Episode #365: Bryan Taylor, Global Financial Data, “There Are 100 Ways To Beat The Market; You Just Got To Figure Out What Works For You And Stick To That Plan”
Guest: Dr. Bryan Taylor is the President and Chief Economist for Global Financial Data. He received his Ph.D. from Claremont Graduate University in Economics writing about the economics of the arts. He has taught both economics and finance at numerous universities in southern California and in Switzerland. He began putting together the Global Financial Database in 1990, collecting and transcribing financial and economic data from historical archives around the world.
Date Recorded: 10/13/2021 | Run-Time: 52:53
Summary: In today’s episode, we put today’s market into historical context. We start by looking at the history of interest rates and then hear why the 2020’s may be “The COVID Decade.” Then we touch on whether or not the dominance of the U.S. stock market will continue, what Bryan’s research shows about seasonality in the stock market, and whether we can learn any lessons from past industries that dominated the way the technology sector has of late.
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Links from the Episode:
- 0:40 – Sponsor: FarmTogether
- 1:53 – Intro
2:34 – Welcome back to our guest, Dr. Bryan Taylor
- 3:33 – Episode #110: Bryan Taylor, Global Financial Data
- 4:07 – What 2021-2022 looks like for Bryan
- 5:29 – How the bull market today compares to prior bull markets
- 9:04 – Putting the current interest rate environment into a historical context
- 13:28 – Lessons learned from compiling Global Financial Data’s encyclopedia of global stock markets
- 19:16 – Takeaways from studying centuries of market data
- 22:08 – US percentage of market cap (chart link); buying a market cap weighted global portfolio
- 25:04 – Seasonality in the stock market
- 27:55 – Other seasonal and recurring market trends that Bryan’s uncovered
- 30:25 – The rise and decline of the first billion dollar corporation: Standard Oil
- 32:36 – Government influence over corporations and sectors
- 34:04 – Thoughts on the tech sector today and across history
- 36:12 – Something Bryan believes that a majority of his peers do not
- 38:26 – What else Bryan is up to and other projects they’re working on
- 42:20 – How much digital innovation in currencies might impact assets and our lives
- 43:40 – A breakout year for commodities and any historical relevance
- 46:15 – Final thoughts as we approach the end of 2021
- 46:39 – Learn more about Bryan; globalfinancialdata.com
Transcript of Episode 365:
Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.
Meb: Hey, y’all, today we have another great show. Our returning guest is the president and chief economist for Global Financial Data, which provides the most comprehensive historical, economic, and financial information available anywhere. In today’s episode, we put today’s market into historical context. We start by looking at the history of interest rates and then hear why the 2020s may be the COVID decade. And then we touch on whether or not the dominance of the U.S. stock market will continue, what our guest’s research shows about seasonality in the stock market, and whether we can learn any lessons from past industries that dominated the way technology sector has of late. Please enjoy this episode with Global Financial Data’s Bryan Taylor. Bryan, welcome to the show.
Bryan: Thank you.
Meb: I should say welcome back. Where do we find you today?
Bryan: Well, I’m down here in Orange County enjoying the beautiful weather. As always, here in Orange County, the weather’s beautiful.
Meb: Tell us, for the audio-only listeners, what are these two movie posters in your background?
Bryan: Well, I collect movie posters. And the one on my right is “L’Argent,” which is a print film from the 1920s, which is actually about the stock market. And they filmed inside the Paris Bourse. And it’s really a fascinating film. The other one is a sci-fi film about the Giant Mantis who attacks the Washington Monument and almost destroyed it. So quite a wide variety there.
Meb: I love it. I’ve seen neither of those, I’ll add them to the queue on Netflix if they even have them. I love talking to you because it’s part historian, and we’ll include film buff in there now, it’s part investor, and part data geek like myself, and you kind of have to be in our world, all three of those or else it’s hard not to be. We had you on the show back in episode 110. Feels like a lifetime ago, listeners will put it in the show notes. And you guys have continued just to crank out research. And I love reading y’all’s because it’s probably the longest dated perspective you can find anywhere. So what have you been up to? Let’s talk about it. What does 2021, 2020 look like here as we sit at the end of…we’re right in the middle of October, it’s almost Halloween time.
