Mammon or Messiah research: Sam Pizzigati: The Million-Dollar Penny

The Million-Dollar Penny

The ultra-rich are splurging again as the rest of us muddle through the Great Recession.

by Sam Pizzigati article link article link

July 5, 2010 | OtherWords | CommonDreams

Every summer, several financial firms competing to get the banking business of the world’s mega millionaires release what amounts to scorecards on global wealth. These data-packed reports tally the current number of our international rich and super-rich, by nation and region.

World Wealth Report 2010 is the most comprehensive of these scorecards. It's got some fascinating details about the planet's wealthiest of the wealthy, those households worth at least $30 million--that's not counting their primary residence and "collectibles."

These "ultra-high-net worth" households make up less than 1 percent of the global millionaire total, yet in 2009 and 2008 they held more than a third of combined global millionaire wealth. In other words, the global financial crash that mega-millionaire speculation triggered has ended up concentrating even more wealth in mega millionaire pockets.

The Merrill Lynch and Capgemini researchers who prepared this report also offer some lusciously revealing information about what they call "passion investing," the vast sums the rich plow into everything from country club memberships and yachts to jewelry and fine art.

Global millionaires, they say, "returned to passion investments in 2009," but the overall volume of these passion investments still hasn't rebounded all the way back to pre-financial crash levels.

That complete rebound, the report adds, may come shortly, since "auction houses, luxury goods makers, and high-end service providers all reported signs of renewed demand toward the end of 2009."

One sign of that increased demand: Late last year, an antique penny--a 1795 one-cent piece--went at auction for $1.3 million. That marked the first time a penny had ever gone for over $1 million.

This resurgence in "passion investment" illustrates the latest World Wealth Report's overall theme: The global millionaire "segment regained ground despite weakness in the world economy."

We have that weakness because average consumers still don't have the buying capacity to get national economies going again. And those average consumers don't have that buying capacity because income and wealth are getting even more concentrated at the top. An antique penny, thanks to that concentration, can now fetch more than a million dollars.

But imagine if our wealth were more equally shared. Imagine that the $1.3 million that went for a 1795 penny had been sitting instead in the pockets of average consumers. Over 1,500 of those consumers could have bought brand-new energy-efficient refrigerators with that $1.3 million.

And what do you suppose would do our economy--and our world--more good, one deep pocket spending $1.3 million on a penny or 1,500 households buying new energy-efficient refrigerators?

The good folks at Merrill Lynch and Capgemini will most likely never ask that question. We should.

Sam Pizzigati, an Institute for Policy Studies associate fellow, edits Too Much, an online weekly newsletter on excess and inequality.

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State of the World's Wealth

World Wealth Report 2010

Capgemini Financial Services report pdf link

Excerpts:

1 HNWIs are defined as those having investable assets of US$1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.

2 Ultra-HNWIs are defined as those having investable assets of US$30 million or more, excluding primary residence, collectibles, consumables, and consumer durables.

The world’s population of high net worth individuals (HNWIs1) grew 17.1% to 10.0 million in 2009, returning to levels last seen in 2007 despite the contraction in world gross domestic product (GDP). Global HNWI wealth similarly recovered, rising 18.9% to US$39.0 trillion, with HNWI wealth in Asia-Pacific and Latin America actually surpassing levels last seen at the end of 2007.

For the first time ever, the size of the HNWI population in Asia-Pacific was as large as that of Europe (at 3.0 million). This shift in the rankings occurred because HNWI gains in Europe, while sizeable, were far less than those in Asia-Pacific, where the region’s economies saw continued robust growth in both economic and market drivers of wealth.

The wealth of Asia-Pacific HNWIs stood at US$9.7 trillion by the end of 2009, up 30.9%, and above the US$9.5 trillion in wealth held by Europe’s HNWIs. Among Asia-Pacific markets, Hong Kong and India led the pack, rebounding from mammoth declines in their HNWI bases and wealth in 2008 amid an outsized resurgence in their stock markets.

