Phone Calls From The 1%
January 19, 2016
The sluggish US markets of 2015 have been quickly followed by pessimism and volatility. Based on how my phone was ringing following last week’s pathetic market move, anxiety levels are starting to rise. In last week’s Weekly I reiterated some of the basic rules that many financial and advisory firms espouse for long-term investors. Trying to maintain a 30-year horizon is difficult when the last 30 minutes in the market have been turbulent to the downside. Based on Friday’s close the year-to-date return of the S&P 500 is down 8% and the emerging markets are down 10.7%. The price of oil continues to free fall, and by the close on Friday it had already fallen by 22.3% in January.
There is a lot of 2016 left but the bold prediction of volatility just a few weeks ago has certainly been the major market trend for the start of the year. This is all occurring as the “wealth gap” in the world now stands at the largest that it has ever been in modern history. Last week it was reported that the richest 1% of the global population is worth more than the remaining 99% of the population. The statistic that is truly hard to comprehend is that the combined wealth of the top 62 families in the world is greater than the poorest 50% or 3.6 billion people. Who worries about these markets the most? Those with the most to lose, and especially the “1 per centers”.
To make the top 1% in global earnings you need to have an annual income of $32,400, and from a net worth stand point you need to have assets of $770,000. If you are an American living in the most prosperous country in the world (sounds like I’m running for office), then the income hurdle to be in the top 1% is $434,000, and the net worth hurdle is $7,000,000.
Who picks up the phone for advice when the market drops? Those people who have substantial assets. As you worry about a decline in the market I would challenge us to think about the impact on the average global consumer. Wealth is concentrated but spending is universal. I worry more about the spending habits of the 99% than those of the 1%. The 1% may be calling to seek advice on what they should do in a crazy market, but it’s what the 99% will do that matters when it comes to global growth and spending.
As many of you know, we believe in maintaining three years worth of cash or cash flow available for spending needs. This will allow an investor to weather the storm of short-term volatility. With a 3-year cash buffer you might find you can worry less about the next three days of market volatility.
Carl Gambrell