Bryan: Well, what we’ve been doing with the database is adding data from the European countries to complement what we already had for the United States, Canada, and the U.K. And it’s been really interesting studying the different countries in Europe in how well they were integrated prior to World War I. We feel that the world is returning to a situation similar to what you had prior to World War I because you had a global economy, you had low interest rates, and the stock markets were booming throughout the world. We hope that this trend isn’t blocked because you have less trade, partly as a result of COVID and the supply problems that that’s created. And you’ve also had more desire to produce things locally, rather than rely upon the global economy. So we hope that once we’ve moved past COVID, we can return to the globalized economy and reap the benefits of that.
Meb: You guys looked around at where we stand today, which is a romping, stomping bull market with seemingly no ceiling in the United States. Talk to us a little bit about what this current bull feels like. How does it, sort of, rank in perspective? What are, sort of, the insights of how you’ve looked at this? Is the U.S. this special outlier that just always outperforms? All that good stuff. It’s an open mic. It’s like comedy, open mic night, you get to take that wherever you want.
Bryan: You know, like a stand up comic.
Bryan: So I mean, one thing that we focused on is what we call the interest rate pyramid. The interest rate pyramid is the long-term increase in interest rates and decrease in interest rates. And if you look back at the 20th century, you had one interest rate period from 1900 up until 1920 when interest rates rose, and then they declined from the ’20s into the ’30s. You had a second one between 1940 and the present. For 40 years, from 1940 to 1980, you had rising interest rates. Since 1981, interest rates have declined. And currently, as you know, interest rates are at their lowest level in history. I mean, you had negative interest rates for 10 years in some of the European countries. And obviously, the interest rates can’t go any lower. And that’s one reason why stock markets have done so well is because interest rates are so low, what’s going to be the alternative?
And we’ve looked at returns to fixed income investors at different points in time. And the yield on the 10-year does provide an accurate forecast of what you’re going to get by investing in bonds over the next 10 years. So people who are investing in bonds today, from 2021 to 2031, should expect to get no more than 1% or so as their total return for investing in bonds. And so that means that the alternative is stocks simply because you just don’t get a return in bonds. And so that’s one reason why the U.S. has done so well with low interest rates.
The other thing is that if you look at the rest of the world, if you look at Europe, if you look at the emerging markets, they have not done that well during the past 20 years. Some of the European markets are barely at the same levels they were at 20 years ago. But the United States has roared ahead. And part of it is because of the same companies. And the fact that a company like Facebook, or Google, or Apple can really penetrate the entire world and have a billion customers, none of the European, none of the emerging markets have been able to do that. And that’s what really has enabled the United States to grow its stock market so dramatically.
I mean, today, the United States stock market is equal to twice our GDP in terms of market cap. It was never that hot. Historically, it was around 50%, 75%. But now it’s twice our GDP.
And yet, there still seems room to grow. I mean, it’s incredible.
Meb: How do you put this, sort of, interest rate environment in the context? You look back, and I don’t know if anyone managing money at this point was really not many people around for the ’70s and early ’80s period, but also this weirdness globally with the zero/negative yielding sovereigns. Is this a total outlier in history as far as the way the interest rates look around the globe? Is there any, sort of, analogues we can point to that could inform us what the future may look like for bonds all around the world?
Bryan: No, it is a total outlier.
Interest rates have never been this low.
If you look at England, for which we have data back to 1700, we have 3 centuries of data, they’ve never been this low. And then if you look at interest rates in Italy and other countries, they’ve never been this low. In fact, there was a researcher who analyzed interest rates over the past 8 centuries and said, generally, it’s been a downward trend through time over the past 800 years. And so the real question going forward is what is going to happen to interest rates? Are they going to stay at this level or will they start to increase?
Now, right now, people are concerned about interest rates going up. They’re at 1.5% for the 10-year bond, I mean, still, that’s so incredibly low, and the interest rates are negative. In much of Europe, the central banks are controlling the interest rates, keeping them low to promote growth. And we’ve seen an impact on inflation. The only question is, are they able to maintain the low interest rates here in order to help the economy, help the financial markets? Or at some point, do we start to fall into a ’70s-like inflation where interest rates go up and they lose control? I really don’t know. I don’t think anyone knows. But my bet would be that they do continue to control the interest rates and keep them low.
