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Does this graph confirm that the low in commodity prices is in place?

Posted by on Apr 2, 2016 in 18 year real estate cycle, Forecasts, Kondratieff (Long) wave cycle, Reports |

In February, National Australia Bank suggested that house prices in Perth would continue to fall in 2016 because of weakness in commodity prices, as mining companies shed staff and the domestic economy continued to experience weak growth and high unemployment. Here is the story. The article notes the link between the commodity and housing markets – which is strong in regions and countries that are strong commodity producers (Australia, parts of the US and Canada, Latin America and much of Africa, for example). I’ve set out my forecast for commodity prices in my recent report The Fifth Wave: Long-Term Commodity Prices and How to Profit from Them. With that in mind, I am a keen follower of the property markets in commodity-rich regions. In Australia, the Western Australian property market, particularly Perth, is something to look at given the importance of mining and other resource extraction to the local economy. Real estate prices recovered across Australia around 2012. But in 2012, commodity prices were still high and so Perth led the way. See the graphic below. Data source: Australian Bureau of Statistics   But from 2014 onwards (in particular) commodity prices fell sharply. It’s no surprise then that 2014 was a bad year for the Perth real estate market. As real estate prices in Australia continued to grow, they stalled in Perth. And then they started to fall. This continued into 2015. You can see from the graph above that during 2015 there was a major divergence between the general Australian market and Perth. Note, however, that in the last quarter of 2015 house prices in Perth ticked up slightly. So this begs the question: is the market turning around? From the evidence of the graph it’s possibly a little early to say. However, this is where our cycles work on commodities helps. A turn around in property prices would be consistent with our commodity price forecast – we are on the look out for a low in 2016. And expect also that rises from here will be seen in the housing market as companies once again expand and there is a return in demand for real estate. Since the lows in January, commodity prices have had a good run. See the chart below.   The next test of these lows will be interesting. Should they be higher lows, we are looking upwards for commodities and real estate....

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If the Pound stays above 1.59 vs. the Dollar the Union is preserved

Posted by on Sep 10, 2014 in Forecasts |

The financial press over the last two days have been worried about the dramatic sell off in Sterling ever since the polls published over the weekend suggested that more people would vote for Scottish independence on 18th September. In truth, the sell-off has taken place in the context of a downtrend following the pound reaching a six-year high against the dollar in July (see the chart below). However, the dramatic nature of the sell off is being interpreted as the markets finally waking up to the possibility of the Union breaking up. Earlier this year, the pro-Unionists had a seemingly massive lead but this has been steadily eroded over time. And now it seems the momentum is with the nationalists. GBP sells off dramatically on the possibility of independence   To anticipate what is going to happen, I look to what the markets are telling me. I learned this from legendary trader, W.D. Gann, in his 1923 book The Truth of the Stock Tape. Gann was not the first market expert to point out that markets seemingly anticipate what is going to happen – the stock tape speaks the truth – nor will he be the last. The trick, as ever, is in understanding how to read the stock tape. Over my summer holidays, I read an excellent book called War, Wealth and Wisdom by investment guru Barton Biggs. This excellent book – which I highly recommend – demonstrates quite clearly that despite the public news and perception of what was happening during the Second World War, the markets tended to be ahead of events. For example, Biggs points out that London Stock Exchange made its low “for all time” in the summer of 1940 just before the Battle of Britain – despite the fact that Britain’s fortunes in the war got worse during the late 1940s and 1941 (in Europe – things got worse in the Asian theatre of war for a lot longer). Somehow, the markets foresaw that Britain would survive the Battle of Britain and that the US would be drawn into the war – a pivotal moment that helped turn the war. Similarly, the high point for the German stock market was at the time that the advance units of the German Army were approaching Moscow, in December 1941. This was a moment in the war when the Wehrmacht was seen to be unstoppable – but the markets knew better. Gann was quite clear that to understand what is going on you should look at charts of the market or stocks. When the market makes higher lows on bad news, this is a sign that things are going to get better. Ascendant Strategy uses this...

