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May 22, 2022
A $5 TRILLION ‘WEALTH SHOCK’ IS CRACKING AMERICANS’ NEST EGGS
by Bloomberg News
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(Bloomberg) — The world’s richest nation is waking up to an unpleasant and
unfamiliar sensation: It’s getting poorer.Americans’ collective net worth had
been climbing at a dizzying rate for the past two years, even as families and
businesses contended with the ravages of Covid-19. Households piled up an extra
$38.5 trillion from early 2020 to the end of last year, bringing their
collective net worth to a record $142 trillion, the Federal
Reserve estimates.Just as the US is learning to live with the virus and spending
shifts back toward pre-pandemic normal, it faces a new scary threat: A plunge in
wealth since the start of 2022 that JPMorgan Chase & Co. estimates totals at
least $5 trillion — and could reach $9 trillion by year-end.
So far, the richest Americans have borne the brunt, with US billionaire fortunes
down almost $800 billion since their peak amid the sharp losses in stocks,
crypto and other financial assets. But surging interest rates are also starting
to rattle the housing market, where middle- and working-class families have the
bulk of their wealth.
It all adds up to the sudden removal of a major prop to confidence: ever-bigger
nest eggs. And it’s by design. To stamp out the highest inflation in decades,
the Fed needs Americans to curb their spending, even if it requires an economic
slowdown to get there.
“It’s painful to get back to normal after really being in a fantasy world last
year,” said John Norris, chief economist at Oakworth Capital Bank. “It’s going
to feel a lot worse than it actually is.”
Since the start of the year, the S&P 500 Index is down 18%, the Nasdaq 100 has
lost 27% and a Bloomberg index of cryptocurrencies has plunged 48%.
That all amounts to “a wealth shock that is set to drag on growth in the coming
year,” JPMorgan economists led by Michael Feroli wrote in a note Friday.
Fed Chair Jerome Powell and his colleagues have repeatedly said they’re actively
aiming for such a slowdown, leaving it unlikely policy makers will move to
address the Great Wealth Drop of 2022.
Billionaires were the biggest winners of 2020 and 2021. Now they’re losing more
than almost everyone else. The Bloomberg Billionaires Index, a daily measure of
the wealth of the world’s 500 richest people, has dropped $1.6 trillion since
its peak in November.
Leading the way are the Americans on the index, who have lost $797 billion since
their peak. Perhaps the most humbled by it all is the world’s richest person,
Elon Musk. He’s lost $139.1 billion, or 41% of his wealth, since November, when
his net worth briefly surpassed $340 billion. Amazon.com Inc. founder Jeff
Bezos, the second-richest person, lost $82.7 billion, or 39% of his peak wealth.
> Today in America:
> – the two richest people own more wealth than the bottom 40%
> – the top 1% owns more wealth than the bottom 92%
> – 45% of all new income has gone to the top 1% since 2009
>
> Is that the kind of economy any working person ought to be satisfied with?
>
> — Bernie Sanders (@BernieSanders) September 5, 2021
While the wealth losses among the top 0.001% reduce inequality, that won’t be
much comfort to most people who worry about the U.S.’s widening disparities.
“In a relative sense, it’s going to make the inequity a little lower — but in an
absolute sense, everyone suffers,” said Reena Aggarwal, director of Georgetown
University’s Psaros Center for Financial Markets and Policy.
Like many, Aggarwal is concerned that falling markets will create problems for
the broader economy. “Some correction was needed but this is a pretty huge
correction, and it’s not stopping.”
A downturn in housing — made likely by a surge in mortgage rates to the highest
since 2009 — threatens wider reverberations. Over the last decade, the robust
real estate market added $18 trillion in market value to owner-occupied home
valuations.
US spending has been lifted in recent years by owners tapping the enhanced
values of their homes for cash. The practice of home equity extraction likely
came to a halt this year. More than 40% of refinancings in the final quarter of
last year saw homeowners pull cash out of their homes.
Real estate is far more evenly distributed than financial wealth. The top 1%
owns more than half of U.S. holdings of stocks and mutual funds, and the bottom
90% owns less than 12%, according to Federal Reserve estimates. By contrast, in
real estate the bottom 90% owns more than half of the total, while the top 1%
holds less than 14%.
“Higher home prices and sharply higher mortgage rates have reduced buyer
activity,” Lawrence Yun, National Association of Realtors chief economist, said
in a statement Thursday. “It looks like more declines are imminent in the
upcoming months.”
> WHAT BLOOMBERG’S ECONOMISTS SAY…
>
> While the plunging stock market will dent consumers’ net worth this year, the
> residual effect of last year’s surge in asset values — and the resilience in
> home prices so far this year — are major offsetting factors supporting
> consumption. As a result, personal spending is expected to grow faster this
> year than before the pandemic, even after the removal of fiscal stimulus.
>
> — Yelena Shulyatyeva, economist
It could take a while before Americans realize that their pandemic home-price
gains have evaporated. Even the stock market selloff could take a while to
translate into spending in a way that could tip the U.S. into recession.
“A general selloff in the equity market may have a dampening effect,” said Chris
Gaffney, president of world markets at TIAA Bank, but there’s a lag for
investors. “They look at their statements on a quarterly basis and all of a
sudden they say, ‘Oh my goodness, my stock-market portfolio is down 20%, maybe I
shouldn’t take that vacation,’ or ‘Maybe I shouldn’t buy that larger TV or a new
car.’”
UBS WEALTH AMERICAS’ PROFIT DIPS ON LITIGATION AND ADVISOR COMP COSTS
The wirehouse also made it more difficult to track its compensation expenses
tied to broker hiring as it stopped breaking out its recruiting loan balances
and quarterly payments tied to those loans.
Apr 26, 2022
In "News"
BIDEN PITCHES $5.8 TRILLION PLAN WITH RECORD TAX HIKE
President Joe Biden unveiled a $5.8 trillion budget request designed to appease
moderate Democrats on Monday, with a proposal that emphasized deficit reduction,
additional funding for police and veterans, and flexibility to negotiate new
social spending program
Mar 28, 2022
In "News"
SUPER-RICH AMERICANS FEEL RELIEF AS TAX HIKES ARE CANCELED FOR NOW
The pandemic has accelerated inequality, with the top 1% now controlling more
than 32% of U.S. wealth, the highest since at least the late 1980s according to
Federal Reserve estimates.
Dec 20, 2021
In "News"
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