Meb: It’s certainly a weird time. You guys do so much work on, kind of, cycles, on the way the U.S. look…I mean, just stock markets, in general, going back forever. Are there any implications, kind of like the pandemic, you guys did some work there, of this being maybe a COVID decade? Valuations are kind of on the high side. Any other thoughts on, sort of, the stock markets around the world today, in general? Again, you can take it in any direction, you guys have so much material.
Bryan: If you look at the sell-off that occurred as a result of COVID, a number of the world stock markets has actually topped out in 2018. And some of the markets like the United States, we’re continuing to hit new highs into 2020.
But of course, when COVID hit, every single stock market declined. I mean, we have records on bull and bear markets going back over 100 years. And it was the most coordinated bear market, both in terms of the decline and in terms of the bounce back.
Because while everyone was afraid of what the impact was going to be on the financial markets, the financial markets are saying, “No, this is going to be a short-term problem, we will recover,” and we have recovered. And typically, if you look back over the past 50 or so years, a bull market lasts around 10 years. And so we wiped out the bear market. We’re going into a bull market here. And I see no reason why the bull market doesn’t continue. I mean, the Delta variant obviously has slowed things down. But once we push back the Delta variant, and once we get over the supply issues that we’re facing, there’s no reason why the market shouldn’t grow and the bull market shouldn’t continue.
Meb: It’s interesting to think about that as you talk about the coordinated nature. I mean, with globalization and information, immediacy across the world, it sort of makes sense that you have something like a global pandemic that affects everyone that it would have that effect. You guys have put out an absolute masterworks encyclopedia series on equity returns, bonds, bills, everything all around the world. I don’t know if this is public yet. So you can correct me if it’s not, but I got to read it, it looks at country returns going back to, like, Amsterdam. Can you tell us a little bit about that? And then we can talk about some learnings, and insights, and periods, and everything in between.
Bryan: Yeah, we have the GSD Encyclopedia of Global Stock Markets. And what we’ve done is we’ve provided the longest term available for the stock markets in the world. I mean, if you look at it over the past 50 years ago, you had the Evenson research, which was just the United States going back to 1925. Then you had the Triumph of the Optimists, which went back to 1900. What we did was we wanted to cover all the countries going back to the beginning. So you mentioned Amsterdam. In that case, our data goes back to 1602 because that’s when trading in the Dutch East India Company stocks began. And so we have gone back as far as possible, not only in terms of stock markets, but in terms of interest rates, measuring bull and bear markets. I mean, we cover the whole spectrum of data for our financial markets, and we’ve done it for each country. And we will be making that available on our website so anybody can download it and they can see the historical performance, not only of individual countries, I believe there are 25 individual countries in there, but then some broad measures of returns for the world market, world excluding the United States, Europe, emerging markets, and so forth.
This way people can get the full picture of what’s happened in each country over the past several hundred years. It not only includes returns to stocks, bonds, and bills, but also looks at the level of debt that has existed in each country and the level of the market cap of different countries. And it’s fascinating to study because, for example, if you look in the 1800s at the end of the Napoleonic wars in 1815, the debt for the U.K. was over twice GDP. And during the 1800s, they did not issue any more debt. In fact, they paid off their debt. So by the time you got to World War I, the debt was down to under 50% of GDP. All the money flowed out of the government bonds and into the stock market, not only companies in the U.K., but companies throughout the world, the United Kingdom funded growth of railroads and other industries, finance, and so forth in all of their colonies in South America and other parts of the world.
Similarly, if you look at the market cap, you’ll see that the market cap for stock markets declined between the beginning of World War I and the 1970s when you had the inflation. And a lot of people don’t realize it but the bear market in the U.K., in London, in the 1970s was worse than in the 1920s, the 1930s. However, during the 1980s, you had the Big Bang in London, you had mass privatizations. And so stock markets exploded until the market cap was equal to 100% of GDP in a lot of the countries. I mean, these are the broad trends that you have to really look at to understand what’s going to be happening in the future. I think part of the problem is, if you look at what I call the interest rate pyramid, the rise in interest rates from the 1940s until ’81, and then declined since then, that’s the experience that people have had. That’s the reference point that they’re looking at to look at the future.
But that’s in the past, the future is not going to be like that. The future is not going to have this 80-year interest rate period. In fact, interest rates will probably remain low because that’s what the central banks are doing.
