That comparison doesn’t bother me. REITs didn’t exist in the 1930s – although Joseph Kennedy reportedly made a fortune buying Chicago’s Merchandise Mart at the low point in 1933, with huge overcapacity in commercial real estate overhanging the market.
But common stocks enjoyed a monster rally from 1932-1937, while gold stocks (e.g. Homestake) rallied for the whole decade, and T-bonds and oil companies held their own.
Under any given economic conditions, some asset class either will be doing well, or will be cheap enough to constitute the ‘buy of a lifetime.’ I fantasized about buying Zimbabwean assets during the hyperinflation. The hyperinflation burnt out, and both stocks and real estate doubtless have bounced back strongly with the return of monetary stability.
Markets are always changing, but they still rhyme with the past. We can’t allow ourselves to be immobilized by the notion that there are no guideposts to steer by.
Although the source of this chart was not identified in the Zerohedge article, it has the look of a Ned Davis chart:
The construction of this chart is a little odd. One would expect that when gold, oil and the CRB are rising, the two-year and ten-year yields would rise too. On the other hand, all of these factors normally would be bad for the dollar. So the inclusion of the dollar index in this group strikes an off note. The dollar index ought to be included as an inverse factor.
When deflation fears rule, naturally stocks (the S&P 500) correlate with material prices and yields. Bullish economic prospects make them all rise together, and vice versa.
When Ben Bernanke finally defeats deflation, this tight correlation will evaporate like a morning mist. In the long run, rising materials prices and interest rates cannot be good for stock prices. This temporary strong correlation is exactly what the chart identifies it as – a rare statistical outlier.
In all of the analysis presented, I’m surprised that returns are not adjusted for inflation.
For example, the bond market returned 15% when inflation was 9%. The current nominal return is not as skewed as the gross returns presented.
It doesn’t necessarily render conclusions invalid, so much as indeterminate. Rather than get educated, I got fogged, and I am familiar with this stuff.
Debt is more of a class issue than is being articulated here.
Debt is a relationship between a debtor and a creditor. Without question, being in debt, and in net debt is the absence of freedom, even in absence of freedom to fulfill one’s social responsibilities to use one’s net equity well.
The increase in debt, and interest, in the world, is a relationship of transfer of net wealth (or net social permission to rights) from working classes to owning classes.
The relationship of geometrical debt returns to lesser geometrical productivity returns, or arithmetic solar income or personal savings, is a transfer between classes.
When creditors receive 3% return on their net equity, and productivity increases by 1.5% and over an extended period of time, that is a transfer of wealth, that drives the prospect of economic collapse.
Expressing rates of return in nominal terms is the industry standard for reporting stock and mutual fund performance.
Inflation has run at 2.5% compounded over the past 10 years. Nominal compounded annual returns for this period can be converted to real returns by subtracting 2.5%.
