*This article was written from Phil’s point of view.

I was off air for most of June, and early July, PC and I do not mix well.

US stock markets are presently in the 4th range up on the daily chart. Markets move in sections, mostly three, sometimes there is a 4th, before a then retracement back to a weekly chart midpoint. The 4th section is the most difficult to trade, usually it is trendless, one day up, one day down. You could watch the US for a double top next week as a possibility; that would be my forecast at least anyway. See how to make profits in commodities, page 50. You could do well to continue reading on from here, to page 51. When Mr G talks about space, or space movements, to understand him I substitute the word range, do that and see how you go.

I assume you noted some cotton data in early June, but I will point it out anyway; June 4 low, 5/8ths retr on the weekly, 3/8ths on the monthly, 2*1 angle on the weekly off October 01 low, 180 degrees Dec 4th, 144 weeks off 67.31 top. Me – I waited for a higher low, like the other lows in December, October and May of last year – and we didn’t get one anywhere near it, check the lows on a daily chart and you will see what I mean. Did anyone get long?

The property market in Australia must be going well:

• Developer stocks like FKP and VWD going gangbusters (may I claim that I did point this out earlier in the year).
• Opposition pollies starting to make noise about government actions to control or ‘help smooth’ the housing cycle; the usual statements come out, land banking, ending negative gearing etc.
• Crazy ideas floated, involving banks, to help new home buyers get into the market, which usually serves only to push land prices even higher.

A government inquiry into the land price and why young people are being priced out of the market is not far away now, 2O06? The beginning of the end after that.

I have continued research into my book – several PCs in for repairs at the same time gave me some enforced reading, having started to read up on all past 18-year cycles, and trying to track down and buy some now really old and out-of-print books. I can tell you the clear repetition of history has startled even me, and I can’t wait to share it with you all, let me tell you. In every past cycle, the biggest land value gains came right at the end, though it is not evenly spread across all sectors.

I noted the AFR page 78 (4th July), the world’s newest obl target is due for completion in Taipei late next year, 508 meters, 101 stories. This is expected to be taller than the Mori building still being built in Shanghai. Could one ask for a better repeat setting? The Taiwan mayor says “This building will lead Taiwan to the top of the world, giving Taiwan the drive to fulfill its dreams…” Mmmm, anyone smells a property cycle bubble coming on here… Remember if the speculation ends up big, it will bust badly.

Assuming the speculation in real estate continues, the time will approach when you want to keep an eye on the bank shares, with a view to shorting. Around the peak, (still a way to go yet – 3 to 4 years would be my best guess at this stage, but we will let the indicators tell the story) a knowledge of how to read bank annual reports could be handy – if anyone of you know someone who can do that let me know. You would be looking for the bank (or listed building society or listed property developers, land financiers, or home mortgage companies), that is the most over-exposed to property lending, a la like Pyramid or Westpac in the late eighties.

Set yourself up to do this, I can tell you; the real estate speculation looks to me like it will boil over… Same as it’s been doing for the last 200 years, roughly every 18 years.

As it happens, there is a reasonable write-up in this month’s Intelligent Investor magazine about banks and banking, page 11 issue 130, with one to come next issue apparently; the write-up I say is ‘reasonable’, it would have been great except they – like absolutely everyone else – fall into the same trap of explaining that banks “take your money, paying you a rate of interest for the privilege, and lend it out at a higher rate”. This is completely false. Banks do not lend money – for they have none to lend. Banks create credit, out of absolutely nothing, thin air in fact, backed mostly by the value of government-granted privileges, the largest of which is land value (though last cycle spectrum came a close 2nd).

Banks DO NOT lend money. Never forget this.

These days credit is created as a debt, (called a bank loan) rather than actual notes and coins, as in the 18th and 19th centuries. Another good book on the subject apart from Galbraith’s ‘money whence it came’, is ‘The Grip of death; a study of Modern Money, debt slavery and Destructive Economics’ by Michael Rowbotham.

Credit creation, based on land value, is why all capitalist economies have a business and property cycle. This WILL continue until the underlying structure of the capitalization of government-granted licenses into tradable commodities is stopped by community consent. I just love a good conspiracy; the UN weapons inspector thought to be the source for a BBC report suggesting UK officials doctored intelligence hyping Iraqi weapons ability, is found dead. A heart attack? Poor soul, one shouldn’t take a leisurely stroll in the woods at such a pace… Hong Kong’ers protest over the new law to limit civil liberties. (Does any government really want to stop its people from simply associating with one another? Who knows what they might talk about together) The Civil Human Rights Front organized the gatherings, a loose coalition of 45 non profit groups. You can bet the Chinese are busy organizing spies to infiltrate each one to create chaos amongst each other, rendering them ineffective. Tis a safe bet each group will be out of business within five years, never to be heard of again.

Watch the US. This year’s government budget deficit is the largest on record, next year will be worse. This is a vast creation of credit, coming into the economy as a debt. The effect will be to increase land price… Oh how history is repeating, just the numbers get bigger.