Don’t Buy Stocks Before You Understand the Real Estate Cycle

If you invest in the markets you can’t escape the bombardment of noise from the financial press. And a lot of it is unfavorable.

That makes it hard to consider jeopardizing your money by buying shares.

It’s even worse when ‘expert’ fund supervisors add the weight of their opinion to the negativity.

But there’s 1 odd thing about all this…the stock market itself is actually saying good things about the actual economy.

Today I’ll show you why, over at Cycles, Trends and Forecasts,we’lso are very positive, and the reason why we think you should be too…

Today’utes news is old news towards the market

Ever since the mining boom turned down in Australia, the Reserve Bank of Australia has said they want the housing market to drive growth in the actual economy.

Now, we’re no excellent fans of the work the RBA do. In general, listening to them for financial wisdom is a lost cause (and that’s the kind way to say it). But they will do everything in their power to steer the economy in the direction they want it to go.

If that means cutting interest rates to make it cheaper in order to take on debt, they’ll get it done.

Just look back over the past four years. The actual RBA has cut rates nine occasions since 2011.

But how do we know if it’s working?

Well, you could ask your financial advisor. You could listen to a mainstream economist within the press. You could ask the mate down at the pub.

But, for my money, I don’t do any of those things

So, what do I do?

I let the stock market tell me.

Stocks ‘discount the future’. That means investors as well as analysts are constantly looking ahead to work out whether or not they think a business can grow it’s earnings.

That’s very important to comprehend. The share market is a study of which companies are growing, and the reason why.

Here’s the part that’utes a bit more tricky.

Share prices rise before the ‘good news’, driving in the share price before this news becomes mainstream and widely known. That price motion will tell us whether don’t be surprised good news or bad news to come.

So, take a look at a particular industry and find out how stocks have performed for the reason that group.

Our subscribers knew construction stocks were a purchase

From the low in mid The month of january this year Brickworks Ltd [ASX:BKW], a bricks and building materials company, has operate from $11.52 to the recent top of $14.90 in early April. That’s a rise from bottom to top of over 29%.

From the low in mid October last year Boral Ltd [ASX:BLD], a cement and construction materials company, has run through $4.68 to the recent leading of $6.66 in early April. That’s a rise from base to top of over 29% once again.

From the low in mid Oct last year James Hardie Industries [ASX:JHX], a residential and commercial building materials company, has run from $11.16 to the recent top last week of $16.Nineteen. That’s a rise from bottom to top of over 45%.

And from the low in mid October last year Adelaide Brighton [ASX:ABC], a cement and concrete masonry organization, has run from $3.Twelve to the recent top at the begining of April of $4.71. That’s an increase from bottom to surface of over 50%.

From the low in early Dec last year Fletcher Building Ltd [ASX:FBU], that has a bigger footprint in Nz than Australia, has operate from $7.40 to the recent top of $8.70 in mid March; a rise from bottom in order to top of over 17%. A more moderate rise, but a rise nonetheless.

Finally, from the low in mid Oct last year Dulux Group Ltd [ASX:DLX], the paint company, has operate from $5.11 to a top of $6.88 at the day of composing; a rise from bottom to surface of over 34%.

I don’t know about you, however i expect to hear good news around earnings season coming up in 06 for these companies.

Nice gains to have in your portfolio if you’deb bought, right? These are large-cap shares, and they have presented investors with good capital gains during recent several weeks.

Here’s the thing that’s a bit mystifying to me. If you want to know when stocks related to real estate are going to run ahead — as the above have done — doesn’t it seem sensible to study the real estate cycle?

Of course it does. Yet very few investors actually do this in a meaningful way.

It’s their reduction. Because real estate can tell you a lot about other industries too.

A main example is the Australian banks. If we have rising real estate, the banks will make more earnings because most of their lending is actually directed against real estate.

Higher real estate Equals higher loans = higher bank profits is a simple way of thinking of it.

The banks are also essential because they make up a huge proportion from the value of Australian shares — and in all likelihood your super fund.

Whether you get richer or poorer will be based a lot on what happens to bank shares.

That’s one reason why over at Cycles, Trends and Forecasts there exists a clock that can guide you to why real estate will move, and when.

And when I say ‘when’, I mean it’utes dated quite literally for you.

That puts you in a position to know when certain stocks tend to be a buy or a sell, based on where we are in the property cycle.

In fact, the beauty of this particular analysis is that you don’t have to take what we say upon faith. All you need to do is actually relate what we say to the appropriate stocks, and the stock market will tell you whether we are right or wrong.

At that point, you don’t have to care what anyone else says — you’ll have the ability to decide for yourself.

Learn what you need to know by starting here.

Terence Duffy,
Guide Researcher, Cycles, Trends and Forecasts

From the Port Phillip Publishing Library

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