Investment Chart Kondratiev Wave

Investment Chart Kondratiev Wave

Friday, 11 May 2012

The Netherlands after 1600: boom, stagnation, boom or new period of stagnation

In my presentation Wednesday for the Dutch association of investment analysts (VBA) about The Kondrtieff wave and longer  I showed the two very long charts below (and many other charts).
The first chart source ) is the Dutch equity market since 1602 (VOC only of course in the first years).

You don’t see Kondratieff waves in the price pattern. What you do see is a tremendous boom from 1602 to about 1730 and then there is a stagnation that lasts until about World War II. From 1950 you get a tremendous boom that just until 1960 produced an all time high , above the one of 1735. This boom ended in 2000.

I think the Dutch equity market will join the other markets in the world (=high correlation with the S&P500) and that will be on average favourable: profit margin will stay high, exports will remain good because of Emerging markets compensating for the disaster in Southern Europe and because of tremendous technological progress (=lots of innovation profits).

Most important the times will be better than most people think now and that will mean higher valuation. Conclusion: better times for equities ahead.

Jaap van Duijn (former CIO Robeco and Kondratieff wave adept) concluded from the chart and his chart of the equity market in the UK since 1800 that stagnation is normal and this normal situation has returned and will remain the base scenario for the coming decades in the West. We just have to get used again that you invest in equities because of the dividend yield, not because of elusive profit growth in the future, just like the old investors in Robeco thought form 1929 to 1982.

The second chart is about the house prices on one of the main canals in Amsterdam, the Herengracht. Piet Eichholtz has collected a lot of data about house prices of the Herengracht since 1600 and produced this chart for a standard average house (all land plots had the same length at the canal, only in the corner you had smaller parcels with half the length and depth like my little house).

Again you see a big rise of property prices until 1730, a big decline until 1800 (bankruptcy of VOC did hurt) and only after WWII prices started to rise to set a new all time high in real prices in 2006.

The chart makes of course no correction for the fat that Amsterdam Herengracht was the most prime location in the world until 1730 and after 1730 it became less prime (but still it is an excellent location). Also there is no correction for restorations.

This is in line with the price development of my little house on the Keizersgracht. The land was sold for 300 guilder in 1672 (the disaster year in Dutch history when England, Germany etc. attacked the Netherlands), the first speculator bankrupted and only in 1680 the house was built and sold for 2000 guilder. It reached its highest price of 6400 guilder in 1730 and then it lasted until about 1960 before the price became higher. It is completely renovated in 1975 and sold for 450,000 guilder in 1978 and I bought it in 1982 for 200,000 guilder (and some other things), after 1982 prices exploded again (to about € 600,000 or more) and now the prices are in decline again (a fall of 25-30% from top should be normal). So here the stagnation seems to last longer, there is no help from Emerging markets.

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