The Greatest Asset Bubbles In History

The chart below depict some of the greatest asset bubbles of all time. Among them are the Dutch Tulip Mania and the Mississippi Company bubble. The bubble in gold in the 1980’s and the 1929 stock market bubble look tiny compared to those two bubbles.

The tulip bubble record was set in 1637 and has been beat recently in 2017 by the bubble in Bitcoin. Bitcoin was first introduced around 2009 for a few dollar cent per Bitcoin but the price quickly rose to an all time high of $20,000 per Bitcoin in 2017.

The greatest asset bubbles in history (Bitcoin bubble, tulip bubble, Mississippi bubble, South Sea bubble, Gold bubble, 1929 stock market bubbel)
The greatest asset bubbles in history

Back in 2013 I wrote on this blog how the price action in Bitcoin looked like the price action expected of an average bubble. That was way to early (Bitcoin was only trading around $60 back then). Bitcoin and other cryptocurrencies such as Ethereum and Litecoin ultimately reached their peak at the end of 2017.

Since then the price of Bitcoin dropped from $ 20,000 to around $ 3,000. A drop of 85%. Which can be expected to happen when a bubble pops.

The chart above is showing something different from what normally happens after a bubble ends though. The price of Bitcoin has been steadily rising from the low of $3,000 in 2018 till almost $ 14,000 in 2019. Right now Bitcoin is trading around $ 10,000.

Maybe Bitcoin has more room to run and we haven’t seen the all time high yet?

Bitcoin 1 Year price: September 2018 - September 2019
Bitcoin 1 Year price: September 2018 – September 2019

U.S. House Prices vs. the S&P 500

Is investing in real estate more profitable than investing in the S&P 500 over a long period? This long term chart shows that for much of the last century investing in the S&P 500 returned much greater returns than investing in real estate did. This chart only misses one thing in my opinion. This chart does not show possible rental income and the re-investment of this rental income in other houses. At the same time it also doesn’t show possible costs and taxes associated with homeownership and thus with investing in real estate. Nonetheless it is a nice chart to view.

US House prices vs. S&P 500 long term
Long term US House Prices vs. S&P 500

Here is another chart showing US house prices from 1987 till April, 2019. This is the Case Shiller Index.

Case Shiller National and Composite Indices Nominal
Case Shiller National and Composite Indices

Here is the same Case Shiller index with year-over-year percentage change until April 2019. This chart is showing that the rise of house prices has declined the last few years. A cause for this has been the Federal Reserve which has raised rates from 2016 till 2019. This has caused mortgage rates to rise over that same period.

Case Shiller National and Composite Index year-over-year percentage change
Case Shiller National and Composite Index year-over-year percentage change

Here’s a chart of the average fixed rate on 15 year and 30 year US mortgages. It will be interesting to see whether the drop in rates will lead a pick up in house prices later this year. From the end of 2018 mortgage rates have been dropping lower as it has been anticipated that the Federal Reserve will lower rates (which they have done with 0.25% in July, 2019.

15 Year and 30 Year Fixed Rate Mortgage Average in the United States
15 Year and 30 Year Fixed Rate Mortgage Average in the United States

The Herengracht Index

Here’s two different charts of the Herengracht Index. The Herengracht Index is a very long index showing the value of house prices along the Herengracht in Amsterdam. The Herengracht is a street in the center of Amsterdam alongside the Herengracht canal and has since the beginning of the 1600s always been a street on which people have been eager to live.

“The Herengracht has been dug in three phases, of which the first was in 1585, the second in 1612, and the third in 1660. By 1680, nearly all the lots on the canal had been developed. The properties built during the first development phase between 1585 and 1612 were relatively small and insignificant, but from the second construction phase in 1612, the Herengracht was meant to be the most fashionable and beautiful of all the canals in Amsterdam. It has been Amsterdam’s finest location until present times.

Nearly all the properties on the Herengracht practice of trades was prohibited, many also were for residential use, but, although the contained the office of the owner. In this century, the buildings along the canal have been increasingly put to use as offices, especially in the more expensive areas. The first building specifically constructed for office use dates from 1858, while the first time an existing building was transformed into an office was in 1808. Especially in the first half of the twentieth century were many properties transformed into offices. For all properties, ownership of the building and the land on which it stands go together.

The number of properties has gradually decreased over time. Originally, there were 614 lots, but already during the first development phase, lots were combined to allow for the construction of bigger buildings. This has continued until the present, and there are now some 487 properties.” Source: A Long Run House Price Index: The Herengracht Index, 1628-1973

Herengracht Index

Herengracht Index

Herengracht Index

Herengracht Index

Herengracht Amsterdam overview
Birdseye view of the Herengracht in the center of Amsterdam

US debt to GDP and household debt service ratio

A few days ago I made a post about European debt to GDP ratio’s and how they did not show any signs of excess. Hereby are the same charts but this time for the USA. The first chart is a long term chart which shows the debt to GDP ratio for US non-financial corporations, the US government and US households from 1975 till 2019. As can be seen households have been deleveraging since the start of the Financial Crisis in 2008 while corporations and the US government have been steadily getting more in to debt.

