UBS and PwC's recent report on billionaire wealth highlights some interesting trends about the global economy and global wealth.

• Billionaire wealth in mainland China is now second to only the United States, having grown by about 1146% from 2009 to 2020, compared to 170% in the US. As of the middle of this year, it was sitting at about USD 1.7 trillion in China, compared to USD 3.6 trillion in the US.

• Hong Kong remains a force with only 1,105 square kilometers of land (not all of which is developable). Billionaire wealth grew by about 208% to USD 356 billion over the same time period as above. That puts it ahead of the United Kingdom, Canada, and Brazil in total dollars.

• About half of all billionaires seem to have a significant amount of their wealth invested in real estate. Somewhere between 21-40% of their net worth.

• At the same time, the report identifies the real estate industry as having the fewest number of "innovators & disruptors." Only 17% of billionaires (whose wealth is primarily derived from real estate) are classified in this way. The report calls out the sector as being "especially slow to embrace technology to boost efficiency."

• Perhaps the most interesting takeaway is that, even within the rarified billionaire community, tech is driving polarization. For most of the last decade, the sector didn't matter all that much. The rich were getting richer. Now it's more so the tech rich. And COVID-19 seems to be accelerating this trend.

This is not to say that I think people are particularly worried about billionaires who maybe aren't getting as rich as they used to. That's like complaining about being too good looking. But it is clear that tech is driving a bunch of macro shifts in the global economy and this is just another example of that playing out.

Image: UBS and PwC

I came across this map while reading up on Hurricane Dorian:

It is a map showing the tracks of every known hurricane in the North Atlantic (1851-2013) and in the Eastern North Pacific (1949-2013). Major hurricanes (category 3 or higher) are shown in yellow and tropical cyclones (intensity less than category 3) are shown in red.

The map is from the National Hurricane Center. Some of their other maps include the points of origin for tropical cyclones (here is August 21-31 from 1851-2015) and the total number of hurricane strikes by U.S. county (here is Florida from 1900-2010).

What has happened is a catastrophe. UBS is already estimating the insured damages in the Bahamas to be between $500 million and $1 billion. But as is usually the case, the total economic losses will likely exceed the insured losses.

“The term “bubble” refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts.” - UBS

Last week UBS released its 2017 Global Real Estate Bubble Index. At the top of the list was none other than Toronto, followed by Stockholm, Munich, Vancouver and Sydney. And at the bottom of the list was Chicago – a city that UBS feels is undervalued.

Here is the full list of index scores:

The UBS index is a weighted average of the following five sub-indices:

1. Price-to-income
   

2. Price-to-rent (fundamental valuation)
   

3. Change in mortgage-to-GDP ratio
   

4. Change in construction-to-GDP ratio (economic distortion)
   

5. Relative price-city-to-country indicator
   

If you look at their price-to-income benchmark in isolation, Toronto drops down to the middle of the pack along with Geneva and San Francisco. Hong Kong, London and Paris sit at the top with the most unaffordable housing. 

Still, UBS credits “an overly loose monetary policy”, foreign demand, tight zoning, and rental market regulations for the eroding housing affordability in Toronto and Vancouver.

One of the challenges, of course, is that the capital flowing into real estate is not all local – it’s also global. And many cities around the world are seeing high price-to-income multiples, perhaps because of that. 

So exactly how much decoupling from local fundamentals should now be considered reasonable in our globalized world? And to what extent is this a result of “superstar economics?”

Here’s an excerpt from the UBS report:

The economics of Superstars explains why, in some professions, show business for instance, “small numbers of people earn enormous amounts of money and dominate the activities in which they engage.” By analogous reasoning, prices in the most attractive cities are expected to outperform average cities or rural areas in the long run. Hong Kong, London and San Francisco are exemplars of this theory.

The intuition is that the national and global growth of high-wealth households creates continued excess demand for the best locations. So, as long as supply cannot increase rapidly, prices in the so-called “Superstar cities” are supposed to decouple from rents, incomes and the respective countrywide price level.

I guess this is one of the reasons why bubbles are proven after the fact. If you would like to download a copy of the full UBS report, click here.

