Party Crasher

What’s Going On Here?

Not to burst your bubble, new homeowners, but home prices around the world are flashing the same warning signs they did in the lead-up to the 2008 financial crisis…

What Does This Mean?

Nowadays, home isn’t just where the heart is: it’s where our old jobs, new puppies, and frivolous lockdown purchases are too. That’s encouraged homeowners to move to bigger and better places, and – thanks to a combination of record-low interest rates, pandemic savings, tax incentives, and government stimulus programs – there’s been no reason not to.

No surprises, then, that the global housing market is now in a bubble. According to a new report from Bloomberg Economics, New Zealand, Canada, and Sweden rank as the world’s frothiest, closely followed by the US and the UK. That’s based on how high certain indicators – like the ratio of house prices to rent or locals’ salaries – are, even compared to where they were before the 2008 financial crisis.

Why Should I Care?

For markets: Leave banks outta this.
The report points out that we might see the market drop off steadily rather than in one fell swoop. But neither would be good news for banks, whose mortgage-lending heavily exposes them to the real estate market. And they could do without the extra headache: the sector’s stocks fell earlier this week after JPMorgan said it’s anticipating a bigger-than-expected drop in trading revenue this quarter, suggesting that the trading boom – in stocks and bonds, at least – is starting to tail off.

The bigger picture: Crypto is… inevitable.
Cryptocurrency trading, meanwhile, is still going strong. That might be why investment bank Goldman Sachs recently unveiled a dedicated cryptocurrency trading team, and why it’s now expanding its crypto offering from bitcoin products to ether products. That might be smart: a new survey suggests hedge funds will hold 7% of their total assets in crypto within five years, and investment banks count plenty of them as their clients (tweet this).

You might also like: Is now the perfect time to buy a home?

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What A Difference A Decade Could Make

What’s Going On Here?

After all the drama we’ve seen over the last twelve months, you might be tempted to put together a more relaxing portfolio – of, say, ten years or so.

If you are, it’s worth knowing the three factors that, put together, are responsible for your long-term stock market returns.

Those factors impact returns differently depending on the wider economic environment – if stocks are at sky-high levels, for example, or if we’re in a recession.

But if you understand what effect they’re having right now, you could turn them to your advantage to maximize your returns for the next ten years.

So that’s today’s Insight: how these factors are impacting returns, and which stocks, sectors, and countries to invest in to turn them to your advantage.

What’s Going On Here?

The US and the European Union (EU) finally sat down together on Tuesday, hashed out their differences, and settled a longstanding argument over aircraft subsidies.

What Does This Mean?

The spat started back in 2004, when the US complained to the World Trade Organization that EU member states were illegally giving financial support to Airbus. That’s when the EU responded by claiming that the US was propping up its homegrown aerospace giant, Boeing, with overly generous state subsidies, as well as space and military contracts that indirectly lowered passenger aircraft production costs.

Things escalated further still in 2019, with the US and EU increasing trade tariffs on some $12 billion worth of each other’s exports – everything from aircraft parts to cheese, wine to whiskey. Now, though, the two have extended a temporary truce they struck in March to one that’ll last five years. The deal means all future passenger planes made by Airbus and Boeing will be developed without subsidies – and your favorite Bordeaux should get cheaper too.

Why Should I Care?

The bigger picture: My enemy’s enemy is my friend.
The historic agreement – which may also pave the way for a resolution to other US-EU trade wars – comes as China attempts to overthrow the global Boeing-Airbus duopoly. The state-sponsored Commercial Aircraft Corporation of China wants to provide a legitimate alternative by the end of the decade, and its first single-aisle Boeing 737-style jet by the end of the year. Tuesday’s deal, then, could be a sign that the US and EU are taking the threat seriously.

Zooming out: Airlines are also addicted to subsidies.
Germany’s Lufthansa was hit hard by the pandemic, forcing it to accept a $10 billion bailout from the country’s government. But the airline outlined bold plans for a post-pandemic return to profitability on Tuesday, saying it would raise fresh funds from shareholders to pay back the state aid while streamlining its operations.

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