Credit Suisse’s 2018 Yearbook revealed the adage we’re all used to – that housing provides a larger financial
reward at lower risk – is wrong. Actually, since 1900, the quality-adjusted real capital gain on worldwide housing has been approximately -2 percent a year.
The financial crisis showed that housing can take a real hit: from their late-2005 peak until the 2012 low, US house prices fell by more than 36 percent in real terms. Despite two savage bear markets, from 1900 to 2017, returns across global equities have
averaged 5.2 percent.
Something else that caught my eye is the changing face of equity markets, in terms of relative size. At the end of 1899, the UK accounted for 25 percent of global stock markets, the US 15 percent and Germany 13 percent. At the end of last year, the US accounted
for 51.3 percent, Japan 8.6 percent and the UK 6.1 percent.
Writing this has reminded me of Ruchir Sharma’s recent book “The Rise and Fall of Nations”. The banking veteran argues that our way of figuring the world in terms of
growth prospects is now moribund, because growth is not a certainty, nor is widening prosperity. I’ve often wondered if the growth paradigm itself is wrong altogether. The Equation of Exchange (which is used to show the relationship between money and growth)
means aggregating the prices of goods and services which, particularly in today’s tech-based and intangible world, feel almost incomparable.