The Recession Has Finally Begun, But Only For America's Rich

Summary

The video discusses the 'Richcession' in America, where wealthy individuals face a recession due to stagnant inflation and a struggling stock market. Despite a slight market rebound in 2023, high-income earners are feeling the pinch, with increased unemployment claims and cautious spending due to factors like wage stagnation and job insecurity. The downturn in the stock market, a key driver of wealth, is leading to a decline in consumption, which could further slow economic recovery. The video also touches on the potential for wealthier individuals to take advantage of a recession by investing in undervalued assets, suggesting they may bounce back quickly.

Takeaways

• 📉 The script discusses a looming recession, with predictions for it to occur by the end of this year or the beginning of next year, characterized by rising food and energy prices.
• 💼 Despite the Federal Reserve's monetary policy, the economy is expected to cool off, and the wealthy are particularly affected by sticky inflation and a weakened stock market.
• 💼 The 'Wealth Effect' is highlighted, explaining how a decline in the value of financial assets can lead to reduced consumption, potentially contributing to a stagnant economy.
• 📈 The script notes a 'Rich Recession' where high-income earners are disproportionately affected, with an increase in unemployment claims among this group.
• 🏦 The stock market, a significant driver of wealth creation and destruction, is expected to continue facing challenges, affecting the wealthy's net worth.
• 📉 The S&P 500 experienced a 19% drop in 2022, leading to a loss of 1.8 million millionaires in America, according to UBS's 2023 Global Wealth Report.
• 💼 High-income households are reported to have weak economic confidence and are more cautious with spending due to factors like soft wage growth and job creation.
• 💳 There's a rise in household debt, particularly credit card debt, even as high-income households continue to purchase discretionary items.
• 📉 The luxury market saw a decline in US sales, with major brands like LVMH and Richemont reporting drops, indicating a slowdown in spending among the wealthy.
• 🌐 Global wealth is projected to rise by 38% over the next five years, but the current US recession and stock market performance could impact this growth.
• 💹 The wealthy are expected to take advantage of a potential recession by investing in safe havens and buying assets at distress prices, which could grow their wealth over time.

Q & A

What economic scenario does the speaker predict for the near future?

The speaker predicts a stagflationary environment leading to a recession by the end of the current year or the beginning of the next year, characterized by rising food and energy prices.

Why is the market pricing in a recession?

The market has been pricing in a recession since the beginning of the year due to concerns about economic indicators and the potential impact on consumer spending and wealth.

What is the 'Wealth Effect' mentioned in the script?

The 'Wealth Effect' refers to the phenomenon where a decline in the value of financial assets leads to a decrease in consumption, which can contribute to a stagnant economy.

How did the stock market perform in 2022, and what was its impact on household net worth?

In 2022, the stock market was down sharply, and home prices fell, particularly in tech job-driven markets, significantly impacting the net worth of many households.

What trends were observed in the job market for high-income earners?

There was a significant drop in job listings in banking, finance, and tech sectors, with companies like Microsoft and Google announcing substantial job cuts.

According to UBS's 2023 Global Wealth Report, what happened to the number of millionaires in America in 2022?

America lost 1.8 million millionaires in 2022, primarily due to a weak stock market performance.

What does the Bank of America's August 2023 consumer checkpoint survey reveal about high-income households?

The survey reveals that high-income households have weak economic confidence, are more cautious about spending, and are facing stretched budgets, leading to increased credit card debt.

How does the wealthy's spending behavior affect the economy?

The wealthy's spending behavior is crucial as they account for a significant portion of consumer spending. Reduced spending by the wealthy can slow down the economy and affect companies that rely on their spending.

What is the projected global wealth growth according to UBS's report?

Global wealth is projected to rise by 38% over the next five years, reaching $629 trillion by 2027, with the number of millionaires expected to grow to 86 million.

What is the potential opportunity for wealthy investors during a recession?

A recession can be seen as a 'garage sale' for the wealthy, where they can buy assets at distress prices, potentially growing their wealth over time as the market rebounds.