So you have to rethink your investment perspective and where are you going to put your money and how you’re going to invest.
Again, people back around 2000, were thinking, “Oh, emerging markets are where it’s at,” because they have the possibilities of growth. But it’s the United States that is seized upon the AI, the internet, and other means to move into the rest of the world in order to grow the American stock market. At the same time, China has those abilities to expand, but yet their government is restricting the growth of their stock market.
And these are all the trends that you have to look at and anticipate in the future. I mean, we look at long-term trends. And so I’m talking long-term trends here. Not what’s going to happen one year, two years, I’m talking about the rest of the decade. And just as you had the roaring 1720s with the South Sea Company, you had the 1820s with the South American investment, you had the 1920s with the bull market in New York, we think the 2020s are going to have a similar bull market and possible crash. So it’s a really exciting time.
Meb: That’s a lot. I think one of the challenges of history and looking at all the data you guys have is, on one hand, you see all that’s possible. So you mentioned what’s going on in China now and I reflect back to China straight up closing the capital markets, what is that, 75 years ago-ish, and ditto for Russia. But also, you look at times when most investors today time horizons are hours, days, weeks, months, quarters, even years if you’re totally insane. But so many of these, sort of, regimes play out on years and decades, even. How do you think about all this, just like throughout the arc of history, and what we’ve seen, not just the past 100 years, but past 300, 400, are there any, sort of, takeaways you have as to investing? I mean, you could say like one, stocks beat bonds, or true but a caveat that it may take 30 years or something. What are some of the commonalities and things you’ve learned from getting super down and dirty with the data?
Bryan: Well, the long-term trends and interest rates have been down. And that’s because the governments through the central banks are able to control interest rates in a way that they just weren’t able to do in the past. And so risk levels are down, the chances of a developed country defaulting is almost zero. And that’s reflected in the low interest rates that you have. Consequently, stocks beat bonds. Now, if you look back to the 1800s, the returns to stocks and bonds were pretty much the same. There was not a large equity risk premium, that there was a lot of risk in both bonds and in the stock market.
However, since World War II, this has changed. During the rise in the interest rates between the 1940s and the 1980s, it was true that equities definitely beat bond. Since 1981 with the declining interest rates, you got to return not only the interest that you receive but the capital gains that occurred from the declining bond prices. And so there was a small difference between the returns to stocks and bonds between 1981 and the present. Now, the question is, what’s going to happen in the future? And with interest rates low on bonds, stocks just have to be the alternative that people go to, even though the stock market prices are really high. As long as interest rates stay low, stocks are going to beat bonds. And that’s what I’ve learned here.
Meb: It’s an interesting takeaway. I remember pinging you guys on Twitter and reached out, I was trying to do something about the market cap of U.S. as a percentage of the world and I said, “We got to be near somewhere the greatest U.S. has ever been.” And then you guys sent back a beautiful chart that is like the stack table over the decades, we’ll post in the show note links, that shows U.S. as a percentage of world market cap. In your book, you have…book, white paper, study, whatever you want to call it, it’s book-length, the beauty is you do have essentially the market cap-weighted global portfolio, it’s the world portfolio of what that’s looked like over time, which I think is a great base case starting point for…It would have been hard to diversify 100 years ago, but today, you can do it pretty easy, thinking about buying the world with just one click and almost free.
Bryan: You bring up that issue. And in fact, “The Economist” magazine talked about that last week, they had a feature on the decline in the role of the London Stock Market in the world. And they talked about the fact that back in the 1800s that the London Stock market was the largest stock market in the world. However, over time, it’s gradually declined. The United States has filled in that gap. And today, the United States still represents over 50% of the global stock markets, the investable global stock markets, and it’s maintained that share over the past 100 years. I mean, you would think over time that the United States would shrink as the rest of the world expanded. But the U.S. capital markets have ably responded and kept ahead of the rest of the world technologically. I mean, right now, the two areas that we’re expanding in are biotech, and information technology, AI, and the U.S. is a leader in those areas.
