It’s a familiar pattern…
A California-based bank with ties to tech… and a lot of uninsured deposits… takes a dunk on its bond portfolio…
Worried customers yank out billions of dollars of deposits…
And management does its best to assure the market that everything is hunky-dory. Then, after a share price wipeout, it looks for a bailout.
This happened to Silicon Valley Bank in March. It happened to First Republic Bank on Monday. And yesterday, PacWest became the third California-based lender in as many months to cry uncle.
PacWest’s shares were already down 80% this year. Then yesterday, after it announced it had contacted an investment bank to broker a rescue deal, they plummeted another 50%.
The series of bank collapses this year is like nothing we’ve seen since 2008. And I know it’s got a lot of readers worried.
But as we began exploring yesterday, top economic forecaster Phil Anderson says won’t see a 2008-style crash for at least another couple of years.
That means now is a great time to buy stocks.
And given his uncanny knack for calling major market turns ahead of time (more on that below), it’s worth hearing him out.
Recessions have fascinated Phil since he was a kid…
So much so, he made it his life’s mission to figure out what causes them. Over to Phil for more…
At 12, while the other lads in my class were swapping football cards and playing marbles, I was collecting the business news. I still have my first cutting from the Sydney Morning Herald. It’s from 1974. And it was about a recession in Australia, where I grew up.
Some pundits said taxes were too high. Others blamed a weak banking system. Others pointed at inflation. I remember wanting to know which of them was right… if any.
I later took some economics classes in college. But I still couldn’t explain what caused the 1974 recession. Neither could my 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.”
He found the answer in an unusual place…
When I finished university, I spent 20 months backpacking. I walked, hitched, drove, took trains, and donkeyed my way from Switzerland, through Russia, to China, Tibet, Nepal, and India.
What I learned is people are the same worldwide. We all want a house on some land where can raise kids without too much interference from government. That led me to the revelation that economics has more to do with land than anything else.
That’s why I say to my readers all the time, “To find out where the economies are headed next, you have to understand where the land market is headed.”
This isn’t something you’ll hear from mainstream economists or commentators. And it will be new to a lot of readers. So, let’s do some unpacking…
Land is an inherently speculative asset…
And when you have a speculative asset at the center of your economy… you get boom-bust cycles.
It’s the core idea in a book Phil recommends called The Power in the Land. And it’s about what drives these cycles… and how they repeat.
Here’s a quick summary…
Land is a limited resource. So as the economy grows… and demand rises… it drives up the price of land.
As land prices rise, investors and speculators pile in. This causes land prices to rise even higher. And it results in a bubble.
As prices rise, banks provide credit to investors, developers, and homebuyers in greater quantities, because the price of the collateral (the land they’re lending against) is rising.
Eventually, the land price bubble gets out of hand and exceeds the economy’s capacity to support it. Land prices plummet. This leads to a recession or depression.
That’s why Phil says we’re not heading into a recession soon…
Land prices would have to fall first. And that hasn’t happened yet.
In 2022, U.S. farmland values reached new heights. And experts say the climb isn’t over.
Here’s Paul Schadegg, a senior vice president of real estate operations for Farmers National Bank…
Moving into 2023, our anticipation is that values are going to remain strong because of where the ag economy is today and the competition that remains out there bidding on this land.
We’re not seeing any big declines in the residential housing market either.
National Association of Realtors figures show that the median existing-home sales price dropped 0.9% in March compared to a year ago.
And that’s the second straight month of year-over-year home price declines after a 131-month streak of record increases.
But as of March, total existing sales are down 22% from a year ago. That tight inventory is keeping prices high. And it’s likely to continue like that for a while.
Mortgage rates have roughly doubled over the past year. This means folks who bought homes in recent years at lower interest rates are staying put… rather than face refinancing at a much higher rate.
So, when will we see a peak in the stock market?
Phil’s research shows how the land market moves in boom-bust cycles with peaks, on average, 18.6 years apart.
The last peak was in 2007… before the 2008 crash and bear market. So we’re not due another major crash until about 2026.
That’s why Phil has been urging readers of his Cycles Trading e-letter to fade out the noise of the banking crisis… stay calm… and trust the cycle.
We’ll leave him with the final word on that…
As always, the mainstream media is slow to grasp what’s going on in the economy. I won’t blame them. They haven’t been too good at reading the markets or making correct predictions.
Stocks have been heading higher since last October. But most investors haven’t caught on. As they keep climbing, investors will start digesting the fact that the world is in better shape than they thought.
The new happy narrative will trickle down to government offices, boardrooms, and trading floors. This will lead to even happier news and more up days in the market. Investors will take on more risk and make ever crazier bets. It will be like late 2021 again.
We’re going to hit the top of the cycle mid-decade. But we’re not there yet. Real estate and stocks won’t crash for years yet.
That’s a lot to take in…
But as I mentioned up top, Phil is one of the most accurate economic forecasters alive.
He’s called every major market move over his 34-year career using his cycles trading approach.
So, it’s worth diving into these ideas and learning more.
His free e-letter, Cycles Trading With Phil Anderson, is a great place to start. You can catch up on his background… learn more about how he predicts the markets… and how it can help you avoid false alarms from the mainstream media.
And if you want to learn more about joining Phil as a subscriber, check out the presentation I did with him in the Legacy Research studio in Florida here.
We talked in more detail about why he doesn’t see a crash in 2023… and why the next two years will be major up years for stocks and real estate.
Editor, The Daily Cut