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Warning Sign for the Economy: An Indicator With a History of Calling Major Turns
Why "Easy Street" may soon face a bunch of sinkholes
By Bob Stokes
Mon, 20 Aug 2012 15:45:00 ET
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During the Gilded Age, "Diamond" Jim Brady earned his fortune selling railroad equipment. In turn he became known for indulging in the good life. 

He went around with actress Lillian Russell on his arm; he frequented the racetrack; he dined at Delmonico's in New York City, where his gargantuan appetite was on display. The upscale restaurant's proprietor reportedly called Brady "the best 25 customers I ever had."
 
Regarding his nickname:
 
[Brady] had a special fondness for diamonds, but his passion extended to all sorts of precious stones. “My pets,” he would call them. He wore a watch worth $9,000 in his day (about $190,000 today), and in the handle of an umbrella he had set a jewel worth $1,500. His garter clasps, his suspender buckles, and even his underwear were ornamented with jewels. His collection revealed the amazing total of 12,000 diamonds. The most amazing single piece was a 35-carat emerald surrounded by six 14-carat diamonds, the whole made into the ring of his emerald set and valued in his day at $20,000 (about $420,000 today).
 
One night he would be resplendent in diamonds, the next in rubies, the next in emeralds. ... He did not dress flashily, but he was always in the forefront of fashion. A partial list of his outfits at his death included 30 winter and spring overcoats, 42 hats, 16 cutaway suits, 71 pairs of shoes, 26 summer suits, 50 pairs of gloves and 18 belts.
New York Times, Aug. 19, 2012
 
Not all the well-to-do of Brady's day were so extravagant, but the "Gilded Age" didn't earn its name through the virtue of modesty. Lavish lifestyles were as much the rule as the exception.
 
That said: The over-the-top extravagance ran into a brick wall, called The Panic of 1893. Similar episodes have happened before and since.
 
Porters and ladies' maids were splurging on their own carriages just before the bursting of the South Sea Bubble. And luxury spending went into high-gear during the 1920s, just before the Great Depression.   
 
Excess consumption has been around in one form or another for a long time.
 
And that includes today.
 
Despite a weak economic rebound since the 2007-2009 financial crisis, the demand for luxury is strong.
 
Luxury real estate is reaching new heights.
 
Developers are betting big on residential skyscrapers, building them at record-breaking heights—with record price tags to match. Changing the skyline in New York, London and Dallas, the tallest new residences will stretch over 90 stories, with at least one penthouse asking over $100 million.
Wall Street Journal, Aug. 17
 
Affluent shoppers shrugged off anxiety about the global economy that cast a pall over the luxury sector in the spring.
CNBC, Aug. 14 
 
Previous economic cycles show that an aggressive quest for luxury arrives late in the cycle.
 
That was the case leading up to the 2007-2009 financial crisis.
 
The August 2007 Elliott Wave Financial Forecast noted:
 
The boom in luxury goods is no secret. ... There are many signs that the latest binge is a final blow-off in luxury spending.
 
And the Dec. 2007 Financial Forecast observed:
 
History shows that every mania is accompanied by a fever for luxury goods.
 
In the months after those issues published, the economy tanked and hasn't yet recovered.
 
And now, luxury spending is back.
 
Can the fragile economy handle another severe downturn?
 
 

 

Tags: 1929 Stock Market Crash, cultural trends, deflation, economic depression, economic indicators, Elliott wave, great depression, history, mania, market crash, South Sea Bubble, wisdom of crowds
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