I'll Get Back To Lending and Housing - But...

in the mean time there is a lot going on out there that makes this an interesting time in our financial history - as a country, and for each of us individually. Understanding and being prepared for 2008 was life changing financially if you followed the clues and invested well. I did not. I was a mortgage and housing expert, but I was clueless about the broader markets. Since that time I've invested in myself, read 100s of books, hired multiple coaches, all with an eye toward understanding the markets in ways that I didn't comprehend as a loan officer. I still have a lot to learn.

Before 2007 my view was...

Bonds - I only cared about interest rates and how they impacted my ability to produce as a loan officer. Stocks - That was something in my 401(k), I'd learn more about those in retirement. Commodities - I think that's stuff you can drop on your foot right?

Every day I learn something new. One thing that's fascinated me is cycles - and how they repeat over and over in the financial markets, and in our lives.

One thing I realized is that being plugged into the bond market didn't mean I understood it, but I certainly new when rates went up or went down. This is something you probably know as well.

This chart from Grant Hawkridge shows the cycles and timing of how Bonds tend to lead Stocks and then Commodities... when bonds are going down, rates are going up. When rates are going up stocks feel that pressure (borrowing is more costly), and then commodities start to rise last, and this leads to a new cycle where bonds start to rise (and interest rates start to drop), stocks then start to rise, etc. Cycle after cycle, over and over.

If you look at the chart below you can see it in real time, again depicted in this chart from Optuma, the bonds started to roll over (bonds go down as interest rates rise) and put pressures on stocks, and now we are starting to see commodities rolling over. When Bonds really start to move up again and rates start to move down, we know what should follow... that's how I started connecting the dots between what I did as a lender and how I could start to better understand the impact rates had on housing (and the broader market).

In this chart from Ned Davis Research, you can see Stocks, then Bonds and then Commodities dating back to the 1900s. These show much broader cycles, of BULL (expansion) and BEAR (contraction). One thing that stand out is in the last 20 years we've been in a BULL market in stocks (with one exception) and a BULL market in bonds with more BULL than BEAR in commodities. The 'Goldilocks' phenomenon of everything going up!

Tremendous wealth creation has occurred (much of it made possible by technology (which is deflationary) and has allowed our society to be more productive while also setting the stage for a better quality of life. We can do so much more now with less.

Tip: This may seem like a lot of BULL to you too. It's not something you need to understand to be a lender. Albert Einstein said 'those who understand interest earn it, and those who don't pay it'... and I'd encourage you to at least start to understand interest and cycles that drive your business and if you do you'll surf the cycles and come to appreciate the opportunities each stage of each cycle provides.