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The Sword Sharpens


It feels as if the crossroads between the "haves" and the "have nots" is coming to a head and with it, tensions are rising across the board.

"You know, it occurs to me that the best way you hurt rich people is by turning them into poor people."

Billy Ray Valentine, Trading Places.

Good morning and welcome back to the holiday shack. As we ready ourselves for a spate of mindful relaxation, I wanna to take this morning's shake in a slightly different direction. Minyanville is all about the flickering ticks, as you know, and we'll chew through that dew over on the Buzz. In lieu of the nuts and guts financial stuff, I'm gonna touch on some societal shifts as we edge into the final fifth of our week. And before you click through to the next best web page, I will offer that the dynamic discussed in this column will most certainly manifest across a spectrum of asset classes.

During my MIM2 shpiel, I spoke of the destruction of the middle class and the emergence of a two-class society. To wit, and because I think it's incredibly important, I will share that fare despite having a pet peeve for those who quote themselves:

As we edge through the new world order, our economic ranks and societal structure will continue to shift. While last year's election brought the dichotomy between blue states and red states to bear, a more disturbing conundrum has evolved that has little to do with party lines or political affiliations.

As we digest initiatives of eminent domain, understand the motivation of the new bankruptcy laws and come to accept that our social security and pension programs are inherently flawed, the growing chasm between the "haves" and "have nots" has become increasingly apparent. The middle class is steadily eroding as we balance the lifestyles of the rich and a struggle to exist.

Indeed, almost 40% of all US wealth is in the hands of the top 1% of the population, compared to 13% 25 years ago. Further, the top .25% of the population owns more wealth than the other 99¾% combined. As this dichotomy manifests, the implications for consumer spending, real-estate investment and long-term savings will be profoundly impacted.

For my part, I've seen both sides of this trade from the inside looking out. While I never went "without," thanks to my mother and grandparents, I grew up decidedly middle class in a posh Long Island town. As is often the case in the vicious world of middle schools, I was often judged by the logo on my sneakers and the tags in my shirt. I've worked since the age of thirteen--flippin' bagels, pickin' weeds, shoveling sidewalks, waiting tables at Bennigans, managing a Subway, as a short-order cook in Times Square and, finally, bartending my way through school--and I did all I could do to contribute as I could. That included a work study program at Syracuse University which, while a tremendous school, isn't the most inexpensive education available. Indeed, the common thread of my "younger" years was a constant reminder that while I had money, I never had the silver spoon shared by so many of my peers.

The last sixteen years have been full circle, of sorts, as I busted hump and found my end of the rainbow while working at a hedge fund. As the bubble peaked and I was fortunate enough to catch the short side of the downside ride, I found myself sitting in the world of "haves" as opposed to the growing chorus of "have nots." The "high roller" status has abated a bit as I've put alotta coin into Minyanville and made a large bet that fiscal literacy--and the brandability of our critters--was the most compelling risk/reward that I've ever seen. I may not have the toys I once did to validate a career of hard work but I'm not complaining either. I know, as most of you should, that I've got more than most in this very challenging world.

As I was sitting with my good friend John Succo on Wednesday night, overlooking the skyline of Manhattan from my midtown perch, we began discussing the double-edged sword that is seemingly getting sharper. Indeed, it feels as if the crossroads between the "haves" and the "have nots" is coming to a head and with it, tensions are rising across the board. Never before has there been such a tangible yet unspoken chasm, a line in the sand that separates those with coin from those living paycheck to paycheck. The tail ends of either side may not see it, but the middle ground is a battlefield of anxiousness as we digest the rising costs of energy, healthcare and education.

As psychology is one of our four primary metrics, we must remain vigilant as we monitor the collective mindset. The stock market has long been the world's largest thermometer and the rising tide of liquidity has muddied an unfortunate truth. In an A.D.D. immediate gratification society, we've become a country that wants to consume now and pay later. Debt levels on every level--from the consumer to corporations to the government--is eye-popping and it will most certainly manifest in how we live and, by extension, through the financial equation. These issues aren't discussed while the stock market was tickling all-time highs (remember that?) but, as a function of the dollar's 30% slide since 2002, I would argue that a false sense of security has permeated our collective mindset.

We know that, as a function of cheap labor abroad, the manufacturing sector is a shadow of its former self. But from where I sit, the services industry, while difficult to quantify, is starting to show strains as well. Social acrimony is on the rise and personal interaction is a natural casualty of this evolving dynamic. Maybe I'm off base, but the mood in the Street and tempers in the heat have become a bit more noticeable. The current state isn't alarming, yet, but that will surely shift when asset prices no longer finance the sense of entitlement that has become a standard staple of the American culture. We see this in the presidential approval ratings, we hear it when we travel abroad and, more and more, we're feeling it through our daily interactions and professional processes.

So, what can we do? Preserve capital, for starters, and stay out of debt. We often discuss the dollar and the potential for debasing but interest rates might finally prick the psychology bubble as they start to trickle higher. With so many Americans tied to adjustable rate mortgages--thanks Mr. Greenspan!--and our financial fabric tied to the velocity of money, the tightrope is taut and the margin for error is thin. We've been conditioned to equate self-worth and our net worth and that'll remain the status quo for as long as the "haves" have. But for most of America, we must come to terms with the new order and properly position ourselves for what's to come. It's not going to be easy but it's not impossible either. We just need to be mindful as we consciously wade towards the tomorrows that are promised to nobody.

Good luck today.

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