Forecasting - emailed to subscribers - Sat, 06 May 2006

If you want to know how to forecast economic behaviour, there are only three things you need to know:
  1. how the land market works
  2. how the banks work, ie fractional reserve banking, and
  3. gann timing for the repeats

Basically that is all my classes are about, and the only things I use to make market profits, and the only things I need teach. Everything else is irrelevant.

So, underneath, a few links and thoughts about the above. The class on the 20th may will be based on these three things. If you want to come along and not already booked in, we are just about full (23, 25 is the limit), so don't delay.

The Guardian reports the UK supermarket chains have been caught stifling competition by... how ? Land-banking. Yep, this is what it all comes back to, an insane economics as presently practiced:

start:"UK's Guardian covers inquiry into Landbanking Stifling Competition
Mark Tran
March 9, 2006

Tesco and other big supermarkets will come under intense scrutiny after the competition watchdog today referred the sector to the Competition Commission. Today's decision means that Tesco, J Sainsbury, Asda and Morrisons -- the dominant players in a sector which accounts for 13% of consumer spending -- will be exposed to the full glare of the commission, something that environmentalists, suppliers and consumer groups have long wanted.

Tesco shares dipped almost 2% after the OFT's announcement.

The OFT said that overall it believed competition between supermarkets and their expansion into the convenience sector had benefited consumers through lower prices, an apparent increase in choice and an improvement in quality.

It added, however, "In some locations consumers have a more limited choice of outlets, and concerns have also been raised over the impact of the decline of independent retailers on the overall choice and range available in the convenience retailing sector."

The Federation of Small Businesses (FSB) welcomed the announcement, but said the review was too narrow. "As well as the planning regime and property management of the big four, there are other matters to consider," said the FSB national chair, Carol Undy. "The issue of parking for independent retailers, compared to free car parks outside supermarkets, as well as the treatment of small suppliers should also be closely examined."

The OFT cited several factors that could be considered as distorting competition. It said there were reasonable grounds to suspect that the big supermarkets were able to use land holdings to reinforce their market position. "We have found evidence of significant land banks and the use of restrictive covenants on sites sold by big supermarkets," the watchdog said.

Guardian Unlimited Guardian Newspapers Limited 2006 " End

If you have ever been to the US and wondered why San Fransisco looks like it does - so different to other US cities, it goes back to how that city treated its land market after the 1906 earthquake that leveled the city. Lessons for New Orleans here, but will not be applied. An illustration of just how little most now know about economics and an indictment of economists today. Few economists today can forecast correctly, this is why. They don't understand the land market.

Brits are worried now about building houses that are too small. High land prices see. It is telling you where we are in the cycle.

Meet the Baillieu's, says today's Age. Indeed.
Conservative parties the world over are always owned and operated by that State's largest license owners. This state is no exception. The stated aim: get rid of Bracks and the labor party. Easy forecast here:, should he / they get back into power,the first thing to do will be eliminate the state Land Tax. Higher land prices are what's needed, though it will be sold to us as ridding the state of burdensome taxes. High land prices keep wages low and a pool of unemployed to balance Union power. Don't believe me ? Type 'Wakefield Plan' (refer Edward Gibbon Wakefield) into google. Way back when, in early Australia days, the English lords kept sending their indentured servants out to work their newly found fields, those pesky workers kept running off and staking out their own plots. The land was after all, free. How to stop this. Easy. The newly 'elected' government put a price on the land, of $1 an acre, soon lifted to $2, a license you had to buy from the government. Now those servants would have to work hard, save a little (not too much) then buy their plot. It's kept us all slaves since.

Still doubt me ? It's happening right before your eyes in Iraq - it's more than just about the rent:
for an alternate view. If you have read my US real estate chapters, you will see the history repeating. Future US leaders will come from the names you read in this article - also history repeating. A long article, but worth the alternate view if you have time.

There has also been some interesting by-lines in a few papers of late, like this one: "Morgan Stanley has formed a new group of traders to bet its own money on asset-backed securities as chief executive John Mack seeks to boost returns by taking more risk."