And as long as the capital markets in the United States remain free and open to the investment, there’s no reason why the United States shouldn’t continue to have an outsized portion of the stock market capitalization. It’s just a fact of life. I mean, if you look at Europe, after World War II, Europeans nationalized a lot of their industries, and kept them nationalized until the 1980s. And so most of the investment was the United States because there wasn’t much to invest in, in Europe. In fact, I think it was Macmillan, the prime minister of England, even wondered, why do we even need a stock market? Because the governments had run the economy during World War II and they thought they could run the economy after World War II, but of course, they couldn’t. It doesn’t work that way with the free market.
Meb: You also have noted, there’s a bit of a seasonal flow to markets in the U.S. Tell us a little bit about what that means. We’re getting ready to be end of October here, good times, bad times coming up?
Bryan: Yeah, I mean, the old cliché, and it still works, is sell in May and go away, and you buy back in October. And this is true throughout the world. The best months for investing are from the end of October until May. And the worst months are May to October. And if you were to, every year, just stick to it and sell in May, come back in October, your returns would be superior to holding all year round. The problem is can somebody really do that? Every year, can they go in the market, sell in May, prop their feet up, enjoy life, and then come back in October regularly and do it? If they were able to do that, they would get a superior return. And that’s just the seasonality and that hasn’t changed overtime. And it is true of all of the world. And we did a research looking at what were the best months, what were the worst months for returns? Not only in the United States, but in 25 different countries. And that’s our seasonality paper, and all the information is in there. If you can just make your plan, stick to it each year, you will get superior returns, the problem is sticking to it.
There are 100 ways to beat the market, you just got to figure out what works for you and stick to that plan, and not constantly change it.
Meb: That’s a perfect click-bait headline for your next white paper that’ll get more visitors than anything else, “100 Ways to Beat the Market.” The seasonality is one that is interesting, and you haven’t seen the product launches around it as much as you would expect. And there’s been some that talk about it. But…
Meb: It’s fun to see these, sort of, behavioral, sometimes they’re structural, sometimes you come up with reasons why they exist, sometimes not. But it’s fun to see them kind of persist over time, some of which disappear and some that don’t.
Bryan: I mean, part of the thought was that once people discovered these, then people would invest, and that would offset the seasonality and other factors. But some of them, like seasonality, they persist. And I think it’s just because so few people are able to maintain the discipline of selling out at the right time, reinvesting at the right time, and taking advantage of that. So that’s why a trend like that would persist and no one’s really able to be consistent enough to take advantage of it.
Meb: Any other, sort of, weird anomalies, ideas that you’ve uncovered, sort of, in that sort of genre? I’m wondering if you’re thinking about markets, and cycles, and history, and thinking about stuff like seasonality, anything else come to mind at all?
Bryan: When we were looking at the global stock markets and their history, of course, one of the big change points was World War I because World War I did several things. Up until World War I, you really had a globalized economy. You could have a stock like Canadian Pacific, and it would issue stock not only in Canada but in New York, London, Berlin, Paris, all over the world. And it really was an integrated stock market. And stocks did well as a result of that. But World War I put a stop to all of this because people were afraid that the stocks would be redeemed, the money would be taken out of the country, the stocks would be sold. And so from 1914 up until the 1980s, stock markets pulled away from each other to a large degree. We had the interwar period of uncertainty when stock markets did poorly because of the threat of war, the threat of depression, and so forth.
After World War II was over with, they started to recover. But still, you had the Keynesian hype, large inflation of the ’60s and ’70s, that repressed the stock market. So now we’ve moved into a period where since the 1980s, more money is flowing into the stock market. I guess part of my fear is that today people are suspicious of wealth and the stock market and capital markets and what they can do. And so there’s almost a movement against growing the capital markets. And my fear is that that infects the economy as a whole. And that all the benefits that can come from money flowing into the stock market and the hundreds of companies that are the unicorns and the others that can provide new products to the economy will be stagnated. I just would hate to see that happen.
Meb: I wonder how much…As you look through the arc of history with sectors, with stocks, you guys do great research that shows like here’s how sectors have moved through time. Here’s how companies…I mean, I was looking at the rise and decline of Standard Oil. That was a really fun one. Could you summarize that for the listeners at all?
