I predicted the recent bounce in interest rates, but what could it mean for the construction industry?

The following content is primarily for builders and other professionals involved in construction and remodeling (in the US). Eventually, I will say more about my interest in sending this to people like you. First, I want to show you a few quick details that may spark some intrigue for you.

Here is a chart showing that construction spending in the US has already fallen since the peak in February of 2018. You can also see the prior rally, reversal, and decline of last decade.

Could we be on the brink of something similar to the prior decline (or even more extreme)? I will very directly address that issue in a bit.

Next, around a year ago, I sent emails to dozens of builders about my forecast at that time. Here are a few quotes on my risk of the elevated levels of a risk of a downturn (plus a few updated versions of the charts from those emails).

NAHB’s builder confidence index recently exceeded 2005 levels…. Average prices of NEW home purchases in the US overall are actually down 3.5% from September of 2017 to September of 2018. Do you dare to guess when the last time was that prices of new homes in the US fell while prices of used homes rose?”

Here is some updated data (note the orange line marking October 2018, when I made the prior report).

What is a key issue influencing the amount of spending by corporations and households on new construction? As I noted in the subject line of this email (and that last chart above), interest rates are a big factor.

Imagine someone who is comfortable budgeting $2,000 per month on a mortgage. For them, how big a difference is there between a 4% mortgage and a 8% mortgage (or even 12%)? Here are some approximate numbers:

A $2000/mo mortgage at 4.0% interest allows borrowing of $313,000.

A $2000/mo mortgage at 8.0% interest allows borrowing of $221,000.

A $2000/mo mortgage at 12.0% interest allows borrowing of $158,000.

Regarding large commercial construction projects, the effects of rising interest rates can be even more startling:

To borrow $20 million at 4.0% requires a monthly payment of only $104,000.

To borrow $20 million at 12.0% requires a monthly payment of over $214,000.

Next, let’s look at what one forecaster said about interest rates on August 19, 2019:

“I am betting on some major downwards movement soon in prices for… US treasury bonds. I expect interest rates to shoot up over the long-term. That can be very bad for real estate sales volume (and prices).”

Here is what happened just after that:

Here is a chart from that same forecaster showing gains in 8 days of over 60% in certain investments related to that rise in US bond prices (and the related drop in interest rates for US bonds):

By the way, yes, I am that forecaster. And I am not new to forecasting interest rate fluctuations (or other investment trends). Here is a chart showing 8 reversals that I predicted from October 2018 to June of 2019. Here is a link to report that goes with this chart: https://jrfibonacci.wordpress.com/2019/09/01/review-my-recent-predictions-of-reversals-in-major-investment-markets/

Next is a comment I published in 2004. It was presented as an analogy comparing past developments to my forecast for much of the global economy within the next few years.

“Eventually, more delinquency on mortgages led to more foreclosures. With so many foreclosure auctions, most local housing prices dropped. People who had just refinanced their homes suddenly owed more than their homes would sell for, plus many had even less income than before. Bankruptcy rates increased.” 

I published this in 2005 (Ocotober 18th) regarding the housing market downturn that I had been publishing commentaries on since 2003.

“I mentioned real estate a lot already in the prior emails…. I’ve already told you about the other dominoes that will fall after the first catalyst triggers a drop in real estate…. I saw a flyer today for $333 per month on a $100,000 property. Sure, this is tempting to many folks…. If you get that $100,000 loan because it is only $333 per month to service the mortgage (the first year), that is fine. Just don’t be surprised when your $100,000 home is assessed at $50,000 in a few years….  If you don’t know how big a deal [just] a 15% drop in real estate prices is, you will- and it should be much deeper than that.”

Link: http://groups.yahoo.com/group/redpill_info/message/28

Next is a chart showing the price changes in the housing sector of the US stock market at that time. I also showed other charts pinpointing the peak in the housing market of Phoenix AZ in mid-2005 (as measured by a decline in volume of home sales as well as a rise in the average time from listing to sale).

Here is an updated chart (which I show you earlier).

Note that there was a rebound in late 2005, then a deeper drop. One key point is that I had been expecting a decline in several real estate trends and so I was publishing comments when there were sudden, large price declines that were atypical in recent times prior to that decline.

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So, what is my forecast for the future of the construction industry? My first forecast is very simple: “the baby boomers will continue to retire.”

But that might not seem very relevant yet, right? It gets more relevant when we consider that for about 4 decades, interest rates have been generally falling in the US. That detail could be a big factor in the growth of the construction industry in those same decades, right? (Remember the data about how different interest rates correspond to different purchase prices for real estate?)

What if the retiring of baby boomers means less overall spending by them? For example, do you know how many times a month do I talk to retirees who are downsizing from their 3000+ sf home to a home as much as 50% smaller? (That kind of conversation happens regularly.)

I propose that the declines in the economies of Europe and Asia have 2 main factors: the retiring of the baby boomers and rising fuel prices. (Keep in kind that I was saying these kinds of things LONG PRIOR to the 2007 peak in stock prices for Asia.)

I also propose that a big part of why things have been different in the US is because the US is the #1 producer of crude oil, so a major beneficiary from the surge in fuel prices since 1999. (This chart dsiplays the huge increase in inflation-adjusted gasoline prices in the US from 1999-2007.)

Note that stock prices in Europe peaked way back in the year 2000. This chart only shows data through mid 2017, but prices as of 9/20/2019 are slightly lower (and still more than 30% below the peak of prices in 2000.)

 

So, will the retiring of baby boomers lead to a long-term rise in interest rates? They certainly could. Here is a big part of why:

Rates rise when the risk of default is perceived to rise. Why does the retiring of baby boomers correspond to a rising risk of default?