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Ascendant Strategy writes the cover story for MoneyWeek

Posted by on Jun 8, 2014 in 18 year real estate cycle, Articles, Forecasts |

Ascendant Strategy was invited to write the cover story for this week’s edition of MoneyWeek (out on 6th June 2014).  In this article we make some bold predictions for how the the cycle is going to unfold into 2026/27.  This based on our unique research on economic cycles.  In the article we: provide a forecast of how the main 18-20 year economic cycle will unfold in Western economies into 2026/27 date the start of the nexr recession (the mid-cycle recession) and the one after that (the final major recession/financial crisis) explain why we are confident the cycle will repeat consider briefly the role of land and real estate speculation in driving the economic cycle forward set out key dates to watch for stock markets, commodities, bonds and real estate. Most important of all, we emphasise again our analysis this cycle will involve the biggest boom of all time. In the article we describe two of the tools that we have developed to assist investors with understanding where we are in the cycle and what is likely to happen next.  First of all is the 18 year real estate clock:   (copyright Economic Indicator Services Ltd. 2005) Since the cycle is ultimately driven by speculation in real estate (land) understanding what is happening the in property market is critical to our economic framework. The second tool is the Economic Cycle Lead Indicator, set out in the diagram below, which provides advance warning of the peak of the cycle.  The indicator exceeds and remains above a value of 1 when we reach the mature stages of the boom, which is the time to exercise caution (unlike everyone else); the indicator falls prior to the associated recession and stock market high.   Its current value of 0.9, just above the lowest value of 0.85, is further confirmation that there is plenty of upside to go before this cycle is over. (copyright Ascendant Strategy and Investments Ltd. 2014)   For further information on how we can help you make better investment decisions, please get in touch. A copy of the full article can be obtained...

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Why the coming cycle will be the biggest in history

Posted by on Feb 16, 2014 in 18 year real estate cycle, Forecasts, Kondratieff (Long) wave cycle |

Previous posts have described how the 18 year economic/real estate cycle operates.  In our stylised diagram illustrating how the cycle unfolds, we are of the view that Western economies have now been through its cyclical crash and recovery phase that lasts on average 4 years and are now in the first expansion of the cycle. The post examines some of the trends that will determine how large the next cycle will be.   How big will the next cycle be? We are of the view that this next cycle will be the biggest ever.  To say again: we think that more wealth will be created in the next 10-15 years than in any equivalent period in human history.  It’s going to be a period of enormous wealth creation.  We advise not paying much attention to those with a bearish outlook on the world economy. The normal expansionary phases of the economic cycle are going to benefit from the following growth-enhancing trends. 1. Relentless technological innovation The internet and personal computing have fundamentally altered the way we communicate, do business and interact socially.  But I think that this revolution has only just begun.  We are only just getting to the point where product and service design can can now be premised upon the widespread access to powerful mobile computing power, allied to high-speed interconnectedness of the web.  It’s at this point that the focus shifts from the development of better and faster access to the application of this technological power to our everyday lives.  In the not too distant future, our cars will drive (and park) themselves; computers will learn, and adapt to their environment as humans do; we may travel into space for a holiday; our medical professionals will have instant access to real time biomedical data and analysis of our vital signs. Pipe dreams some of these may be, but they indicate the scale of humanity’s creative potential in our present era. To take a more concrete example.  We are now starting to see the possibilities of this level of computing power applied to areas such as manufacturing, material science and so on – for example the development of “additive manufacturing”, otherwise known as 3-D printing.  For us, if the technology continues develop on its current trajectory, we do not think it an overstatement to suggest that we could be at the start of a second, computer-driven, Industrial Revolution that will radically alter not only the quality, speed of production and prevalence of highly customised goods but also how production itself is organised.  This has massive implications for the structure of our labour markets, the cost of production and so on. 2. Reduction in energy costs There is...