Bryan: Yeah, I mean, Standard Oil in the 1890s was the largest company in the world. It was the first billion-dollar corporation. And what was interesting was because Rockefeller wanted to control the stock, he didn’t list it on the New York Stock Exchange. So the biggest company in the world was traded over the counter. Now, the United States government came in with antitrust, forced the company to break up. And so it broke up into 32 different companies. Now, after they were forced to break up, the stock market had to give a valuation to all the subsidiary companies that were spun off as a result of the antitrust ruling. And the interesting thing is that Standard Oil, the mother company, didn’t change in value that much. But people began valuing all of the subsidiaries, and they doubled in value between the time that they were allowed to separate and they actually went public.
Then over the past 100 years, what has happened is that all of those companies have consolidated. And now they only have two companies that are the heirs of Standard Oil, ExxonMobil and Chevron.
All the other companies have merged into other companies or cease to exist. And so it’s interesting how the cycle has gone from 1 company to 33 companies back to 2 companies. And now Standard Oil, or ExxonMobil, isn’t even in the Dow Jones Industrial Average. Chevron is, which, of course, was Standard Oil of California, whereas Exxon was Standard Oil of New Jersey,
Meb: Some of the sectors and names, like there’s some threads throughout history, which is insane, there’s some that things change quite a bit. I mean, I’ve chatted a lot in the last couple years about energy as a sector, which at one point got to like 30% of the S&P and then bottomed at 2%…
Bryan: It used to be the sector in the…yes, I know, it shrunk. The same thing with finance. In 1920s, banks represented 20% of the total stock market capitalization in the United States. But then once the government began regulating the banks, it sank down to 10%. And it stayed down there until the 1980s when the government stopped regulating them, and then they’ve exploded in size. So the government’s role definitely has an influence on companies and what they can do. And you can see this now with the government’s playing the role in the FAANG companies, Facebook, and Google, and the others. The question is, what impact are they going to have on them? You can look at AT&T. AT&T at one point was the largest company in the world, and it got broken up. And of course, it hasn’t grown the way that it did prior to that, IBM at one point was the biggest company. And so you don’t want to get too big because the government won’t like you and will try to break you up. That’s just one pattern that’s happened over the past 100 years.
Meb: That’s a delicate balance. What’s your thought on the tech part of the ecosystem today? I mean, it seems like if you look at the top 10 or 20 market cap rankings, not just within the U.S, but the global, you can go back to the ’80s, there’s Japan and on, and on, and on. And today, it’s almost exclusively U.S. tech, particularly as China’s kind of slid over a cliff the past six months. Any thoughts on history as a guide to what may be the future for those companies?
Bryan: Tech is all about innovation. And if you look at tech over the past 40 years, you have had constant innovation with new companies coming along. I mean, when IBM was the biggest company, they couldn’t foresee Microsoft, Microsoft couldn’t foresee Google. And I don’t know what companies will be the largest market cap 10 or 20 years from now, but we probably haven’t even heard of them. I mean, look at how the social media, TikTok, Twitter, these other companies, they didn’t even exist 10, 20 years ago. So what companies will exist 20 years from now that could be the largest company in the world? Who knows, but they will come about. That’s the role that competition plays, that if a company such as Facebook, or Google, or Apple gets too big, they get comfortable, someone else can come along and displace them. That’s what we’ve learned.
And that’s going to be true in the biotech area as well. I mean, COVID has really pushed biotech to the forefront, and biotech will continue to grow and continue to provide solutions to the biotech problems that we’re having. I mean, that’s where the growth is going to be, information technology and biotech. And whoever can dominate those fields, they’re going to be the largest companies in the world. Back in the 1800s, it was the railroads. Then in the early part of the 20th century, it was the utilities, the telephone companies, the oil companies and so forth. Today, it’s the tech companies. What will be the biggest 50 years from now? Who knows, but they’ll probably be tech companies.
Meb: It will be fun to watch. As you look at kind of the history of markets, we have a fun thread called something along the lines of what do you believe that the majority of your investing peers don’t believe, or vice versa, what do they believe that you think isn’t true? Are there any sort of ideas or concepts that come to mind, from a student of history, that would fit into that category?
Bryan: I think, really, I believe that the buy and hold is the best way to put money into the market. And it’s just very difficult to time the market. I mean, I’ve sort of given up on timing the market.
Meb: And almost everyone eventually, particularly when it just goes up in the U.S.