Outlines

00:00

📉 Recession and Its Impact on America's Rich

The video discusses the arrival of a recession, initially predicted for the end of this year or the beginning of next, which has now arrived, impacting America's wealthy population. The recession is characterized by a stagflationary environment with rising food and energy prices, which the Federal Reserve's monetary policy cannot easily address. The stock market, a significant driver of wealth creation and destruction, has seen a decline, leading to a 'rich recession.' High-income earners are facing unemployment, and the wealth effect is causing a decrease in consumption, which could lead to a stagnant economy. The video also notes that the stock market's performance in 2022 was poor, affecting household net worth, but there was a slight rebound in 2023. Despite this, economic uncertainties and the impact of inflation on spending persist, leading to a cautious approach to wealth management among the rich.

05:01

💼 Economic Challenges and the Wealthy's Spending Habits

The video script highlights the economic challenges faced by the wealthy, including a decline in the stock market and a subsequent drop in household net worth. Despite a slight market rebound in 2023, the economic hurdles from the beginning of the year remain. The script discusses the impact of high inflation and the cost of living on the wealthy, who are now relying more on credit cards and facing a potential recession. Job market listings in banking, finance, and tech have seen significant drops, with major companies like Microsoft and Google announcing substantial layoffs. The UBS Global Wealth Report indicates that America lost 1.8 million millionaires in 2022, primarily due to a weak stock market. The Bank of America's August 2023 survey reveals that high-income households have weakened economic confidence and are more cautious with spending. The video also touches on the 'wealth effect,' where the declining value of financial assets leads to reduced consumption, which can slow economic growth. The script concludes by suggesting that a recession could be an opportunity for wealthy investors to purchase assets at distressed prices, potentially growing their wealth over time.

Keywords

💡Recession

A recession is a significant decline in economic activity that lasts more than a few months, typically visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. In the video, the concern is that a recession by the end of the year or the beginning of the next could exacerbate economic challenges, as it is discussed in the context of rising food and energy prices, and the Federal Reserve's inability to change this situation.

💡Stagflation

Stagflation refers to a situation where an economy experiences stagnant growth along with high inflation and unemployment. The video mentions a 'stagflationary environment' to describe the economic scenario where the economy is not growing, yet prices are rising, which is a challenging situation for policymakers and businesses.

💡Wealth Effect

The wealth effect is a theory in economics that suggests that the value of an individual's financial assets affects their spending and saving habits. In the video, it is mentioned that the declining value of financial assets among the wealthy could lead to a decrease in consumption, which in turn could contribute to a stagnant economy.

💡Stock Market

The stock market serves as a platform for companies to issue and repurchase voting stocks of shares, and for investors to trade the buying and selling of said shares. The video discusses how the stock market is a driver of wealth creation and destruction, and its performance is closely tied to the financial health of wealthy Americans.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. The video highlights 'sticky inflation' as a problem, where prices continue to rise, affecting the purchasing power of consumers, including the wealthy.

💡Job Cuts

Job cuts refer to the reduction of the workforce by a company or industry, often due to economic downturns or restructuring. The video mentions significant job cuts in the tech sector, with companies like Microsoft and Google announcing layoffs, which is a direct result of recession fears and a challenging economic environment.

💡Millionaires

Millionaires are individuals with a net worth of one million or more, usually in a liquid asset such as cash or easily sold investments. The video discusses how America lost 1.8 million millionaires in 2022, primarily due to a weak stock market, which underscores the vulnerability of wealth in a turbulent economy.

💡Consumer Spending

Consumer spending refers to the monetary value of all the finished goods and services purchased by individuals in a given time period. The video emphasizes the importance of consumer spending, especially by the wealthy, in driving economic activity and how a reduction in spending can slow down economic recovery.

💡High Income Earners

High income earners are individuals who earn significantly more than the average income. The video discusses how high income earners are feeling the pressure of a tough economy, with increased unemployment claims and a cautious approach to spending, which can have broader implications for the economy.

💡Credit Card Debt

Credit card debt is the money owed on credit cards, which can accumulate interest if not paid off in full each month. The video mentions that credit card debt has swelled to over $1 trillion, indicating that even high-income households are feeling the financial strain and relying on credit to maintain their lifestyles.