US debt to GDP ratios for US non-financial corporations, the US government and US households from 1975 till 2019
US debt to GDP ratios for US non-financial corporations, the US government and US households from 1975 till 2019

Thanks to low rates and the above mentioned deleveraging of households debt service ratios for US households are the lowest in 40 years.

US household debt service ratio (Debt payments as % of disposable personal income)
US household debt service ratio (Debt payments as % of disposable personal income)

Via Guide to the Markets – United States

AEX index since inception with and without dividends re-invested

The AEX index is an index grossly composed of the 25 largest listed companies by market capitalisation on the Amsterdam Stock Exchange (Euronext). As of today the company with the highest weighting in the index is ASML. As can be seen in the table below is that the top 5 companies in the index have a total weighting of almost 50% while the top 10 has a total weighting of almost 70% in the index.

Top 10 AEX Index components by weight
Top 10 AEX Index components by weight as of September 3, 2019 (source iShares AEX ETF)

In the past I’ve shared a chart which showed the AEX index since inception with dividends re-invested and without. It’s time to share an updated version of that chart. This chart is a great example of how the compounding of dividends positively impacts long term investment returns. Via Twitter.

AEX index since inception with and without dividends re-invested March 1983 - September 2019 (Dutch: AEX herbeleggings index)
AEX index since inception with and without dividends re-invested March 1983 – September 2019

Is the performance of Japanese bank stocks in a low interest rate environment an omen for European bank stocks?

Japan has been experiencing very low interest rates for more than 20 years now. The yield on 10 year Japanese bonds first dropped below 2% in 1997 and has since then steadily trended lower over the years. In 2016 these bonds first went in to negative territory, meaning that the interest rate dropped below 0%. Currently Japanese 10 year bonds have been at or below 0% for almost 4 years now.

Long term chart of 10 year Japanese government bonds
Long term chart of 10 year Japanese government bonds

The performance of Japanese bank stocks has been horrible over that same period to say the least. The index is at the lowest point in its existence.

Long term chart of Tokyo Stock Exchange (TOPIX) Banks Index
Long term chart of Tokyo Stock Exchange (TOPIX) Banks Index

The ECB has kept interest rates below 0% since 2014. In this period yields on most government bonds of Eurozone countries have steadily declined below zero. Countries like Germany and the Netherlands even have their whole yield curve below zero.

negative German yield curve
Chart showing negative German yield curve

So the question arises. Does the performance of Japanese banks show what future holds for the performance of European bank stocks? Lately, European banking stocks hit their lowest price in the last 30 years. Wiping out all gains made since the ’80’s.

STOXX Europe 600 Banks index (SX7E) long term chart
STOXX Europe 600 Banks index (SX7E) long term chart

Further reading: Bloomberg Opinion. Via Twitter

Eurozone debt to GDP and Eurozone debt service ratios

Here is a chart depicting the the debt to GDP ratios for non-financial corporations, governments and households in the Eurozone from 2000 till 2019. The chart shows how Eurozone households have been deleveraging since 2010. European governments and corporations have started deleveraging more recent in 2015.

Eurozone debt to GDP ratios for non-financial corporations, governments and households
Eurozone debt to GDP ratios

Here is another chart showing Eurozone debt service ratios for households and non-financial corporations from 2000 till 2019. These are a GDP-weighted average of France, Germany, Italy and Spain. Helped by low rates these ratios are now as low as in 2000. No sign of excess as in 2008.

Eurozone debt service ratios for households and non-financial corporations
Eurozone GDP-weighted debt service ratios for France, Germany, Italy and Spain

Via Guide to the Markets – Europe

Dutch Government debt payments to GDP from 1950 till 2020 / Rentelasten Nederlandse Staatsschuld van 1950 tot 2020

A chart of the debt payments as a percentage of GDP of the government of the Netherlands from 1950 till 2020.

Een grafiek van de rentelasten als een percentage van het bruto binnenlands product (BBP) die de Nederlandse overheid betaald op de staatsschuld van 1950 tot 2020. Via Twitter

grafiek Rentelasten Nederlandse Staatsschuld 1950 - 2020 als een percentage van het bruto binnenlands product (BBP) bron CPB. Chart Netherlands Dutch Government debt payments to GDP (Gross Domestic Product)

Yield on bonds of European companies with credit rating ‘A’ is almost at 0%

Very interesting chart via Twitter. The current yield on bonds of some European companies who have a credit rating of A is almost at zero percent (0%). Could it go negative?

 Yield on bonds of European companies with credit rating A