Bryan: I mean, everyone’s been predicting the emerging markets are going to beat everybody else. They haven’t. People have been predicting interest rates are going to rise. They haven’t. And so you have these long-term trends and you just can’t fight the trend.
Meb: I love that advice. Don’t fight the trend. That speaks to my heart as a trend follower. What else you working on that we haven’t covered? You look out the horizon, or things you guys are digging into? We haven’t talked about housing really at all. Housing seems to be going nuts over the past year.
Bryan: Especially here in California.
Meb: Yeah. Any general thoughts there?
Bryan: People have a lot of money, and people spend more time at home, and prices of housing are reflecting that. And I see no reason why the price of housing should go down here. You don’t have the overbuying that you had 12, 15 years ago. So even though the prices are high, I think they’re going to maintain that level. Now, there is a redistribution, I think, towards the middle part of the country, take advantage of the lower prices. But housing prices probably will maintain their levels. Whether they continue to go up, that’s doubtful, but I just don’t see a decline happening in the near future like you had 12 years ago.
Meb: What else is Bryan working on? What’s your brain been itching about? As we wind down 2021, put the pandemic behind us, what else you guys got going on at the mad scientist Global Financial Data headquarters?
Bryan: Well, mainly, we’re just looking at the past, trying to collect data on individual companies on the stock market to see how it compares to the future. We’ve been thinking about emerging markets, and everyone’s talking about emerging markets versus developed markets. But the emerging market-developed market dichotomy only really came into existence back in the 1980s. And it didn’t really exist before then. A hundred years ago, you had colonial markets versus developed markets. What we’re really looking at is the integration of global markets because we think that’s where the future is headed. I mean, we talked often about what we call the singularity. The singularity, and we’re pretty close to that, is a stock market which is open worldwide 24 hours a day, and a world without the local exchanges where you go to the New York Stock Exchange, or you go to Euronext, or London. And there’s no reason to have these local regional markets. It will be very soon, if it isn’t already, a global market.
So then the question is, what is that global market, a single market for the entire world going to look like? Who’s going to regulate? How are new companies going to become public? And this is the future that we’re headed towards. And so we’re studying how did this exist prior to World War I and in order to understand how it’s going to exist in the future. So that’s one of our focuses right now, to look at the big picture of the stock market. And with the coordination of interest rates, stock markets, and other areas of financial markets by the central banks, how will that continue?
You also have crypto, is crypto going to have an influence or will it slowly fade away? I think one reason that crypto has such a high value is it really has no value, if you know what I mean. It has no intrinsic value. It’s only worth what people think it’s worth. And as long as people think it’s worth something, it’ll continue to go up in value. If that changes, it will decline. So these are sort of the big trends that we’re looking at.
Meb: Well, that was a lot. As you were describing the markets, I was waiting to say Bitcoin fixes this with the global portfolio. I’m sort of surprised you haven’t seen an issuer do a global market portfolio ETF or mutual fund and say, “Look, this is just the world have at it.” I mean, there’s some that are obviously very close. But from a marketing narrative, I’m surprised no one has really done that. But I’m sure the issuers listening, feel free to take the idea, we’re not going to use it. But it’s actually a really tough portfolio to beat. If you look at the history of that portfolio, it probably beats two-thirds of everything else there also because it’s no low cost.
Bryan: But at the same time, the United States has beaten the world during the past 10 or 20 years. And as long as the United States focuses on what’s going to be the technology of the future, that will continue to be true. And so that’s probably limited the amount of investment going into emerging markets and developed markets, which are the broad global markets, simply because the U.S. is doing so well. I know I feel like I’m trying to push the United States, but it’s simply a fact of law.
Meb: I wonder how much do you guys spend with the concept…I mean, like, currencies have been such an interesting area over the past couple hundred years where some rise and some fall, more fall than rise probably over time. I wonder how much impact, I would love to hear your perspective as historian, that some of the digital innovations may have over our lifetime? Is that more business as usual? Or is this going to upend the entire system and change the way we look at investable assets, financial assets across the board?
Bryan: Currencies are, to some degree, managed by the central banks. They want to maintain stability, and they coordinate their activities in order to limit the fluctuations that are there. And so I think, if anything, whereas back in the interwar period during World War I, World War II, everyone was trying to beat everyone else. Now they’re trying to coordinate it to minimize the fluctuation. And so that allows capital to flow between countries more easily. And I think that’s the direction they’re going with that, rather than trying to one country beat the other.