Many pension funds are severely underfunded. If they go broke (or AS they go broke), then there could be a massive economic crisis.

Pension funds that are sending out more money to pensioners that they are getting as revenues will be forced to sell their assets. What are their assets? They own stocks and bonds (plus some real estate holdings).

Many pension funds (and analysts) are publishing reports of how soon they expect to operate before reaching bankruptcy. The retiring of the baby boomers would not result in a pension fund crisis if those pension funds had been ethically operated, but most have not.

As of late 2017, California’s state pensions funds owed $900 billion more than they had in assets (which is by the far the biggest shortfall of any public pension fund in the US). Below is a chart from this January 2018 article: https://www.globalresearch.ca/the-state-of-americas-pension-funds/5630374

It shows that several major companies have private pension funds that report that the assets of those funds is less than 70% (or even less than 50%) of what their future obligations will be. Unlike governments, corporations cannot raise tax to raise revenue. Their only legal choices are to sell assets, attempt to borrow more (going deeper in to debt), or file bankruptcy.

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The relevant issues are not a secret. The existence of the baby boom is of course no secret either.

What WILL happen as pension funds WILL dump their bond holdings? Bond prices WILL crash. Crashing bond prices equates to SPIKING interest rates. (Again, that can be very bad for real estate markets.)

Some will ask “yeah… but what about the Fed?” They May have much less influence than you have been led to believe. Here is a chart showing that they consistently FOLLOW the trends of the open market for bond interest rates:

Because of the lack of regulation of pension funds, the retiring of the baby boom will devastate many pension funds. To impose same regulations now would actually just speed up the arrival of the emerging crisis.

As those pension funds collapse, the “debt bubble” will collapse (AKA “deflate”). I have dove deep enough in to the technical details for now to shift back to the bigger picture. The basic point is that, given the current issues in GLOBAL finances (global since the baby boom and pension crisis are issues on MANY continents), a long-term rise in interest rates is not only likely soon… but logically is almost inevitable eventually.

Such a spike in interest rates would logically crush demand for real estate (including for new residential construction and all new construction). Note that the recent wave of NEGATIVE interest rates in many parts of the world reflects an UNPRECEDENTED extreme.

This chart shows that in 2019 alone, the number of governments with negative interest rates for their 10-year treasury bonds went from ONE to NINETEEN. This comes within a few years of dozens of central banks shifting to negative rates:

Source of charts (article published in 2019 on August 13th): https://www.ft.com/content/82c4d584-bce3-11e9-89e2-41e555e96722

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So that ends the segments on “a few quick details to intrigue you” plus my more extended comments on the future of pension funds, interest rates, and construction spending. The other important issue is what my interest is in sharing this with you.

I might not have shared any of this with you, right? I generally don’t push this info on prospective clients that are about to spend $50k or $500k on construction or remodeling (at least not if I will be collecting a commission if they do make those purchases).

However, I already showed you a chart of 60% gains in 8 days early in September 2019. I also showed the chart of 8 reversals that I traded across a 9 month period. I profit from the same opportunities that most people ignore (and that eventually result in big losses for most investors).

I could show you more of my publications that predicted the US stock market crash of 2007-2009. I could show you my March 2009 commentary that US stocks were poised to rebound. That rebound began just a few days later.

So I have quite a track record of anticipating price changes (long-term and short-term). I also have extensive experience selecting specific trades to profit from those price changes.

What I did not mention yet (in this email) is that I offer a service to people with savings (or other retirement investments). So, I am willing to give you access to my expertise (in forecasting and trading) in exchange for a portion of the profits that I will generate for you.

Let’s jump to the issue of why all the info in this email is not in the mainstream news. The media does not have any way to profit off of giving you this info. They have no service to offer that allows them to say “instead of worrying or panicking about these things, partner with me to profit from this historic opportunity.”

Their job is to distract you from these issues (as they promote whatever investments their advertisers profit from). By the way, some of you know that I worked in the newspaper and radio industry before having any involvement with construction. The primary concern of all media companies is revenue from advertising. They are not charities!

Likewise, I am not a charity either. However, I am very clear about how to profit from the same emerging developments that WILL be very challenging for lots of households and corporations across the planet (and across the US).

Maybe you are yourself a baby boomer that is already planning to reduce your involvement in construction. Or maybe you are someone who just understands the benefits of “wise diversification.” Either way, I’d like to know if you are open to profiting from my expertise in financial forecasting and trading. So let me know.

By the way, all the brokerages that I know have standards forms to fill out when setting someone as your “authorized trader” for your account. (Note though that some of them may not use that precise terminology). While you many have never considered most of what I am proposing, Maybe it is time to change that.

Here is a link to one of those forms (at a brokerage that actually charges ZERO commissions on ALL investments):

Here is a link to set up an account with them (and, for most people, you will probably want to set it up as a Roth IRA… though we can discuss those kind of details later):

Here is a video of myself and investment client of mine going through some consistent gains across that summer:

(Yeah, that skinny guy on the left is me as of September 2013… although I am no longer so skinny.)

Here is a video clip of me from way back in November of 2006 (yes, even more skinny) talking about the financial crisis that manifested across the next few years:

https://www.youtube.com/watch?v=TIAFuQzr134

“Years ago, I suggested that a very large downturn was coming in real estate …based primarily on my forecast of the credit market contracting. When the credit market contracts, real estate is very much going to shift along with that.”

What more do you want to know before we get started? Let me know. Note that of course I will also have some questions for you….

 

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