The global HNWI population nevertheless remains highly concentrated. The U.S., Japan and Germany still accounted for 53.5% of the world’s HNWI population at the end of 2009, down only slightly from 54.0% in 2008. Australia became the tenth largest home to HNWIs, after overtaking Brazil, due to a considerable rebound.

After losing 24.0% in 2008, Ultra-HNWIs2 saw wealth rebound 21.5% in 2009. At the end of 2009, Ultra-HNWIs accounted for 35.5% of global HNWI wealth, up from 34.7%, while representing only 0.9% of the global HNWI population, the same as in 2008.

2009 in Review: Many Drivers of Wealth Rebounded, but Economic Recovery is Still Nascent

World gross domestic product (GDP) contracted 2% in 2009, as the effects of the global financial crisis worked their way deeply into the fundamentals of the global economy. Europe was hit hardest, with GDP shrinking by 4.1% in Western Europe and by 3.7% in Eastern Europe. In Asia-Pacific excluding Japan, however, there was positive GDP growth of 4.5%.

Governments around the world stepped up efforts to stimulate economic recovery and support the financial system. Governments implemented a wide array of measures to try and keep their economies from sliding into recession as financial conditions remained challenging. Those efforts included fiscal stimulus by many nations, but most sizably by the U.S. and China.

Key drivers of wealth experienced strong gains. Many of the world’s stock markets recovered, and global market capitalization grew to US$47.9 trillion in 2009 from US$32.6 trillion in 2008, up nearly 47%. Commodities prices dropped early in the year, but rebounded sharply to end the year up nearly 19%. Hedge funds were also able to recoup many of their 2008 losses.

The global economic recovery remains nascent. World GDP growth is likely to be positive in 2010-11 and is expected to be led by Asia-Pacific excluding Japan. However, sustained economic recovery is contingent upon the timely withdrawal of government stimulus along with the return of growth in private consumption.

HNWIs Warily Returned to Markets in 2009 in Cautious Pursuit of Returns

HNW investors cautiously returned to the markets in 2009 as fears over the financial crisis eased. However, they favored predictable returns and cash flow, as evidenced by the rise in HNWI allocations to fixed-income instruments, to 31% from 29%. Equity holdings also rose, to 29% from 25%, as the world’s stock markets recovered. Cash holdings declined slightly.

HNWIs overall had proportionally more invested outside their home regions by the end of 2009 than they had a year earlier. This shift countered a widespread trend toward asset repatriation to home regions during the crisis. The decline in home-region investments was most marked in Europe, where such holdings dropped to 59% of overall portfolios from 65% in 2008. Among Latin American HNWIs, by contrast, home-region allocations were up 3 percentage points to 47%. In general, HNWIs’ allocations to emerging markets rose overall, and to Asia-Pacific in particular, as investments flowed to regions and markets expected to have the most growth in the coming years.

By 2011, HNWIs are expected to further reduce their home-region investments, and look to those regions in which growth is expected to be more robust. North American HNWIs, who have typically held a large portion of assets in their own region, are shifting those allocations to become more geographically diversified. They are gravitating in particular toward regions in which growth is anticipated, especially Asia-Pacific and Latin America. Home-region allocations are also expected to drop among Europe’s HNWIs, who are also likely to invest more in Asia-Pacific.

HNWIs Cautiously Returned to Passion Investments in 2009

As HNWI cautiously returned to financial markets, they also returned to passion investments in 2009. Outright global demand remained weaker than before the crisis in many passion categories, such as luxury collectibles (luxury automobiles, boats, jets), Art, and jewelry, though demand began to grow in the latter half of 2009.

With financial markets still in flux, some HNWIs indicated they are approaching their passion investments as “investor-collectors”, seeking out those items that are perceived to have tangible long-term value. The two categories that are most attractive to these “investor-collectors” are Art and Other Collectibles (coins, antiques, wines, etc).

