THE LAND CYCLE'S COLLAPSE: UPDATE ON THE ROAD AHEAD AND STOCK MARKET TIMING - COULD THERE BE TWO MARKET PEAKS??
PLUS - ANDREW PANCHOLI TALKS ABOUT THE RALLY AHEAD
The inflation figures came in this week, and despite interest rates now at their highest level in 15-years with borrowing costs back to pre-GFC levels, inflation is still going up.
Annual inflation rose to 4.3% in September, up from 4% in August.
Underlying inflation (which strips out the big price rises and falls to give a clearer picture of general inflation) also increased to 3.6%. It’s well above the RBA's 2–3% target.
Consumer prices rose 1.3% over the September quarter, with housing costs up 5.2% annually and transport costs rising 8.7%.
And remember, when the ABS talks about housing costs in the inflation data, it isn't measuring the price of established property.
Property prices are conveniently excluded from the CPI.
Instead, it's measuring expenses - rents, electricity, the cost of construction etc.
As far as the land cycle is concerned, none of this is particularly surprising.
I've been writing for years that interest rates would rise into the final stages of the 18-year land cycle – it’s a pattern that’s been repeated throughout modern economic history. And for just as long, the cycle has pointed firmly to 2026 as the peak in median property prices.
We saw it in the early 1970s, when interest rates climbed as Australia's property bubble reached its peak. The maximum bank overdraft rate rose from 7.75% to 9.5% in September 1973, before reaching 11.5% in July 1974, as the property market crashed.
We saw it again in the late 1980s, when Australia's massive commercial property bubble burst. The cash rate reached around 18% in 1989, while standard variable mortgage rates hit 17%. What followed was the devastating recession of 1990–91.
And we saw it again in the 2000s, when the US Federal Reserve raised interest rates from 1% in June 2004 to 5.25% in June 2006, as the American housing bubble reached its peak.
Australia followed the same pattern. The RBA continued raising rates, reaching 7.25% in March 2008, with standard variable mortgage rates climbing to 9.6% by July.
By then, the US housing market was already collapsing, and the credit crisis was spreading through the global financial system.
Within months, Lehman Brothers had failed, financial markets were in panic, and central banks were slashing the very interest rates they had spent years raising.
That was 18-years ago – and we’re about to go through it again!
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