One trend I have mentioned a lot the past four years is the bifurcation of (our) society along income strata - essentially we are seeing an eroding middle class, and much of the wealth effects from national growth are going to a smaller and smaller amount of people. [Dec 2007: Do the Bottom 80% Stand a Chance?] The economy has continued to grow the past few decades - but the spoils are becoming more concentrated. We can argue til the cows come home on why it has happened (and is happening) but stating the facts, is not 'class warfare'. The gini coefficient (income stratification) in America, based on the report cited last week, is now akin to Mexico.
This has been happening for a long time, it was just hidden under a move of women into the workforce (to maintain incomes in the typical household), then a Fed induced stock bubble, and then a Fed induced real estate bubble - which helped the 'aspirational' middle class pretend they were partaking in growth. Most of that went away with the end of the house ATM. Hence investing in companies that cater to the growing low end ... and high end, are strategies one must explore. Again, this is not a big secret - even the folks at Citigroup wrote a now infamous report on living in a plutonomy. [Sep 2009: Citigroup 2006 - America: A Modern Day Plutonomy]
In a plutonomy, according to Citigroup global strategist Ajay Kapur, economic growth is powered by and largely consumed by the wealthy few.
In plutonomies the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc. There is no “average consumer” in a Plutonomy. Consensus analyses focusing on the “average” consumer are flawed from the start.
(of course lawyers have asked that this report be removed so it's more or less impossible to actually find it on the internets nowadays) :) But the takeaway is clear:
We project that the plutonomies will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization.
So what was once whispered about in back corners of the internets (and investment banks) is now becoming very much the realization across the mainstream. I'm starting to see talk of this everywhere now. Some recent data shows 80% of the wealth gains over nearly 30 years went to 5% of the population, with 40% to 1% of the population:
- using data from NYU Economist Ed Wolff, shows that more than 80% of the nation’s wealth gains between 1983 and 2009 went to the wealthiest top 5%. The top 1% gained 40% of the nation’s total wealth gain, while the next 4% gained 41.5%.
- The share of wealth held by the bottom 60% dropped 7.5%.
- ....the top 5% controlled 60% of the nation’s wealth as of 2007 (the latest period available), up from 54.2% in 1987. The share of the bottom 50% declined from 3% to 2.5%.
Keep in mind income and wealth are different things - income is essentially what you make (say in a year), whereas wealth is what has been accumulated (and can be passed down over generations - preferably skipping Paris Hilton)
Thankfully most mutual fund investors are in the top 5%-10, so from a professional standpoint - the more the merrier. [Nov 10, 2010; Who Will Any Form of Intermediate Term Wealth Effect Really Help? Not the Masses] Society wise however - I worry when the Marie Antoinette moment comes. Perhaps when we dissolve that 'entitlement program' called food stamps [Dec 8, 2010: Food Stamp Usage Nearing 1 in 7 Americans]. Hungry people tend to have very little patience... and enjoy pitchforks.
I digress! Below we have an interview with Tiffany & Co (TIF) CEO. I cannot think of another publicly traded company in the U.S. (perhaps LVMH in Europe is the best parallel) that caters to a higher end, mostly price unconscious customer. Hence immense pricing power, and every economic trend working in their customers favor. Of course, it's not just a U.S. story as the burgeoning class of rich overseas also is a mega trend.
This gentlemen looks like a cat who just ate the canary - essentially he is like a gold investor in a world of central bankers gone crazy. He really doesn't see anything that can stop the momentum of the company's metrics. Frankly, aside from market crashes - I don't see any of the mega trends that are helping Tiffany changing either.
7 minute video, email readers will need to come to site to view