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How knowledge of the cycles can help the “lost generation”

Posted by on Dec 1, 2013 in 18 year real estate cycle, About Ascendant Strategy, Forecasts, Topical news |

Last week, a number of news outlets in the UK ran stories about England’s “lost and indebted generation” – stories based on data put out by the Student Loans Company on how graduate earnings had fallen since the beginning of the financial crisis.  Indeed, owing to higher education funding cuts and therefore rising tuition fees (public spending cuts are common at the end of the economic cycle, as the cost of bailing out the banking system compounds the problem of sharply reduced tax revenues), the research found that in real terms earnings for the young men and women graduating into the last recession had fallen by 12 per cent compared to the pre-crisis cohort of graduates at the same stage in their careers and that on average they owed 60 per cent more in student debt.  Further research from the US also suggests that the earnings of those graduating during recessions usually take a decade to reach the same level of earnings as their more fortunate peers who graduate when times are better.  This is not a pretty picture. We at Ascendant Strategy will freely admit we are not experts on higher education.  But we want to take the opportunity to show you how powerful knowledge of the economic cycle can be.  We view the major economic trends through the lens of a repeating 18-20 year cycle and can therefore see how these develop between from the peak of one cycle and the next.  The most challenging time for an economy is at the cyclical peak and subsequent downturn, which occurs on average every 18-20 years.  Other recessions are not as severe.  This affects all aspects of an economy, not just those areas that are Ascendant Strategy’s primary focus: making sound and profitable investment decisions.  And so we know that, while challenging, the experience of the current generation is not unique.  During last similar cyclical downturn in the early 1990s graduates were similarly affected, with graduate unemployment peaking at 12 per cent in 1992 (see ONS stats), before falling through the recovery and subsequent boom; and then again rising through the global financial crisis to a peak in 2010.  In Japan, the situation was even more severe for graduates in the 1990s, with many labelling the dramatic fall in opportunities as the “ice age”. We forecast that the next major downturn will occur in the middle of the 2020s.  Until then we expect a period of continued recovery and prosperity: in fact we think this next cycle may involve a bigger boom than the past one.  (Why?  We see a lot of promise in the current rapid technological innovation, its application to industrial processes, potentially new and cheaper sources...

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The 18 year economic cycle – the basis of our rigorous economic framework

Posted by on Dec 1, 2013 in 18 year real estate cycle, Forecasts |

This post sets out the key features of the economic cycle that forms the basis of Ascendant Strategy’s rigorous economic framework and our ability to help investors and corporates make sound investment decisions. Most economies within the modern economic and financial system (i.e. those characterised by a relatively free price mechanism, private land tenure, a well-developed banking system, etc.) display regular cyclical patterns of expansive followed by depressed economic activity.  The research we have access to shows that the periodicity of such activity is a remarkably regular 18 years on average. How the economic cycle unfolds The cycle is driven by two major factors: speculation in real estate and the lending (credit creation) against the massive increase in real estate (in reality land) values that are generated by such speculation.  Owing to the fact that land is absolutely fixed in supply and that its use tends to cluster in specific locations that are themselves unique, higher prices for real estate do not bring more supply into markets (as they would other commodities, goods and services).  (Indeed, there is evidence that the opposite happens, whereby owners of land withhold land from the market in the expectation of future price increases, thus restricting supply and contributing to further increase). Competition for land and location occurs most when economic conditions are good, businesses invest, consumers feel wealthy and their purchasing power increases, resulting in higher levels of economic activity.  Ultimately the gains of such activity manifest themselves as the higher rental value of land, as many have noted, which in stable private property systems is capitalised into a price.  The cycle unfolds in four phases as follows: The first act of the 18 year cycle begins as the wreckage of the previous cycle is cleared away, where economies move from recession back to growth and business conditions pick up, unemployment comes down and consumer spending returns.  This leads to the first expansion of an 18 year cycle. An increasingly confident economy may often experience a mid-cycle slow down.  This slowdown is the traditional version of a business cycle downturn where supply may outrun demand or vice versa.  Such contractions generally prove to be short-lived and tend not to be financial in their nature, i.e. implicate the financial system. The next act of the cycle is the second boom.  Speculation plays as much of a role in this boom as does business expansion, though standard economic data may not be able to distinguish between the two.  In this phase of the cycle, higher demand for real estate (land) is more obvious; and land is more expensive to acquire, mortgages comprise an increasing proportion of the loans made by the banking system, the quality of...

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