I've seen that before, like around 1986 and 1998 to name a few dates. When things get a bit more violent in the markets towards the end of this decade, we can be confident some big bank is going to be in the market the wrong way... If that happens around the time, or after, that land price takes a dive, look out. Be ready, the markets will tell you its coming, before it's public. Trade only with the trend and you will be on it. (In other words, go with the direction of the overbalances, as Gann shows.)

Note recent comments from the PM: "We won't be doing anything in the budget that will be putting upward pressure on interest rates." AFR, April 19, page 8) Howard knows that his re-election chances dim considerably if rates were rising in the middle of the next election. I have tried to tell you that it is my opinion that things happen each cycle to make the cycle last 18 years (on average, minimum 17 years) - that's just how it seemed to me as I compiled that US real estate history (available in full on the site shortly). I think too, these days, it has become obvious to a lot of people - there is plenty of chart history available now to see it - to suggest that when the yield curve inverts, it has historically been a precursor to recession. Pollies know it (or their advisors do) so you will see a concerted political effort here and more importantly in the US to keep rates down as we go into the (US) 2008 election year. Every past cycle, (whilst it is the same underlying driver, credit created on the capitalized rent of natural resources, the largest of which is land value) manifests these underlying drivers differently. We will need to be aware of this as the decade progresses.

Whatever happens though, the most important area to watch remains the area of credit risk, which is the area of the large credit creators, ie banks. Perhaps also for the US, watch the trade balance it keeps with other trading nations, and the deficit the government itself runs: i.e. if it is considered by the lenders to be getting out of hand, the US government may have to offer higher interest rates to keep the bond buyers happy to keep buying. And you know what higher interest rates means.

I remain of the opinion though, the 18 year land price cycle has a very good pedigree. We are now in the last couple of years of the end of the boom. Things should happen to see it turn on schedule later in the decade. When it turns, you do not want to be dependant on high cash flow to pay unaffordable debts.

but when you get reports like this one:
you just cannot forecast a recession this year

Talk about repeat behaviour, the next UN step on Iran would be sanctions. Like that would be good, virtually every trading partner of Iraq ignored them, which is what the whole AWB thing is about !!! Again, this is very interesting timing as I have alluded to in prior emails - 90 years from 1919 events, 60 years from 1949 to 1953 for Iran and Mogadesh, 30 years - 1979 - from the take-over by the Mullahs.

Again, this shows up of course in the Gold and Oil peaks of 1979, plus 30 = 2009 and as you know I have for 5 years forecast big prices for oil and gold for 2009. (Or major emotion at least.) What you see now in those prices so far, this is a mere beginning. Never short new highs after major periods of long term accumulation. And gold went sideways a long time.

worth a read - one economist who does understand the real estate (read land price) cycle, Michael Hudson

See also here:

It's all there if you know what to look for. But I wouldn't get overly pessimistic. The next downturn is due after 2007. It will be real estate led, be short and very sharp, but things are not going to collapse. Those who are cashed up will swap assets with those highly indebted, as always.

And should history repeat, the last years of the real estate cycle are the most speculative, land price makes its biggest gains (especially raw land) and business goes over the top. A credit provider collapse brings the party to an abrupt end usually - but by the time this makes it to the public news, insiders have well and truly cashed out. So watch the trend of those charts, they will tell you in advance.

"A Traumatic Week for Financial Markets" so said the Sanford weekly commentary. T'is the week of May 5 after all: mid point between the solstice and equinox, and mid points are important. (May 5 is a corner of Gann's square.) Solstice and equinox are 90 degrees apart, half way is 45 - seen those numbers before ? Markets only ever make highs and lows, with associated 'trauma', on certain dates, and these dates are forecastable in advance - though trading them is another matter. Most markets are cycling well around the equinox, solstice and associated mid points presently.

And remember, if markets are to get violent towards the end of the decade, they will need ranges to repeat off. Future ranges repeat today's ranges. Noticed the bigger swings starting to come into our market this month... big days down, big days up.

Phew, happy to have that off my chest and written. Everything is in place, bank credit created on government granted licenses, for a continuing boom in asset prices, then later a short and sharp bust. Interest rates up a bit ? Wouldn't worry about that yet. Let markets do the worrying on that one. They are good at it. Markets are professional at climbing walls of worry, this is the only reason they go up - when there is something to worry about. YOU need to worry only when there is nothing left to worry about. Then, and only then, will we see markets fall.

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