Bloomberg recently reported that Bernard Arnault who controls LVMH - which holds a portfolio of about 75 luxury brands, including Louis Vuitton, Tiffany & Co., and Christian Dior - took the hit to his wealth the same day LVMH shares fell 5% in Paris. “However, Arnault still ranks No. 1 in the Bloomberg Billionaires Index’s ranking of the world’s richest people, with a net worth of $192 billion - $12 billion above Musk.”
I decided to discuss the wealth of Mr. Arnaut and other business tycoons for a number of reasons. For one, I wanted to put the wealth of some of these successful entrepreneurs into proper perspective because it would be difficult for ordinary people to quantify what exactly just $1 billion is, let alone $100 billion. Bloomberg also published an interesting article under the title, In Global Wealth Hot Spot, $12 Million Falls Short of Top 1%. “It takes $12.4 million to join Monaco’s wealthiest group” It takes $12.4 million to make the cut in the tiny Mediterranean principality, according to research from Knight Frank, where billionaire residents typically, don’t face income or capital gains taxes. Switzerland and Australia have the next highest entry points to the 1%, requiring net worth of $6.6 million and $5.5 million, respectively. The findings underscore how the pandemic and surging living costs are widening the gap between rich and poor nations. The entry point for Monaco’s richest is more than 200 times greater than the $57,000 needed to join the 1% in the Philippines, which is one of the lowest ranked of 25 locations in Knight Frank’s study.”
The Knight Frank’s study further notes that, “Lower-income households worldwide are feeling the burden of inflation, which has forced them to spend a far larger share of their income on food and housing, according to the World Bank. Meanwhile, the world’s 500 richest people have added almost $600 billion to their combined fortunes this year, according to the Bloomberg Billionaires Index, with Meta Platforms Inc. founder Mark Zuckerberg gaining the most.
The second reason I wanted to briefly discuss wealth and what it takes to be among the one percent in various countries is that the fact about the luxury goods genius Mr. Arnaut of LVMH, being the richest man in the world tells us something about how distorted our global economy really is. LVMH, L’Oréal, Hermes, Kering, Richemont, Ferrari, Ferragamo, Tod’s, Prada, etc. are all players in the economy of the wealthy, which as I have explained in the past, were the prime beneficiaries of ultra expansionary monetary policies since the wealthy own assets, such as stocks, bonds, properties, art, collectibles, etc. As Bloomberg reported, The MSCI Europe Textiles Apparel & Luxury Goods Index has risen year-to-date 27%. Conversely, the Dow Jones Industrial Average, the Russell 2000 Index, and the Emerging Market ETF (EEM), which are all sort of representative of the economy of the working class or of the workers are largely flat so far in 2023.
The fact that the world’s richest man is a leading participant in the global luxury item industry is a clear indication that we live within a wildly bifurcated global economy.
In the case of emerging markets, investors sentiment among some investors is so bad that they question whether they should ignore this asset class altogether. Indeed, in dollar terms year-to-date, the Philippine stock market is down 0.6%, Singapore down 2.4%, Hong Kong down 5.6%, Thailand down 8.7%, and Malaysia down 10.1%.
However, a Bloomberg analyst recently wrote that, “Investors are planning to ramp up bets in emerging markets, according to the latest Markets Live Pulse survey (MLIV) - a sign the asset class is becoming a favorite for those wary of a US recession.
Furthermore, I need to attract my readers attention to the fact that despite overall negative economic indicators and investors’ sentiment, a very rare, technical-based buy signal called the Coppock has triggered, suggesting the long-term outlook for US stocks is constructive, and the bottom is potentially already in. According to Bloomberg, “The Coppock is at base a momentum oscillator, which triggers when medium and longer-term measures of momentum begin to turn up on a persistent basis. Based on adapted parameters, it triggers only rarely, but the times when it has done – e.g. October 1982, August 1988, April 2003, August 2009 – are a catalogue of generationally good buying opportunities.”
Also, I need to point out the similarity between household debt and government debt. A household gets into financial difficulty because the breadwinner loses his job. The household is forced to increase its borrowings in order to maintain its standard of living. But in a Woke society, where nobody should suffer, the government could come in and through some social program assist the troubled household by giving out all sorts of subsidies, government stimulus, SNAP dollars and tax refunds, which would increase the government debt. It should be evident to my readers that in this particular instance the character of government debt becomes equivalent to the one of household debt.
The debt-limit deal in the US should be understood as a no-deal and a continuation of the US Government’s inflationary policies, which in my opinion, while supporting consumption of households somewhat, will drive inflation and interest rates much higher over the next few years. Hardly a favorable environment for financial assets.
Finally, let us remember the words of the “People’s Lawyer” and later US Supreme Court Judge (1916 – 1939), Louis D. Brandeis who opined:
“We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both.”
and of Plutarch (AD 46– AD 119), who writing about Athens in 594 BC stated that:
“The disparity of fortune between the rich and the poor had reached its height, so that the city seemed to be in a dangerous condition, and no means for freeing it from disturbances seemed possible but despotic power.”
With kind regards
Yours sincerely
Marc Faber
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