Home > Cultural Trends
What's in Store for the Mega-Rich in a Bear Market?
The headline in the
Wall Street Journal's Wealth Report blog caught my eye: "
10 Things the Wealthy Should Leave Their Kids — Besides Money" (May 12, 2008). The list comes courtesy of Peter White, who has counseled wealthy families for 20 years. Here's the short version of White's list, which he calls The 10 Elements of Care:
1. Necessaries (food, clothing, shelter, medical attention, basic education)
2. Affection
3. Affirmation and support
4. Boundaries
5. Guidance (in both behavior and beliefs)
6. Respect
7. Trust
8. Forgiveness
9. Religion or spirituality
10. Letting go ("This is the most difficult and along with Necessaries and Affection, the most important. We must say to our kids, 'I’ve done the lion’s share of the motherly or fatherly work, and I’m here and will be here for you as long as I can be; but the responsibility for you is now yours.'")
An admirable list. I think we can all agree that every parent – not just wealthy parents – would do well to care for their children this way. And that's what many people wrote in the comments section. But there were two comments that stood out from the rest:
- "Here is one for the rich parents: Leave them a world without huge income disparity, a world where there little precious rich a**es won’t be shot off during the revolution."
- "Look out your window. That large crowd with the torches and pitchforks aren’t at your place for a BBQ."
Which brought to mind immediately a section in our most recent Elliott Wave Financial Forecast about the future for the mega-rich in a bear market. Our analysts compare income inequality in 1929 with the current rising inequality in the United States to explain that the "rich get ravaged."
Not the Neverending Financial Story -- What Will Happen Next?
Some of the most interesting analysis has more to do with cultural trends than financial markets. Find out more by reading the may issue of The Elliott Wave Financial Forecast.
* * * * *
[Excerpted from The Elliott Wave Financial Forecast, May 2008]
The Rich Get Ravaged
Wealth tends to skew toward a few well-positioned financiers in high-degree fifth waves. At the very end of such moves, income distribution becomes extremely lopsided and emerging bear market sentiments against the rich start to become more pronounced. One of the ways to identify the completion of a fifth wave is that skewed wealth becomes a hot topic. Here’s how The Elliott Wave Financial Forecast spotted one such moment in November 1999:
As a percentage of GDP, the wealth of the 50 richest Americans is 4.5 times the level of the top 50 in 1982. In the 1930s, the wealth distribution problem was “solved” by a falling market and tax rates of better than 90% for the wealthiest Americans. In the second half of 1999, the same social forces can be seen stirring, as the “growing gulf between the haves and the have-nots” has suddenly become an issue. The seeds of a new social movement are visible in a rash of headlines like this one: “Income Inequalities Reach ‘Grotesque’ Gap, U.N. Says.”
In recent weeks, the media, once again, noticed that the very richest are getting richer and ever more exclusive. The chart below from the April 16, 2006, issue of the Financial Times shows that 1% of the population accounted for almost 25% of total income in 2006.
Given the additional market gains in 2007, 1929’s record high was probably surpassed last year. “There is anger about a system that permits bankers to earn huge bonuses when finance booms while taxpayers pick up the bill when banks fail,” says the Financial Times [in an April 8, 2008, article].
Even wealthy financiers seem to agree that the rich are just too rich these days. “Now is the time to admit that for the rich, for the mega-rich of this country, that enough is never enough, and it is therefore incumbent upon government to rectify today’s imbalances,” says the manager of the world’s biggest bond fund. Warren Buffett, the world’s richest man, advocates tax hikes and steep inheritance taxes for the super rich. Efforts to correct the imbalance through taxes are completely unnecessary.
As The Elliott Wave Financial Forecast noted in November 1999, “A bear market is nature’s way of redistributing wealth.” This effect is clearly evident by the sharp plunge on the chart, from 2000 to 2003. The picture now shows an apparently completed five-wave rise from the 1970s, which is one more reason to believe that income distribution will be equalized by a bear market. Of course, that won’t stop the politicians from piling on as mood positions the crowd against those that prospered most during the bull market. “Progressive” tax policies will prove regressive in the years ahead.
* * * * *
The Best Financial Service for Thoughtful Investors
Elliott Wave International's Financial Forecast Service brings you information about the financial markets and cultural trends that add up to more than the typical service. Read more about the Financial Forecast Service.