💡Safe Haven Investments

Safe haven investments are assets that are perceived to be immune to the negative effects of economic downturns and market volatility. The video suggests that wealthy investors are moving towards safe haven investments to preserve their wealth during uncertain economic times.

Highlights

Economic recession is anticipated by the end of this year or the beginning of next year, characterized by stagflation with rising food and energy prices.

The Federal Reserve's monetary policy is unlikely to alleviate the current economic challenges.

The U.S. economy is expected to enter a recession by mid-next year, affecting the wealthy disproportionately due to sticky inflation and a weakened stock market.

Wealthy Americans are facing increased unemployment claims, impacting their financial stability.

The stock market, a primary driver of wealth creation and destruction, is under pressure, affecting the wealthy's net worth.

The 'Wealth Effect' is discussed, where a decline in financial assets leads to reduced consumption, potentially stagnating the economy.

The stock market downturn in 2022 had a significant impact on household net worth, with some recovery in 2023.

Despite a slight bull rally in summer 2023, economic uncertainties persist, affecting consumer and investor confidence.

Tech and finance sectors have seen significant job cuts, with major companies like Microsoft and Google reducing workforce.

America lost 1.8 million millionaires in 2022, primarily due to a weak stock market, according to UBS's 2023 Global Wealth Report.

High-income households are experiencing weak economic confidence and are more cautious with spending.

Household debt, particularly credit card debt, has increased as high-income earners struggle with budget constraints.

The stock market's performance is critical for the wealthy, as it is their primary source of wealth.

Luxury companies are experiencing a decline in U.S. sales, indicating a slowdown in spending among the wealthy.

The wealthy's spending habits are crucial for economic recovery, as they account for a significant portion of consumer spending.

Global wealth is projected to rise by 38% over the next five years, with the number of millionaires expected to grow.

Wealthy investors are expected to take advantage of a potential recession by investing in safe havens and buying assets at distress prices.

Transcripts

[Music]

so that recession everyone was worried

about earlier this year we're in a

scenario where we have a stagflationary

environment I think the economy is going

to cool off I think we'll have a

recession by the end of this year or the

beginning of next year and we'll still

have Rising food prices and Rising

Energy prices and unfortunately the

fed's monetary policy just can't change

that I think the market has been pricing

a recession since the beginning of the

year and then began worrying about it

again but our base case is that the US

economy will go into recession by the

middle of next year turns out that

recession everyone was worried about has

finally arrived but right now it's only

for America's Rich sticky inflation and

a weakened stock market continue to

disproportionately pressure wealthy

Americans as more and more High income

earners by unemployment claims according

to Bank of America's August 2023

consumer checkpoint survey the biggest

engine for wealth creation in the world

the driver of wealth is the stock market

it is also the driver of wealth

destructions so why should we care about

this so-called Rich session because of

something called The Wealth effect

that's when the declining value of

financial assets leads to a decline in

consumption and since the US economy

relies on consumer activity for most of

its growth fewer people buying fewer

things can lead to a stagnant economy

here's why the long awaited recession

has arrived for America's rich and why

it matters for everyone

[Music]

