Woe to the Rich!

Spare a tear for the poor, embattled billionaire class...

(Source: Getty Images)

Bill Bonner, reckoning today from Baltimore, Maryland...

Back in Baltimore… everything looks normal. Bums on the street. Crazy people talking to themselves. Rats in the alleys.

King Charles III is on his throne, God is in his Heaven… and sirens whine in Charm City; in other works, All Is Well. 

But all is not well. And today, we signal our virtue by sobbing for the victims. Not the victims of inflation; they are too numerous to mention. No, today we keen for those who have suffered most from deflation, caused by the Fed’s rate increases.

And we’re one of them.  

Our account manager called to give us the bad news – we’re down more than 10%.  Gold didn’t save us. Energy stocks weren’t spared. Chris Mayer’s carefully chosen value stocks went down with everything else. The only ‘safe space’ for the last 9 months was cash. US dollar cash!

Can you imagine it, dear reader? It is like saving yourself from a shark attack by swimming farther out to sea. The dollar is the very cash that has lost 96% of its value since the Federal Reserve was set up to protect it. The very same cash whose worth is dropping faster than any time in the last 4 decades. The very same cash that the feds handed out like confetti at a wedding. You were supposed to throw it in the air and hope for the best.

SPAC Attack!

But the poor rich are much too smart to hold cash. They knew the fix was in. And they knew what it would mean – big losses for dollar holders. Instead, they got into stocks... bonds… real estate… their own businesses… venture capital… private equity… SPACs…

…and, as Groucho Marx might say… boy, have they gotten SPAC-ed. The S&P SPAC Index is down 24% since February.

We wrote about SPACs… and what a bad idea they were… about two years ago. In the Fed’s rising tide of liquidity, SPACs floated to the surface... along with empty plastic bottles and other trash. These were ‘financial assets,’ and thanks to the Fed, they went up while the dollar went down.

Later, the company that published our letter, was sold – to a SPAC. The deal was so sweet we couldn’t refuse. But we didn’t want Bonner Private Research to be part of the SPAC deal… so we went out on our own – to our present home on Substack. And guess what happened…?

…those SPAC shares have since lost more than 75% of their value.

Dry Spell

And now the Fed is no longer pumping in liquidity… the tide is receding… and the yachts are sinking. Bloomberg tells us that $57 trillion has been lost – in stock and bond values – so far this year. The number is a bit fishy… since household wealth in the US is only around $140 trillion. A $57 trillion loss implies a 40% loss. But stock and bond markets haven’t lost that much – not yet.  

Whatever the number, it means staggering losses for ‘the rich’ already. The top 10% of the country are said to own 75% to 80% of all financial assets. That leaves them holding a big, empty bag, with trillions of dollars’ worth of assets not in it.

Up at the tippy top of the wealth pyramid, many of the super-rich are sliding off.  Forbes tells the tale:

For the first time since the Great Recession, the super-rich did not get richer this year.

After a roaring 2021, the 400 richest people in the U.S.—along with many Americans—have been hit by rising inflation and falling markets. As a group, this year’s Forbes 400 is $500 billion poorer than they were a year ago. Their total net worth stands at $4 trillion, down 11% from last year.

And pity the poor tech mavens. According to Forbes, by the beginning of September they had already lost $135 billion:

A total of 41 people fell from the ranks [of Forbes richest 400] this year, including Yahoo’s Jerry Yang, Rivian’s RJ Scaringe and, thanks to the crypto winter, the Winklevoss twins. Meanwhile, Mark Zuckerberg, last year’s No. 3, fell out of the top 10 for the first time since 2014. He’s $76.8 billion poorer than a year ago, the biggest loss of anyone on the 2022 list.

And yesterday came more bad news. Bloomberg:

Meta Platforms sank 3.7% after Chief Executive Officer Mark Zuckerberg outlined plans to reduce headcount for the first time ever. The social media giant’s shares have fallen 59% this year amid slowing user growth.

Awaiting the U-Turn

The poor rich people! Riding so high… so recently, and now… lying so low. Humbled by Mr. Market… and Mr. Jerome Powell.  

Are you getting all soft and misty eyed in sympathy for the Zuck dear reader? Neither are we.

But how will he get by? How can he hold his head up at society events? Does he hear people laughing at him behind his back?

What the Fed giveth, the Fed taketh away. Which is alright with us. And it doesn’t matter much to the super-rich either, at least not yet. According to the principle of ‘declining marginal utility’ the more dollars you have, the less each additional greenback is worth. So, when you have billions, you don’t sweat it when a few fall off the back of the truck.  

But the principle of ‘declining marginal utility’ works in both directions. Each dollar earned is worth less than the last one. But each dollar lost is worth more. There must come a point, when the pain of lost dollars is more than the rich can stand.

And then… what? 

In the meantime, we light a candle for Zuckerberg, Bezos, and all the wealthy deciders. May they endure their losses with grace and dignity… and wait for the Fed’s U-Turn.

Regards,

Bill Bonner

Joel’s Note: The results are in! It’s been a full day since our first mini-poll, conducted in this space yesterday. With so much going on in the world today, we wondered what’s got you most concerned, what’s ruffling your feathers, what’s keeping you up at night?

A quarter of you (26%) cited fear of another recession/Great Depression as your biggest concern. As the Bureau of Economic Analysis confirmed yesterday, the first half of the year was spent in “recession territory,” having registered two consecutive quarters of negative GDP growth (-1.6% and -0.6%, respectively).

The Bureau’s third quarter release is due out October 27. If it looks like a negative read is imminent, expect the bobbleheads in the mainstream media to front run the report a week or so earlier with all the usual, “We look at a range of indicators/The economy is more robust than GDP alone suggests/Don’t believe what you see/hear/feel” etc.

But back to our little poll…

One sixth of respondents (17%) worried most about a coming stock market and/or real estate crash. As mentioned earlier in the week, the Case-Shiller Home Price Index registered its steepest month-over-month decline ever during July. Even Jerome “You Heard It Hear Last” Powell admitted last month that the housing market would “have to go through a correction.” So, yeah… that could be on the cards for sure. 

Interestingly, more readers are worried about the possibility of nuclear war (12%) than higher energy prices (7%). Asymmetrical risk? Media skepticism? Or maybe you’re just long old school energy (see our Trade of the Decade Report)? Make of that what you will…

Most happily, the largest cohort of dear respondents (39%) hit the “None of the above. I sleep fine.” button. We hope, in some small part, that’s because they’ve followed Tom and Dan’s sage advice, set their portfolios to “Maximum Safety Mode,” and are well prepared to ride out the storm.

To which we say, Kudos to them… and thanks to everyone who responded!

P.S. If you’re not already in Maximum Safety Mode… you may wish to engage it today. Find out exactly how, here...