UBS and PwC's recent report on billionaire wealth highlights some interesting trends about the global economy and global wealth.

• Billionaire wealth in mainland China is now second to only the United States, having grown by about 1146% from 2009 to 2020, compared to 170% in the US. As of the middle of this year, it was sitting at about USD 1.7 trillion in China, compared to USD 3.6 trillion in the US.

• Hong Kong remains a force with only 1,105 square kilometers of land (not all of which is developable). Billionaire wealth grew by about 208% to USD 356 billion over the same time period as above. That puts it ahead of the United Kingdom, Canada, and Brazil in total dollars.

• About half of all billionaires seem to have a significant amount of their wealth invested in real estate. Somewhere between 21-40% of their net worth.

• At the same time, the report identifies the real estate industry as having the fewest number of "innovators & disruptors." Only 17% of billionaires (whose wealth is primarily derived from real estate) are classified in this way. The report calls out the sector as being "especially slow to embrace technology to boost efficiency."

• Perhaps the most interesting takeaway is that, even within the rarified billionaire community, tech is driving polarization. For most of the last decade, the sector didn't matter all that much. The rich were getting richer. Now it's more so the tech rich. And COVID-19 seems to be accelerating this trend.

This is not to say that I think people are particularly worried about billionaires who maybe aren't getting as rich as they used to. That's like complaining about being too good looking. But it is clear that tech is driving a bunch of macro shifts in the global economy and this is just another example of that playing out.

Image: UBS and PwC

I came across this map while reading up on Hurricane Dorian:

It is a map showing the tracks of every known hurricane in the North Atlantic (1851-2013) and in the Eastern North Pacific (1949-2013). Major hurricanes (category 3 or higher) are shown in yellow and tropical cyclones (intensity less than category 3) are shown in red.

The map is from the National Hurricane Center. Some of their other maps include the points of origin for tropical cyclones (here is August 21-31 from 1851-2015) and the total number of hurricane strikes by U.S. county (here is Florida from 1900-2010).

What has happened is a catastrophe. UBS is already estimating the insured damages in the Bahamas to be between $500 million and $1 billion. But as is usually the case, the total economic losses will likely exceed the insured losses.

“The term “bubble” refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts.” - UBS

Last week UBS released its 2017 Global Real Estate Bubble Index. At the top of the list was none other than Toronto, followed by Stockholm, Munich, Vancouver and Sydney. And at the bottom of the list was Chicago – a city that UBS feels is undervalued.

Here is the full list of index scores:

The UBS index is a weighted average of the following five sub-indices:

1. Price-to-income
   

2. Price-to-rent (fundamental valuation)
   

3. Change in mortgage-to-GDP ratio
   

4. Change in construction-to-GDP ratio (economic distortion)
   

5. Relative price-city-to-country indicator
   

If you look at their price-to-income benchmark in isolation, Toronto drops down to the middle of the pack along with Geneva and San Francisco. Hong Kong, London and Paris sit at the top with the most unaffordable housing. 

Still, UBS credits “an overly loose monetary policy”, foreign demand, tight zoning, and rental market regulations for the eroding housing affordability in Toronto and Vancouver.

One of the challenges, of course, is that the capital flowing into real estate is not all local – it’s also global. And many cities around the world are seeing high price-to-income multiples, perhaps because of that. 

So exactly how much decoupling from local fundamentals should now be considered reasonable in our globalized world? And to what extent is this a result of “superstar economics?”

Here’s an excerpt from the UBS report:

The economics of Superstars explains why, in some professions, show business for instance, “small numbers of people earn enormous amounts of money and dominate the activities in which they engage.” By analogous reasoning, prices in the most attractive cities are expected to outperform average cities or rural areas in the long run. Hong Kong, London and San Francisco are exemplars of this theory.

The intuition is that the national and global growth of high-wealth households creates continued excess demand for the best locations. So, as long as supply cannot increase rapidly, prices in the so-called “Superstar cities” are supposed to decouple from rents, incomes and the respective countrywide price level.

I guess this is one of the reasons why bubbles are proven after the fact. If you would like to download a copy of the full UBS report, click here.