And the Chart Shall Set You Free

Do you believe that the stock market moves the economy?

Well if you do, think again.

It’s what happens in real estate that underpins the major movements in the economy.

A man called Homer Hoyt identified this in a book written back in the 1920s. The book is called One Hundred Years of Land Values in Chicago, if you want to seek it out. A lot has happened since that book was published. All of it though, has only reaffirmed the real estate cycle he identified way back when.

As a stock investor, why would you care about this?

Well for one, it can tell where the economy sits. Whether it’s headed for a crash or not.

But even without this knowledge, you can get a good feel for the economy just by looking at companies tied to real estate. It can give you an important macro view.

Rather than rely on all the analysts, you can now work out a few things for yourself.

For a dramatic crash in the economy (and house prices), you’d want to see signs of distress in the economy. That’ll show up as softening rents.

Now, if you’re a property investor, this is where a little share market knowledge is helpful.

A Real Estate Investment Trust (REIT) is basically a rent collector. It’s helpful to view this sector from that angle. The minute you do, you start to realise how this sector can give you a feel for the broader economy.

Think about it.

Uplifts in rents can only occur in an improving economy. Conversely, if business conditions were softening, you’d expect occupancy rates for industrial and office spaces to fall, along with the rents.

That’s why we can use REITs as a general gauge for the economy.

Anyway, what were the REITs saying about the economy in 2018?

Just about every REIT and property related stock was busting higher last year.

Here’s an example of what I mean…

Industrial REIT Goodman Group [ASX:GMG], posted first half results this month. Goodman is the largest industrial property group listed on the ASX. They own and manage industrial real estate in 17 countries across the globe. Think logistics, warehouses and business parks.

Profit for the group was up 10% on the prior year. And the group upgraded its forecasts for the full financial year in 2019.

Money Morning

Source: Optuma
[Click to open new window]

All last year articles abounded about a looming recession and property crash. That it was a crisis situation. That we were in for a 2008, US-style crisis. Others predicted house price falls of up to 40–50%.

Yet the price chart of Goodman Group, simply busted higher all 2018.

Despite all the negative headlines last year of the coming crash (and there were plenty), the chart of Goodman was telling you demand and rents for industrial spaces were improving.

A collapse cannot happen whilst that is happening.

See how the chart sets you free?

Just follow the rent. It’s another tool or indicator you can use to get a feel for where the economy is.

It’s the antidote to daily news, much of it emotional and misleading.

Whilst the REITs (the rents) are holding or going higher, an imminent crash is most unlikely, despite the news of the day.

Your takeaway

Don’t rely on the financial press. The emotional headlines will simply mislead you. You read plenty of them last year. Markets never make a ‘correction’, they always ‘tank’ or ‘plunge’, for instance. Don’t get suckered in to all that.

It’s not helpful for your investment decisions. You need to take the emotion out.

Most read about the economy in the daily news. Take a different approach.

Read about the economy through the company stock charts. This will make you a better investor.

The analysts, and whoever else, will often mislead. I’ve found the charts are a far more reliable guide.

Investing and trading in markets is not easy, but put the odds in your favour, by learning how to read a chart.

And relying on your own judgement as to whether the economy is set to crash or not.

The weight of money will never lie to you. Only the chart can tell you the truth.

So keep this in mind the next time you read about some economist calling a crash…or a fund manager who has some indicator flashing red. Bring up the monthly chart of Goodman Group. If it’s breaking higher or even holding lows from years past, then a collapse is unlikely. Despite what you read to the contrary.

Combine some chart reading with knowledge of Homer Hoyt’s real estate cycle, then you’ll have an investment advantage few other investors have.


Terence Duffy,
Chartist, Phil Anderson’s Time Trader

PS: Are you tracking this industry boom? You should be. Read this free report now.

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia