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The World’s Biggest Real Estate Bubbles in 2018

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Note: Cities with a “Bubble Risk” (>1.5) are shown in red

The World's Biggest Real Estate Bubbles in 2018

Courtesy: UBS

The World’s Biggest Real Estate Bubbles in 2018

With the current stock market bull run reaching nearly 10 years in length, it’s understandable that many investors are nervous about the end of the party coming sooner than later.

However, as UBS notes in its latest report, there is also growing concern about another prominent bubble that’s been in the works since the aftermath of the financial crisis.

Large amounts of easy money have fueled real estate bubbles in the world’s major cities – and the Swiss investment bank now sees the property markets in six global cities as being at risk.

The Bubble Index

In the 2018 edition of the bank’s Real Estate Bubble Index, here are the major cities around the globe that are in or near bubble territory:

The biggest real estate bubbles

Any city with a score over 1.5 is considered at “Bubble Risk”, and right now those include two cities from Canada, one from Asia, and three from Europe.

Hong Kong (2.03) tops the index this year, leaping past Munich (1.99), Toronto (1.95), and Vancouver (1.92) which all remain at bubble risk themselves. Amsterdam and London are the two other cities that score higher than a 1.5 on the rankings.

It’s also very important to note that there are four cities that score just under the 1.5 threshold: Stockholm (1.45), Paris (1.44), San Francisco (1.44), and Frankfurt (1.43).

A Coming Correction?

Investor and writer Howard Marks has noted in recent months that the wider market is in its “8th inning”, and the same case could be made for real estate.

Historically, investors have had to be alert to rising interest rates, which have served as the main trigger of corrections.

– UBS Report

According to UBS, the cracks are already starting to show at the top end of the market, with housing prices declining in half of last year’s list of bubble cities. Some of the worrying factors include rising interest rates, as well as growing political tensions as the crisis of affordability makes it harder for average people to live in these global financial centers.

Here is annualized growth in percent over the last year, as well for the last five years for cities in the index:

Real estate bubbles and their growth rates

As you can see, some of these cities have had negative growth over the last 12 months, including New York, Toronto, Sydney, London, and Stockholm.

Charting Specific Markets

In Hong Kong, you need to work 22 years to afford a 645 sq. ft (60m²) apartment, when that took just 12 years just a decade ago. In recent years, Hong Kong’s ascent to becoming one of the biggest real estate bubbles has become very evident, especially when juxtaposed with Singapore:

Hong Kong

In Canada, the two cities in the index are starting to go in alternate directions, although recent signs also point to a potential slowdown in Vancouver:

Vancouver and Toronto

Finally, the U.S. market – which felt the pain of the housing crash in the late 2000s – is home to zero cities in the bubble risk category, according to UBS.

American cities

Whether it is a bubble or not, many people agree that San Francisco’s housing situation is still a crisis. In the Bay Area hub, 60% of all rental units are in rental-controlled buildings, and the median single-family house price is a hefty $1.7 million.

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The 20 Biggest Bankruptcies in U.S. History

There is always risk in business – but for these 20 companies, which caused the biggest bankruptcies in history, those risks didn’t quite pan out.

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Doing business means taking calculated risks.

Regardless of whether you are opening a lemonade stand or you’re a leading executive at a Fortune 500 company, risk is an inevitable part of the game.

Taking bigger risks can generate proportional rewards – and sometimes, such as for the companies you’ll read about below, the risk-taking backfired to queue up some of the biggest bankruptcies in U.S. history.

Going For Broke

Today’s infographic comes to us from TitleMax, and it highlights the 20 biggest bankruptcies in the country’s history.

Companies below are sorted by total assets at the time of bankruptcy.

The 20 Biggest Bankruptcies in U.S. History

There are times when companies are forced to push in all of their chips to make a game-changing bet. Sometimes this pans out, and sometimes the plan fails miserably.

In other situations, companies were actually unaware they were “all-in”. Instead, the potentially destructive nature of the risk was not even on the radar, only to be later triggered through a global crisis or unanticipated “Black Swan” events.

The Biggest Bankruptcies in the U.S.

Here are the 20 biggest bankruptcies in U.S. history, and what triggered them:

RankCompanyYearAssets at BankruptcyDownfall
#1Lehman Brothers2008$691 billion2008 financial crisis
#2Washington Mutual2008$328 billion2008 financial crisis
#3Worldcom Inc.2002$104 billionAccounting scandal
#4GM2009$82 billionMassive debt
#5CIT Group2009$71 billionCredit crunch
#6Pacific Gas & Electric2019$71 billionWildfires
#7Enron2001$66 billionFraud
#8Conseco2002$61 billionFailed acquisition strategy
#9MF Global2011$41 billionEuropean sovereign bonds
#10Chrysler2009$39 billionMassive debt
#11Thornburg Mortgage2009$37 billionDeclining mortgage values
#12Pacific Gas & Electric2001$36 billionDrought
#13Texaco1987$35 billionContract dispute
#14FCOA1988$34 billionSavings and loan crisis
#15Refco2005$33 billionAccounting fraud
#16IndyMac Bancorp2008$33 billionMortgage market collapse
#17Global Crossing2002$30 billionPlummeting world economy
#18Bank of New England1991$30 billionBad loans
#19General Growth Properties2009$30 billionFailed acquisition strategy
#20Lyondell Chemical2009$27 billionDecline in demand

The data set on the biggest bankruptcies is organized by assets at time of bankruptcy. Therefore, they are not in inflation-adjusted terms, meaning the list skews towards more recent events.

This makes the impact of the 2008 financial crisis particularly easy to spot.

The events and consequences relating to the crisis (loan defaults, illiquidity, and declining asset values) were enough to take down banks like Lehman Brothers and WaMu. The after effects – including a slumping global economy – led to a second wave of bankruptcies for companies such as GM and Chrysler.

In total, nine of the 20 biggest bankruptcies on the list occurred in the 2008-2009 span.

A Dubious Distinction

You may also notice that one company was on the list twice, and this was not an accident.

Pacific Gas & Electric, a California company that is the nation’s largest utility provider, has the dubious distinction of going bankrupt twice in the last 20 years. The first time, in 2001, resulted from a drought that limited hydro electricity generation, forcing the company to import electricity from outside sources at exorbitant prices.

The more recent instance happened earlier this year. Facing tens of billions of dollars in liabilities from raging wildfires in California, the utility filed for Chapter 11 protection yet another time.

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Chart of the Week

A Visual History of the Largest Companies by Market Cap (1999-Today)

See how the world’s largest companies have changed over time, and how this helps tell a broader story about what the market is thinking.

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A Visual History of the Largest Companies by Market Cap

The macro narrative that underlies the market is constantly under revision.

While this is partially a function of shifts in investor sentiment, it’s also driven by game-changing events as well as much more structural market forces.

For example, how does the macro narrative change after a commodity price crash? What about when the unprecedented scale of technology is truly understood by the market?

An Evolving Narrative

In this week’s chart, we look at how the big picture narrative has changed over time by using a very simple approach.

We have visualized the market capitalizations of the 10 largest public companies in the world over five-year intervals from 1999 until today, and it gives us a series of snapshots of what the market was “thinking” during these specific periods.

Not only is it evident as certain industries rise to prominence, but there are also some interesting individual stories to follow. We can see iconic companies – such as Apple – ascend into the public consciousness, while others fall off the radar completely.

YearDescriptionTop CompanyWho Dominates Top 10?
1999Dotcom BubbleMicrosoft ($583B)Five tech companies in the mix
2004Post-BubbleGE ($319B)Diverse mix of companies by industry
2009Financial CrisisPetroChina ($367B)Six non-U.S. companies make list
2014$100 OilApple ($560B)Last year for oil companies, tech starts ascending
2019Big Tech EraMicrosoft ($1,050B)Seven companies are tech

The composition of the top 10 changes in each of the snapshots above, and this simple approach helps capture the market narrative for each timeframe.

During the Dotcom Bubble, you can see that half of the list was dominated by tech companies. This was short-lived, and the years 2004, 2009, and 2014 have much more diverse lists.

You can also see the impact of the financial crisis on U.S. company valuations. In 2009, there is an equal distribution of Chinese and American companies. Royal Dutch Shell (UK/Netherlands) and Petrobras (Brazil) help round out the top 10.

Finally, over the last five years, you can see the impact of lower oil prices and the growing scale of tech. Back in 2014, Exxon Mobil was the second largest company in the world by a solid margin, but today it’s been displaced by companies like Facebook, Amazon, Tencent, and Alibaba.

The Big Tech Era

Here is the current top 10 list of the world’s largest companies by market cap:

RankCompanyIndustryMarket Cap
#1🇺🇸 MicrosoftTech$1,050 billion
#2🇺🇸 AmazonTech$943 billion
#3🇺🇸 AppleTech$920 billion
#4🇺🇸 AlphabetTech$778 billion
#5🇺🇸 FacebookTech$546 billion
#6🇺🇸 Berkshire HathawayDiversified$507 billion
#7🇨🇳 AlibabaTech$435 billion
#8🇨🇳 TencentTech$431 billion
#9🇺🇸 VisaFinancial$379 billion
#10🇺🇸 Johnson & JohnsonConsumer Goods$376 billion

In total, the five biggest tech giants brought in a combined $801.5 billion in revenue last year, and $139 billion in net income.

The Staying Power of Microsoft

With a valuation today of just over $1 trillion, Microsoft is again the world’s largest company by market capitalization.

In this way, the above lists come full circle, since Microsoft was also the biggest company in 1999.

While the software giant experienced short periods where it did drop out of favor, Microsoft was the only company to make the list in our five snapshots above.

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