Recently, one of the LF Economics’ team (Soos) had the pleasure of meeting Phillip J. Anderson in Melbourne. He is an Australian economist, specialising in long-term economic and financial cycles, trends and forecasts. His website can be found here.
What makes Anderson stand out from the crowd is the unerring accuracy of his predictions, especially concerning the land, equity and commodity markets. During the 2000s, he wrote his book called The Secret Life of Real Estate and Banking, published in 2008.
The book draws upon centuries of land data in the US, which demonstrated a consistent 18-year cycle in the land market, often ending in economic depression. This cycle was only suppressed by the two World Wars and then continued thereafter. The cycle occurs between 15 to 20 years from peak to peak and trough to trough, averaging 18.6 years.
Anderson covers all the major cycles from 1800 onward, culminating in the identification of the US residential land market bubble as he performed his research during the early 2000s and predicted it would collapse around 2008. Given the peak of the last US land market bubble was in 1990, it followed it would peak and then decline around this time.
What makes the book even more valuable is the coverage of the control frauds that become exposed once the land market bubbles burst. This was a regular feature throughout the 19thand 20th centuries, and was rendered glaringly obvious with the massive subprime mortgage control fraud that built up during the 2000s.
Anderson is one of the few economists who has integrated the dynamics of private debt, land price speculation and control fraud. In the US, economist William K. Black has authored considerable research on this topic, as the world’s leading specialist in banking, financial and corporate control fraud.
The analysis of real estate and stock markets are based on the historical research of two economists, Henry George and W. D. Gann. The former is best known for his advocacy of taxing away the unearned increment in land, and the second for stock market analysis. As with land markets, stock markets experience rhythmic cycles.
By using the insights from these economists, including others who have based their research upon them, Anderson has become a leading specialist in forecasts. This has led to a number of accurate predictions as recorded here.
In 2007, he advised his clients that they should shift to cash. For those who listened, they avoided the ASX stock market crash which collapsed by 55% from peak to trough and the 25% decline in commercial real estate during the Global Financial Crisis.
The following is a summary of what Anderson believes will occur through to 2026:
- A recession or near-recession will occur in the US around 2020/21, and may wind its way into Australia;
- The US generally enters into an economic downturn first, with Australia following suit;
- The inverted yield curve tends to be a good leading indicator of recession, though post-GFC extraordinary monetary policy may distort this gauge;
- The US and Australian share markets will continue to rise in the coming years and then experience a decline during the recession or near-recession;
- While residential and commercial/industrial land prices may soften for a number of years during this period, they will continue to rapidly rise thereafter;
- The share market will recover and follow the trend;
- As per the average 18.6-year land market cycle, land prices will peak around 2026 and then decline;
- Movements in the Australian land market tend to lag the US by around one year;
- Land prices tend to fall first before share prices;
- During an economic downturn caused by falling land prices, the share market will generally recover first;
- Australia survived the GFC due to the commodities cycle driven by demand from China;
- This means the land market cycle began anew, with a mid-cycle correction predicted for 2020/21, arriving at a peak around 2025/26;
- The income generated from technological advances and productivity increases tend to wind its way into the ‘Great Sponge’, the land market;
- The revolution in renewable energy and electric vehicles, including automation, will support growth in household incomes, rents and land prices;
- The growth of crypto-currencies could potentially become a financial force to be reckoned with; and
- Buying high and selling higher is just as legitimate a financial strategy as buying low and selling high as long as the cycle is timed correctly.
Anderson is a remarkable economist with one of the better records of forecasting booms and busts. The big question for our audience: could the Australian land market and banking system keep growing and peak in 2025/26, to then be followed by a severe downturn, as Anderson suggests?
If his forecasts regarding land prices are correct, the young wanting to get into home-ownership are going to face an even more unaffordable housing market, which is already the worst in 130 years. What would be morbidly fascinating to watch is the extreme heights that household debt will need to climb to in support of such growth in land prices if this forecast is correct.
This is not to say that Anderson denies that a bubble in land prices exists; there is, but will only grow larger after the 2020/21 recession or near-recession clears.
It comes as no surprise that he is not accepted within the mainstream, as his research on cycles, asset bubbles, land rent and control fraud assume away the endlessly falsified neoclassical doctrines of equilibrium, rational expectations, efficient markets hypothesis, and so on.
For those wanting an alternative view to mainstream spruikers and vested interests, there are few better economists out there who understands the dynamics of economic cycles. It will be interesting to see how Anderson’s predictions pans out.