The demand for passion investments overall is expected to increase in 2010 as wealth levels rebound. This is evidenced by the fact that auction houses, luxury goods makers and high-end service providers all reported signs of renewed demand toward the end of 2009, and in the early part of 2010.

HNWIs Demand for Philanthropy-related Advisory Services is Rising

HNWIs and Ultra-HNWIs have long been active in charitable giving, and HNWI allocations to philanthropic activities increased in all regions except North America in 2009. However, the increase followed a year in which philanthropy fell sharply, and the financial crisis has clearly reduced the outright level of donations.

While North Americans still have a strong culture of philanthropic giving, and donate more than $200 billion a year to charities around the globe[71], a smaller share of their assets was allocated to philanthropy in 2009 than in 2008. Among HNWIs in Europe, Asia-Pacific, Latin America and the Middle East, the philanthropic share of asset allocations was slightly larger in 2009 than 2008[72]. Since the crisis, donors have had fewer funds available for giving, so they are focusing on assessing the mission and effectiveness of charitable organizations to make sure their donations are really making a difference[73].

Notably, while most HNWIs and Ultra-HNWIs give primarily for altruistic reasons, feelings of social responsibility[74], social networking, and tax benefits are all reasons for philanthropic giving. Whatever the motivation, philanthropic choices are often inextricably linked to broader financial-planning initiatives, including tax strategies. As a result, the demand for philanthropic-related services offered by wealth management firms is also on the rise.

In fact, ‘advice on financial planning and tax’ aspects of philanthropy was the most demanded piece of philanthropic offerings in 2009 (see Figure 11). Additionally, nearly half of all Advisors said their HNW clients were asking for services related to philanthropic ‘project organization and selection’.

Spotlight: Crisis Has Clearly Shifted Investor Psyche, and Wealth Management Firms are Responding

Post-crisis, most HNW clients have yet to regain their trust in the regulatory bodies and institutions that are meant to oversee markets and protect investor interests. Coupled with ongoing concerns around financial markets, this lack of confidence has long-term implications for investing behavior.

Shifts in asset allocation mirror investor caution. HNWIs are favoring predictable forms of cash flow like those in fixed-income products, and are seeking protection against downside risk, and their search for returns takes place within the broader context of portfolio risks and goals.

HNWIs have seized a more hands-on role in their finances. Above all, they want specialized and independent advice, transparency and simplicity, and effective portfolio and risk management, and are looking for wealth management provider relationships that can clearly demonstrate a more integrated approach to meeting their needs.

Emotional factors are a prominent feature of the HNWI psyche today, and wealth management firms and Advisors must incorporate those emotional factors into stronger portfolio management and risk capabilities so as to properly support client goals and needs.

With billions of assets still in motion post-crisis, wealth management firms are embracing change, leveraging key tenets of behavioral finance to rebuild investor trust and confidence and drive further innovation into their offerings and service models.

The 14th Annual World Wealth Report 2010 web page

Capgemini Financial Services home page

US Economy Stuck in Misery

by Joel S. Hirschhorn article link

07.03.10 | Delusional Democracy | Silver Bear Cafe

The middle class is dead. The US has produced a self-sustaining two-class society. Most Lower Class Americans are in bad or uncertain economic shape but the rich and powerful Upper Class crowd keeps making and spending money as if there has been no recession.

Talk about a possible double-dip recession misses the larger reality: For many millions of Americans the first recession is still here; there has been no recovery for them. Too bad President Obama cannot comprehend that. Nice that only 23 percent of people believe that his policies have made economic conditions better. Maybe they got the change they were waiting for.