Meb: 2021, we talked about energy and a close tangent, of course, is the world of commodities. I feel like it’s lost a little bit within the narrative today because the U.S. stock market’s been romping and rolling, but commodities are having a pretty breakout year, many of them going bananas. How does history play a guide here? Does it? Is there anything we can tease out from historical commodity moves and cycles to put 2021 into context?
Bryan: Well, if you look at a graph comparing the return to commodities versus the returns to the stocks, commodities have been under-performing stocks during most of the 21st century. However, I think that’s beginning to turn around. I mean, you’ve seen the large increase in the prices of copper and oil and other commodities. And there’s simply a scarcity there. And so I think commodities are a good investment relative to the stock market over the next 10 years, simply because the demand will increase and commodity prices, as you’ve seen with a bunch of them, they’re very volatile and they can increase dramatically, much more quickly than the stock prices can.
Meb: You’ve certainly seen a lot of them go bananas this year. We did a tweet poll on Twitter asking people if they had any exposure to real assets outside of their house. And I was actually surprised because 40% said actually 0% to 5%, so essentially nothing. And then another 16% was 5% to 10%. So the majority of investors, almost 60% have a negligible allocation. I imagine that number will tick up as people get a little FOMO with some of these markets starting to appreciate, but who knows.
Bryan: And I think part of that money which would have gone into commodities has gone into the crypto, and if the crypto loses its appeal, they’ll be searching for an alternative and I think commodities would be a good alternative to the crypto.
Meb: That’s old school. We’ll see if that rotation happens, I don’t know. It’s funny to describe commodities as being low volatility, but for the crowd that’s been trading crypto, commodities maybe a little too plain vanilla, maybe you’ll have to leverage them up and discover commodity and FX futures. That was always the quickest way to totally nuke your money pre-crypto.
Meb: Bryan, what else, man? We’ve done a pretty big tour around the world. Anything else on your brain you’re thinking about that you’re interested as we almost put a bow on 2021?
Bryan: No, I think the markets will continue to do well here. I see positive returns in 2022. Hopefully we can get together in a year to find out if my prediction went true.
Meb: I love it. I will take you up on that. If people want to check out what y’all are doing, where do they go? I know the answer. But what’s the best place for people to find all your writings? They are numerous.
Bryan: If you go to our website, which is Global Financial Data, there’s a link there called Insights. And in the Insights link there are all of the blogs that I have written about stock market history, about the United States, the world, emerging markets, Europe, and so forth. And there are literally hundreds of blogs, each of them discussing different aspects of history, different aspects of the past, providing insights that I have gained from studying the past so that our viewers can get a better feel for what could happen in the future. We also have a number of white papers that we published. And in fact, we just got an article, me and Mark Weidemaier and Cortez, on The Great Depression. And we looked at banks during The Great Depression to see how they performed. And this article was published in the “Journal of Financial Economics,” which is the top journal for financial economics.
And it really showed that looking at the performance of the banks gave you a better understanding of what would happen to the economy than if you ignored that because Milton Friedman’s “A Monetary History of the United States” is the most cited book that has been published in finance. And then, of course, Ben Bernanke got his job as chairman of the Fed primarily because of an article he had published on The Great Depression. And so neither of those sources use data on individual banks in order to do their analysis. We collected the data from the Global Financial Database, calculated the indices. And so now that article’s been published in the “Journal of Financial Economics” to show what impact the performance that they’ve had on The Great Depression. So it’s really an article I would recommend that I think most people would enjoy if they don’t fall asleep reading it.
Meb: No way. Is your study of all the individual countries, stocks, bonds, bills, U.S., ex-U.S., is that going to be ever out as a physical book? Or am I just going to have to print the internet and kill a gazillion trees on my printer?
Bryan: No, we’re making it available online through our website.
Bryan: And so that’s through the white pages. And so we will make that available so people can view it and hopefully it’ll give them an interest in the stock market, in its history, and try to look at the data themselves.
Meb: Awesome. Bryan, this has been a tour de force. Thank you so much for joining us again today.
Bryan: Thank you very much. I enjoyed it.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at firstname.lastname@example.org, we love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.