Serial bubbles | FT Alphaville

Serial bubbles

Dresdner has some interesting charts out today, depicting bubbles — and lots of them. Specifically in housing and equities in the UK, US and Japan.

Dresdner - UK house prices vs equities

Dresdner - US house prices vs equities

Dresdner - Japan house prices vs equities
You can see from the charts that a characteristic of post-2000 housing bubbles in the US and UK is their lack of correlation with equity markets. While house prices doubled and tripled, equity markets (with the exception of the BRICs) barely kept up with 1999/2000 highs. As Dresdner puts it (our emphasis):

In other words, over the past twenty years the world has experienced serial bubbles in equities and housing, in contrast to Japan’s 1980s/90s experience of synchronised bubbling and de-bubbling.

The Japanese bubble was, in our view, more “rational” since the long-term drivers of equity and housing markets are ultimately the same – growth expectations, interest rates, and confidence. It makes little sense to be euphoric about one asset class while being cautious about the other.

With regards to the popping of the bubbles going on now — Dresdner suggests that process is far more advanced in equities.

To wit this chart, which shows the ratio of stock indices to house prices in the three countries.

Dresdner - Stock indices vs house prices

According to that, in the UK, house prices are at a 25-year high relative to the equity market and in the US at a 15-year high. A decline in the Topix has also increased the relative expense of housing in Japan to the post-2000 range.

All of which suggests, if you were — for some reason — deliberating whether to invest in equities or real-estate — equities might be your best bet, relatively speaking.

Related links:
My Bubbles (Finding Nemo) – YouTube