➤ The latest Survey of Consumer Finances, for 2004, has been released by the Federal Reserve. It shows the rich continue to account for a disproportionately large share of income and wealth in the US economy: the richest 10% of Americans account for 43% of income, and 57% of net worth. The net worth to income ratio for the richest 10% of Americans increased from 7.4x in 2001, to 8.4x in the 2004 survey. The rich are in great shape, financially. ➤ We think this income and wealth inequality (plutonomy) helps explain many of the conundrums that vex equity investors, such as why high oil prices havent seriously dented growth, or why global imbalances are growing along with the equity bull market. Implication 1: Worry less about these conundrums. ➤ We think the rich are likely to get even wealthier in the coming years. Implication 2: we like companies that sell to or service the rich - luxury goods, private banks etc. Favored names include LVMH and Richemont. mirqlkljvW=q^hb=^klqebo=illh= The latest Survey of Consumer Finance data was released Friday 24 th of February. It shows that the rich in the US continue to be in great shape. We thought this was good time to bang the drum on plutonomy. Back in October, we coined the term ‘Plutonomy’ (The Global Investigator, Plutonomy: Buying Luxury, Explaining Global Imbalances, October 14 2005). Our thesis is that the rich are the dominant drivers of demand in many economies around the world (the US, UK, Canada and Australia). These economies have seen the rich take an increasing share of income and wealth over the last 20 years, to the extent that the rich now dominate income, wealth and spending in these countries. Asset booms, a rising profit share and favorable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries. Also, new media dissemination technologies like internet downloading, cable and satellite TV, have disproportionately increased the audiences, and hence gains to “superstars” – think golf, soccer, and baseball players, music/TV and movie icons, fashion models, designers, celebrity chefs etc. These “content” providers, the tech whizzes who own the pipes and distribution, the lawyers and bankers who intermediate globalization and productivity, the CEOs who lead the charge in converting globalization and technology to increase the profit share of the economy at the expense of labor, all contribute to plutonomy. Indeed, David Gordon and Ian Dew-Becker of the NBER demonstrate that the top 10%, particularly the top 1% of the US – the plutonomists in our parlance – have benefited disproportionately from the recent productivity surge in the US. ( See “ Where did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income ”, NBER Working Paper 11842, December 2005). By contrast, in other countries such as Japan, France and the Netherlands (read much of continental Europe), egalitarianism has kept the rich to a similar share of income and wealth See page 15 for Analyst Certification and Important Disclosures Industry Note
Posted on: Sun, 17 Aug 2014 02:45:23 +0000
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