An edited extract from a presentation by Phil Anderson
[Below is a response to a question on how he interpreted recent building activity and technology]
I saw that they’re starting to build the southern hemisphere’s tallest residential tower. What it tells me is this: it tells me the strength of the commodity sector, in a bizarre sort of way.
Every single cycle I’ve seen, certainly in America and around the world and in Australia, the tall buildings get built, they open up in recession and generally it takes 6–7 years to actually recover before we start thinking about building another tall building.
This is a little different. It’s been the first time I can remember where tall buildings are getting put on the drawing board so quickly after the downturn that we’ve had.
Now they’re even thinking in Dubai of building something, I think it’s even bigger than a mile high and both the Chinese and the Americans are working quite feverishly to develop new lift technology that will allow those buildings to get built…so you can get up and down the buildings very fast.
We’re here in Melbourne and if you walk around the CBD of Melbourne and you go to many of the suburbs, every single street in Melbourne has become a construction zone. I’ve just never seen things so busy.
That to me indicates the sustainability of the new cycle going forward, based as it is, particularly for Australia, and commodity producing nations and the Middle East on commodity prices. It’s become obvious now this sort of stuff is dependent on China and things going forward and everybody is really nervous about whether this can last or not
It wasn’t so obvious ten years ago — even though it was all on my website, you can see it. It’s the 64 million dollar question really.
[WD] Gann in 45 Years on Wall Street — and Gann put this book out in 1949, so its um more than sixty years old now — Gann suggested that during the past history of the world following each depression some new discovery or some new invention has stimulated business and progress and bought on another boom.
Now that’s happened for sixty years, 3 additional cycles after Gann died, I think we can expect another one. You can see, generally in the US, what has happened after each major real estate cycle, major downturn, you get one of two things happening that starts of the next boom.
You either get the creation of new technology or you get a new energy development that just allows costs to come down and new technology does the same thing.
The US at the moment is unprecedented. It’s now having those two things happening. So you’ve now got with the energy related stuff (leaving aside the environmental concerns) and getting the gas out of the earth, it’s going to prodigiously lower cost for business to such an extent that you’re finding that manufacturing activity is going back to the United States.
That’s very significant and could bring a new, in my view, it’ll bring another huge boom. At the same time as that you’ve got all this new technology developing. I was going through some of my old files in preparation for today’s talk and you know, I had a cassette tape drop out of the file and I thought ‘I wonder what’s on there?’
Do you know, I couldn’t find a machine upon which to play it. And that’s only been, what, 15 years? Ten years even? Does anybody still have a radio player or a cassette player in their car? Not many. I don’t. I actually had to get, go to a friend, an elderly friend, they still had one…just to play a cassette tape.
The technology is prodigious. The invention is prodigious and relentless and while inflation stays low as it is at the moment because it feeds on itself as costs come down it lowers the inflationary process, it means business can look long term…much more forward, so they can continue to innovate and create. So it’s a cycle that can feed of itself.
Now I know this has gone a long way from a simple tall building question, but because I think with the energy cost savings and the technology inventions this is probably going to make Ben Bernanke a hero and its going to allow him to get away with prodigious money creation.
Money creation, as you know, it’s supposed to be inflationary. But if he continues to create that credit but the deflationary tendencies of the energy and the technology taking place, then we’re not going to get so much inflation, so he’ll be allowed to do that for quite some time and it will allow quite a recovery to take place.
In my view, and I could be wrong but what it’s tending to suggest to me out of all the cycle history that I’ve studied, it’s tending to suggest that we’re very early in the next cycle.
We’re so early to get new buildings, it could be the next cycle is very, very productive and enormous wealth could be created and lead to quite a substantial boom. And now we’ve just had the US market go into all-time new highs; nobody was expecting this, except me and one or two others.
It’s very clear in America and it’s very clear in the UK that there’s rising rents and it will eventually lead to a major recovery, and you’ve seen that already in the US. It will spur new construction and you get into the next cycle.
Now we just have to wait really to see whether Australia will continue to traditionally follow the US and its cycle or whether Australia is changing over a little bit and timing itself to what might be a Chinese cycle.
Phil Anderson
Contributing Editor, Money Weekend
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