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Charts: Berkshire vs Tesla, Canadian Housing

Fact 1: Over the past 12 months alone, Tesla’s market capitalization grew by more than a full Berkshire Hathaway! Growth’s outperformance is well known and documented, but the speed of this outperformance is jaw-dropping.

Fact 2: Residential investment as a proportion of GDP in Canada skyrocketed during the pandemic and remains at extraordinary levels. The Canadian economy is significantly exposed to a downturn in the housing market.

Fact 3: Housing prices in the US have mainly risen in line with disposable incomes (first chart). In Canada, however, the gap between housing prices and incomes started widening significantly at the turn of the century (second chart). Today the gap is at extreme levels.

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The Biggest Asset Class in the World

Chinese real estate is the biggest asset class in the world. It isn’t a stretch, therefore, to argue that the success or failure of China’s property market influences the global economy. One only has to look at the ripples caused by Evergande’s recent instability to see this.

Both in absolute dollar terms and as a proportion of domestic GDP, China’s real estate sector dwarfs that of the US, even at its mid-2000s peak. Remember what happened to the US and global economy when US real estate went bust during the 2000s? This is why global markets react so violently to any hint of trouble in China.

The Chinese economy and property sector have been weakening for a while now. Data surprises in China have been negative since around June. Negative surprises are now occurring more frequently in the US and EU too.

Why do surprises (both positive and negative) matter? Economic expectations are baked into asset prices, so if a new data point defies expectations the market must adjust up or down to accommodate this new information.

Well, at least your portfolio is diversified across stocks and bonds to reduce shocks created by a Chinese real estate bust, or any other source. Right? Maybe not.

The chart below shows correlation between bond yields and stocks has declined dramatically recently. This means that when stock prices decline so do bond prices.

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Quick update on DumbWealth

I’ve been doing some housekeeping. I’ve moved the website to a new host because my previous host was jacking up prices.

I’ve done my best to keep the same look and feel. It’s amazing how much time it takes to do what appears like nothing to the outside world.

To do the move, I had to import all archived posts to the new host. For the most part it worked. Except many images imploded. I’d love to source and re-upload the missing images, but am I realistically going to do that?

I’ll pick away at it over time, but I’d rather produce new content. It’s a shame, but I suppose it’s better than losing everything.

I still have to plug in the subscription feature and a few other widgets. But the core is up and running.

You’ll also notice I’ve changed the tagline to “where money meets late stage capitalism”. I’ll still write about wealth accumulation, passive income and careers, but I think I’d be doing a disservice if I didn’t dive into the intersection of money and late stage capitalism.

What is late stage capitalism?

At it’s extreme, late stage capitalism characterized by collapse. Many things are culminating that will affect our ability to build and keep wealth – climate change, resource scarcity, massive debts, slowing rate of technological progress, polarization of ideologies, wealth disparities, military overreach and so on. In such a world wealth goes far beyond just money. So expect to see articles on permaculture, urban farming, community and useful skills.

Stay tuned…