A new survey by the Pew Research Center provides disturbing data that no amount of lies from politicians can refute. Without a lot more consumer spending, remember, the US economy will not regain lasting health. The scope of the economic shock is shown by the 60 percent of Americans that have cut down on borrowing and spending. And nearly 50 percent are in worse financial shape because of the economic downturn. Forty percent of adults have tapped savings and retirement accounts to make ends meet. Nearly 25 percent have had to borrow money from someone. Ten percent have moved back with their parents to survive the economic tsunami, and that rises to 24 percent for workers between 18 and 29 years old.

More and more Americans now recognize that retirement will have to wait. For those 62 and older and still working, 35 percent have postponed retirement. That jumps to 60 percent as a likely action for working adults between ages 50 and 61. Replace the golden years with the disappointment years, especially when inevitable reduced Social Security and Medicare benefits hit hard.

For those still lucky enough to have jobs, the Commerce Department reports that the personal savings rate in May -- the part of wage income that goes unspent -- rose to 4 percent, the highest amount in nearly a year, as anxious consumers faced continued economic woes, such as fears about losing jobs or homes, affording food and health care, and a tumbling stock market.

And always remember that the official jobless rate of just under 10 percent is pure bunk; it really is close to 20 percent nationally, and a lot worse in many places and for African-Americans and Hispanics. The average time for being without a job is now six months, with many more people jobless for a whole lot more, often several years. All this means suppressed consumer spending and continued high home foreclosure rates. No big surprise that consumer confidence crashed almost 10 points between May and June. Welcome to high anxiety.

Also keep in mind that even as the general consumer spending shows little life, the Upper Class keeps on living it up. Gallup reported “Upper-income Americans' self-reported spending rose 33% to an average of $145 per day in May -- up from $109 per day in April 2010 and May 2009, and the highest monthly average since November 2008.” The rest of the population’s self-reported spending averaged $59 per day in May. So, rich Americans are spending nearly twice as much as the vast majority of Americans every day. Indeed, Tiffany reports sales up 17 percent in the jeweler's most recent quarter. Overall US luxury sales, says MasterCard SpendingPulse, jumped 22.7 percent in March, over the previous year. The increase in luxury buying appears to be coming almost totally from the "ultra-affluents," those households making over $250,000 a year. Their first-quarter spending increased 22.6 percent, meaning that they have returned to spending at pre-recession levels.

And here is a gem of a new statistic. In 2009, the Economic Policy Institute reports that the typical working American with a four-year college degree took home $1,025 per week, $5 a week less than Americans with a four-year degree took home, after adjusting for inflation, in the year 2000. How’s that for progress?

Meanwhile, almost half of U.S. companies that reduced or suspended their contributions to employee retirement plans during the recession haven’t restored them.

The ultra ugly truth is that there is very little hope for the US economy providing true prosperity for the vast majority of people in the foreseeable future. Unemployment will remain high and consumer spending will remain low except for the wealthy. Economic inequality is terrible and punishing most Americans who should forget about that fabled American dream. To visualize America's staggeringly unequal distribution of wealth, suggests University of Tennessee at Martin historian David Barber, envision a 100-seat auditorium filled with 100 people. If seating in that auditorium reflected our current wealth distribution, the single richest person in the hall "would be able to spread out smartly" over nearly 43 seats. The poorest 60 would have to squeeze into just one.

As government deficits continue at historic high levels there will be even more pain as local and state governments cut employment and services. All the economic impacts of the BP oil spill in the Gulf region will continue to expand and reverberate and it is doubtful that enough money will come from BP to those in pain soon enough to prevent catastrophes for millions of people.

Some impacted people may turn to religion as if God has not already shown total disdain for humanity. Some will delude themselves that voting for certain candidates in the coming midterm elections will help. Others will bury themselves in various distractions or choose to believe the political lies of President Obama and other politicians. [How did all that federal stimulus spending work for you?] Perhaps far more Lower Class people [Are you in denial about your Lower Class status?] should consider the advice of the deeply cynical: Kill Yourself. If only politicians would take that advice.

Happy Fourth of July. Time to try and remember the good old days.

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