While debt levels in both Japan and the US got to comparable heights, it is interesting that it would be very difficult to pick out the US housing bubble from a chart of their relative nominal USD equity market returns.
Source: Palantir Finance
There are a few possible reasons as to why this might be the case.
- A larger fraction of the profits in the United State’s bubble went directly to highly paid individuals rather than corporations. This would be more likely if corporate profits didn’t reach 12% of GDP in 2006, levels not seen since the 1960’s.
- The US housing bubble was focused on the leverage in housing, which was residential in nature. Japan’s financial bubble was also to a degree about the real estate, but a lot more of this real estate was owned by companies who were on a whole more directly involved in their bubble.
- The technology bubble of the late 1990’s prevented the valuation of US equities from getting too disconnected from their earnings so soon after the last bubble.
- The United States’ bubble drove equity markets all around the world while Japan’s bubble was focused on Japan.
- Japan was benefiting from China driven growth the same time US assets were benefiting from the housing bubble.
Number 5 could be a coincidence or it could be seen as similar to #4 if the theory is that US consumers helped China’s exporters who created demand for Japanese imports.