
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When Will the Housing Market Crash? – S. News and World Report (7/27/23)
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2023’s Housing Correction Could Be the Largest Since Post-WWII – Yahoo! News (6/27/23)
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Housing Market Going Into “Very Frightening Time” Investor Warns – Newsweek (6/5/23)
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Housing Crash: Fed Economists Warn of 20% Market Correction and Bubble – Markets Insider (2/28/23)
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Home Sales Could Plunge in 2023 – CBS News (12/1/22)
And it’s been a similar story on social media. Here’s what Elon Musk tweeted in May….
Commercial real estate is melting down fast. Home values next.
Clearly, Buffett doesn’t agree. He’s taking the minority view on this. Which makes me wonder if he’s taking cues from our cycles trading expert, Phil Anderson.
Phil has an impressive track record of predicting market turning points…
These include…
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The housing crash in the early 1990s
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The dot-com crash in 2000
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The bull market in stocks from 2003-2007
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The housing crash in 2007 and the global financial crisis (“GFC”)
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The bottom in stocks in March 2009 after GFC
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The bull market in stocks in the 2010s
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The pandemic-induced crash in early 2020
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The selloff in 2022
And since he came on board here at Legacy Research in January, he’s been predicting a “melt-up” in stocks, real estate, and other assets this year.
And he’s used this forecast to give his subscribes the chance to make outsized gains.
One of his first recommendations at his new advisory, The Signal, was M/I Homes (MHO). It’s one of the country’s top homebuilders.
In April, Phil recommended it to play the melt-up. And last month, he closed out the trade for a 51% gain.
That compares with a 10% gain for the blue-chip S&P 500 over the same time. Not too shabby for a four-month trade.
How did Phil beat Buffett to the punch on homebuilders?
And how was he so sure the sector would rally when the mainstream narrative was so dire?
It’s down to the 18.6-year real estate cycle he tracks. It’s the average time it takes, through history, for one full boom-bust cycle in the real estate market.
It allows him to predict – with a high degree of confidence – when real estate will boom and when it will go bust. And armed with this insight, he knows when the stock market will rise and fall, too.
So, today, let’s look at what the 18.6-year real estate cycle is… where we’re at in this cycle now… and why it points to a bullish 2023 and 2024 for stocks.
Most investors see market moves as random…
But Phil’s research shows this isn’t true.
He went into all the details in his 2009 book, The Secret Life of Real Estate and Banking.
If you want to understand how this cycle works… and the historical evidence to back it up… I highly recommend you pick up a copy.
But the CliffsNotes version is that every 18 to 20 years, the real estate market, the economy, and the stock market move through a repeating series of peaks and troughs.
And the average time it takes to complete one full cycle is 18.6 years.
Using this knowledge, Phil didn’t just predict the 2008 crash – he saw it coming a mile away.
It also allowed him to predict the 2019 high in stocks… the 2020 mid-cycle correction… and the U.S. housing boom.
At the start of this year, he told his readers 2023 would be a “bumper year for homebuilders.”
That’s because we’re in the final phase of the 18.6-year cycle.
Phil calls this bullish phase we’re in now the Eleventh Hour…
It’s marked by a booming property market… a manic stock market… and economic expansion.
Here’s how he described it in a Q&A I shared with you in your April 21 dispatch…
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.
And here’s how he put it in your May 5 dispatch…
As the financial media makes a 180-degree turn on the recession narrative, investors will start to see that the world is in better shape than they thought.
The happier narrative will trickle down to government offices, boardrooms, and trading floors.
Then the media will amplify and spread this new narrative.
Then we’ll get even happier news… more “up” days in the market… more wild speculation. It will be like late 2021 all over again.
Phil’s forecast was uncannily accurate…
May was a blowout month for tech stocks.
The tech-heavy Nasdaq 100 – an index crammed with mega-cap tech names – shot up nearly 8%.
And the index had its best first half of a calendar year ever – with a nearly 40% gain.
This added about $5 trillion to the value of companies it tracks.
We also got plenty wild speculation.
On May 25, shares of Nvidia – which makes chips for AI systems such as ChatGPT – jumped 24% on a bullish earnings forecast. This added $184 billion to its market value.
That’s enough to buy all the outstanding shares in Walt Disney, Wells Fargo, or Verizon.
We also got more up days for stocks, as Phil forecast.
Last month, the Dow finished one of its longest streaks of up days in history.
It moved higher for 13 straight days.
That’s only the third time in history it’s pulled off a streak that long.
That’s why I’ve been urging you to at least consider the bull case for stocks…
Phil has a better record than anyone I know of calling major inflection points in markets.
And the Eleventh Hour prediction he made in these pages in April is no different.
Keep in mind, he made this bullish call right after bank runs that took down two mid-size U.S. banks – Silicon Valley Bank and Signature Bank.
And it was about a month before First Republic Bank – another regional bank – hit the wall.
At the time, Phil was one of only a handful of analysts that were bullish on the U.S. housing market and on stocks.
And I don’t know anyone who was beating the drum harder on why 2023 would be a great year for stocks.
Kudos if you followed Phil’s advice and stayed bullish in 2023…
You went against the crowd and have been richly rewarded. There are few better feelings in the world than that. And it’s what motives me to get out of bed in the morning and write to you.
But don’t worry if you missed out. Phil continues to see higher prices for stocks and real estate ahead. Over to him for more on that…
Mainstream commentators believed the real estate market would tank as the Fed began raising rates last March. But that didn’t happened, as I predicted.
And it’s not going to happen for another couple of years. My research shows we won’t see the top of this cycle until 2025-2026. Now, were in the last stage of the cycle – an extremely bullish phase I call the Eleventh Hour.
A lot of people are scarred by what happened to their portfolios last year. And they see more pain ahead for stocks this year. But the 18.6-year cycle tells us that 2025-2026 is when we’ll see the top of this current cycle. Just as we saw it top in 1955, 1973, 1989, and 2007.
You can follow Phil’s work over at his e-letter, Cycles Trading With Phil Anderson. It’s free to read… And you can go here to subscribe.
And if you’re serious about learning about the 18.6-year cycle… and how it can help you predict market turning points… you can catch a special presentation Phil put together right here.
He even gets into his favorite stocks to play the Eleventh Hour. Just go here to watch it.
Regards,
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Chris Lowe
Editor, The Daily Cut