else

2022 was a year where the stock market

was down very sharply and we started to

see home prices uh turn turn South

particularly in some of those hot

markets where tech jobs you know had

helped drive those prices up as the

check sector cooled you started to see

prices fall so that had a pronounced

impact on the netw worth lot of

households in 2022 some of that has come

back in 2023 as markets have rebounded

not quite to the record levels seen at

the beginning of 2022 but Hardy rebound

nonetheless 2023 saw a slight bull rally

during the summer despite rate hikes

thanks to a strong and resilient

consumer a lot of the hurdles that were

in place in January are still in place

right now it is it's not as if we've

seen some sort of super positive

reinforcement of like this is why we can

get rid of that sort of uncertainty and

replace it with certainty regardless of

the country's economic standing many

Americans are feeling the pain of

inflation and the cost of Revenge

spending as even the wealthy are

exhausting their savings and are leaning

on credit cards to remain afloat in a

tough economy company's recession fears

have stonewalled the white collar job

market listings compared from a year ago

today show a nearly 40% drop in banking

and finance jobs and a 50% drop in Tech

roles thousands more are being laid off

in the tech sector Microsoft is cutting

10,000 jobs and and Google's parent

alphabet is reducing its headcount by

12,000 jobs that follows other Hefty job

cut announcements from Amazon and

Salesforce earlier this month headline

here is that any Bank not led by Jamie

Diamond has been cutting jobs this year

if you look at the big six Banks who've

all reported Wells Fargo is the biggest

sort of perpetrator here they've cut

about 11,000 jobs or about 5% of their

Workforce just this year alone and you

look at uh another one and that's uh you

know apart from Wells Fargo there's also

sacks and both of these institutions

have had these you know businesses that

are hit into the wall of high interest

rates ubs's 2023 Global wealth report

found that America lost 1.8 million

millionaires in 2022 the main culprit a

weak stock market the S&P 500 dropped by

19% that year for a current post on how

the wealthy are holding up Bank of

America released its August 2023

consumer checkpoint survey it found that

high income households have a weak weer

economic confidence and are more

cautious on spending due to factors like

soft wage growth and job creation for

high earners which may be tied to the

rise in unemployment claims from the

group there are some higher inome

households that their budgets are

significantly stretched they have leaned

against credit kind of bridge that Gap

household debt has gone up in particular

credit card

debt credit card debt has swelled to

more than $1

trillion despite higher income

households buying more discretionary

items this still points to another

headwind for the wealthy when

millionaires look at their risks right

now they mainly see the stock market

because that's the source of their

wealth despite rallying in summer 2023

the stock market is now getting hit by

surging bond yields and a prospect of

higher interest rates for longer some

people say we could have a weak stock

market for a long time because interest

rates are so high that would mean that

there's not going to be much wealth

creation may not be much wealth

destruction but unless you're adding

wealth unless you're growing

millionaires all those companies that

survive based on rich people spending

whether it's luxury real estate whether

it's luxury fashion whether it's boats

cars planes all those companies are

going to see slower growth because

they're all driven by the stock market

and it all depends what happens with

that stock market in the next

[Music]

year

the second quarter for all the luxury

companies saw something we hadn't seen

at least since pre- pandemic which was a

decline in Us sales not just slower

growth but an actual decline lvmh which

is the giant they always succeed they

actually reported a surprise 1% drop in

Us sales no one expected that that

followed richmont which owned cardier

lots of other brands reporting a 4% drop

in the US so the top 20 % of Americans

buy income account for over half the

spending when we sort of know this that

the wealthy those with the most money

spend the most and they have throughout

the past 30 years helped an economy

where the middle class has lost ground

the stickiness of inflation has even

millionaires cutting back on spending

for fine dining luxury vehicles and

charitable donations investors are

dealing with two things which is Market

uncertainty and low visibility and by

Market uncertainty what I mean is that

because of Market uncertainty for

investors it makes it difficult invest

because they don't know sort of where

things are going and that leads to low

visibility consumer spending is a huge

driver of economic activity so when the

wealthy stops spending it can slow the

whole country's economic recovery they

have to keep spending to keep the

economy going to keep the consumer

economy going to keep consumer companies

profitable

[Music]

around the world though the rich are

expected to get richer according to

ubs's report projections Global wealth

Will Rise by 38% over the next 5 years

reaching $629 trillion by 2027 and the

number of millionaires is estimated to

grow to 86 million up from the 59

million in 2022 and a recession in the

US along with the potentially

underperforming stock market Market

could create the right conditions for

America's Rich to bounce right back the

wealthy right now the mood is very Grim

because they see high inflation being

very sticky and high interest rates

sticking around for a long time which

means their stuff their assets are going

to be worth less worth households they

tend to have a larger uh percentage of

their portfolio in cash and a lot of

that's just around wealth preservation

what you're going to see is more high

debt worth investors putting money into

the safe haven Investments and just

really Bing their T if the economy does

slump if we do end up in a recession

that those investors now have the dry

powder to be able to buy other assets at

distress prices there's an old

expression that a recession is like a

garage sale for the wealthy that's the

time where a lot of wealthy investors

buy assets at distress prices that can

then ultimately grow their wealth over

time as they

[Music]

rebound

[Music]