There's a lot going on this week, so we didn't hear too much about that Pew Research Center report that shows the top 7% enjoyed an increase in average wealth to $3.2 million from $2.5 million while the rest of the nation, otherwise known as the 93%, saw their net worth slip to $134,000 from $140,000. It's the kind of thing the media typically jumps all over, and yet, there wasn't much. The same with that horrific building collapse in Bangladesh where the names of western companies with textile connections were released before any other pertinent information about the victims and losses.
I don't think the class warriors have packed it in, but this seemed like a golden chance to guilt large businesses and rich people into higher taxes or higher minimum wage in America or something in the realm of fairness. It was a chance to rail against trickle down economies and capitalism. Yet, there is a serious problem with all of this.
The fact of the matter is economics is trickle-up, and then like precipitation that's absorbed into clouds, it does rain down later. Rich people can't get that way without the masses. Endless waves of people must buy a product with healthy profit margins that eventually becomes profits, which are shared by the owners of the company making that must-have product (I was tempted to use Apple as an example, but maybe it's not the easiest way to make the point anymore). This is where the masses miss their cue as most are all too willing to buy the latest and greatest but see more bad than good in getting on the other end of that equation.
They don't see the value proposition of being an owner.
This is a serious problem because the main difference between the rich and everyone else is ownership. They get paid when the rest are opening their wallets. It's a simple concept but all too true.
Let me smile with the wise, and feed the rich-Samuel Johnson
In fact, we will be able to watch this concept play out in real time by one of the champions of the little people-George Soros. Yes, the financier that broke the Pound and is trying to rip down boarders for that one-word government, has made a big time investment. In a filing with the SEC, it was revealed Soros bought 17.39 million shares for a 7.9% stake in JC Penny JCP. It's really remarkable that this beleaguered department store has been a magnet of the ultra-wealthy.
They all want a piece of the action: Martha Stewart, Bill Ackman, and now George Soros. What is so attractive about this investment, considered high-risk when Ackman was accumulating it a couple years ago at $22.00, to be such a beacon to the mega-rich? Its string of cathedrals spread across this nation designed to suck up as much money as possible from the masses. Yes, JC Penny is one of those places where the bottom 93% toss their money in the air and watch it trickle up into the pockets of those owners at the top. The thing is anyone in that 93% crowd could be an owner, too.
The stock was a little more than $13.00 a share not long ago, and even at $16.00, most people could pick up shares. In fact, skip a few sales (I think they've reinstated them), and you could pick up one hundred shares. It won't make you a billionaire over night but could put you on a path to something big where you are on the right end of the trickle.
Old Folks and Cat Food
The notion of old folks eating cat food to survive has haunted the consciousness of America for a long time and plays a major role in the prevention of real reform of social programs. It's a third rail topic (and I'm sure I'll get an earful today) where the elderly are always seen as the victims. The good news is older Americans are better fixed than ever before. The bad news is they might have to make extra sacrifices to help the youngsters.
Not only have older Americans seen their net worth increase since the end of the Great recession, but their incomes since 1984 have improved at almost twice the rate of inflation while the 54 and under crowd is trailing the rate of inflation.
According to Pew, some of the reasons for the abrupt difference in net worth include:
Delayed entry into work force and marriage
Higher student loans
More "non-whites" and single parents
Older American bought homes before crash
Older Americans working (in 1985 10% of 65 y/o worked, a record low, now it's more than 16%)
It's golden being golden, and while I doubt there will be a great sacrifice from those older Americans, perhaps younger folks will get it together, hit the bricks, hit the books, hit the chapel, and make it happen. Take it from those older Americans not fixed for the golden years, having to put all your faith into government checks is not a lot of fun.
Gross Domestic Product
The first quarter was supposed to grow by 3.2% in part to a huge buildup of inventories as businesses were said to want to get ahead of the sequester but that didn't happen. The actual number was 2.5%, and driven overwhelmingly by consumers. The trend plays into my theory of a dropout nation where people are living for today. Savings plunged which explains why retailers continue to shine yet investments (outside the housing market) are tepid reflecting lingering concern and perhaps a form of protest against fiscal policies.
The knee-jerk reaction was sharply to the downside. This number ensures the Federal Reserve stays the course so market reaction will be a litmus test as to whether bulls want more money printing or if they'd like to see the rally baton passed on to real economic growth.