Category Archives: Billionaire

Wealth Of Top 1% Surpasses $100 Trillion: More Than Global GDP And All Central Bank Balance Sheets

Back in March, when looking at the latest political wave sweeping across Europe, Deutsche Bank’s Jim Reid wrote a report which observed that “it’s hard to get away from the fact that populism is currently going through an explosion in support at present” of which today’s vote of no confidence of Swedish prime minister Lofven was just the latest example. DB focused on Europe, as shown in the following chart, and noted that high double-digit youth unemployment has become a hotbed for anti-establishment sentiment, which has everything to do with the economy, and lack of opportunities.

https://www.zerohedge.com/sites/default/files/inline-images/populism%20db.jpg

The German bank then warned that the “liberal world order” is in jeopardy, and concluded rather ominously:

As of now the rise in populism hasn’t yet destabilised markets however we find it difficult to get away from the fact that uncertainty levels are bound to remain high while such power brokers remain in major elections. Indeed the unpredictability of  Trump’s policies is such an example, with the recent tariff threats which have subsequently escalated market concerns about a trade war being one. At a time when global central banks are moving towards an unprecedented era of tightening and dealing with years of massive asset purchases, risks from rising populist support has the ability to seriously disturb the prevailing equilibrium of the last few years and subsequently markets.

Fast forward to today, when Bank of America strategist Barnaby Martin tackles the thorny issue of ascendant populism, which he attributes to the “lost decade” following Lehman’s collapse and what he dubs the “era of hubris” – a time when the richest 1% has seen its collective wealth surpass $100 trillion.

Martin begins by reminding us that a decade ago, “the collapse of Lehman Brothers sent shock waves through financial markets” to which the response was an unprecedented amount of central bank support, both in terms of its size and creativity.

And as we have observed on countless occasions, with central banks as a tailwind, financial markets have outperformed real assets over the last decade. Even so, the dichotomy in many cases is staggering:

Note that the cumulative total return on ICE BofAML’s Global Broad Market bond index since ‘08 is 50%…yet the growth in house prices globally over this time has been just a miniscule 1%.

https://www.zerohedge.com/sites/default/files/inline-images/wealth1.jpg?itok=Wotf47FS

Simply said, the last decade has seen those who hold financial assets become richer, as markets have lurched higher; meanwhile those without such assets – the vast majority of the middle class – have been increasingly left behind, however, even as wage growth remained stagnant and indebted governments have struggled to provide strong social support. As a result, a great wave of populism emerged as “issues such as wealth and income inequality have started to polarize societies much more.”

The next chart shows in staggering fashion just how “rich” the rich are today, especially when compared to some other big numbers and markets. According to BofA estimates the wealth of the top 1% globally has surpassed $100tr now…a number greater than the sum of the big-4 central bank balance sheets, current world GDP and the cost of the ‘07/’08 global financial crisis, for instance.

https://www.zerohedge.com/sites/default/files/inline-images/wealth2.jpg?itok=w_K7x8xk

The great divide between the haves and the have nots has manifested itself not only in terms of accumulated wealth, but income as well, as the wealthy have had greater income-generating opportunities at their disposal, mostly due to access to better technology and education. It is therefore mostly the wealthy that have been able to reap the benefits of globalization, and perhaps the reason why the “not so wealthy” have been eager to tear apart the globalist system, and willing to listen, follow and vote for any populist leader who promises that.

Meanwhile, the top 1% richest in the world have witnessed impressive income growth since 1980 – in many cases, multiples of that seen by the less well-off in society. Also notice what Martin calls the “hollowing out” of the middle class over this period – where income growth has been the weakest- as “many have simply found their jobs replaced by either highly-skilled or low-skilled workers.”

https://www.zerohedge.com/sites/default/files/inline-images/wealth3.jpg?itok=XOdApfX7

Which brings us back to the core topic: the rise of social discontent, manifesting itself in growing populism. Observing the growing wealth and income inequality, Martin writes that these have been “important factors (albeit not the only ones) contributing to the rise in voters’ frustrations and resentment across the world.”

The result, as Deutsche Bank showed back in March, has been for the electorate to increasingly embrace “populist” or “anti-establishment” parties in hope of better times…and to shun mainstream left or right institutions.

As the next chart shows, the growth of populist voter tendencies has been clear since the late ‘80s, with the trend increasing in the post-GFC era. 

There are few signs as yet of it fizzling out. At the end of 2017, ten governments in Europe included one or more authoritarian populist parties, according to Timbro. Average voter support for far left populist parties has also notably risen since 2011.

https://www.zerohedge.com/sites/default/files/inline-images/populist%20parties%20vote.jpg?itok=RzSfeqW3

In his conclusion, Martin echoes DB’s Reid, saying that “the continued rise in income and wealth inequality globally suggests that populism is here to stay” and yet it remains to be seen how effective it will be at tackling inequality and placating voter frustrations.

Meanwhile, even economies that have witnessed strong growth in recent times have struggled to generate “inclusive growth” instead becoming the world’s new breeding grounds of pervasive inequality. As the next chart shows, income inequality in China has jumped dramatically since 1990 despite very strong economic momentum.

https://www.zerohedge.com/sites/default/files/inline-images/china%20inquality.jpg?itok=bAEzzulj

What is ironic, is that since 2008, the Chinese government – which is terrified of a middle-class revolt – has introduced measures specifically aimed at reducing inequality. But as chart 4 highlights, while this has slowed the rise in income inequality in China, as yet it has not meaningfully reduced it. Will China be ground zero of the next social revolution as the people decide their “communist” leaders have betrayed them and take matters into their own hands.

Source: ZeroHedge

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US Treasury Secretary Mnuchin Lists Park Ave. Apartment For $33 Million, Three Times What He Paid For It

No sooner did we report that the housing “recovery” over the last 10 years has skipped many “underwater” communities in the United States, than we found confirmation of the opposite: Treasury Secretary Steve Mnuchin is selling his Park Avenue apartment in Manhattan for three times the price that his aunt paid for it 18 years ago. He has listed the apartment for $32.5 million. His Aunt is listed as the broker on the sale.

https://www.zerohedge.com/sites/default/files/inline-images/mnu1_0.jpg?itok=lnYFX1us

The sale is happening at the same time that residents of numerous commuter towns across the United States have seen the values of their houses collapse to less than half of what they were in 2006, prior to the housing crisis.

https://www.zerohedge.com/sites/default/files/inline-images/reuters%201_0.jpg

Mnuchin recently listed the 6500 square-foot, 12 room apartment that he bought from his aunt in 2000. It was purchased then for just $10.5 million. It had been in his family since the 1960s and, when he turns around to list the property this time, he stands to net $22 million more than what he paid for it, if his asking price is met.

https://www.zerohedge.com/sites/default/files/inline-images/mnu3_0.jpg?itok=4EUYT0Mq

The apartment is being listed by Warburg Realty and is located inside of 740 Park Ave., inside the historic Rosario Candela building. Other famous former tenants of this building include the Rockefellers and the Kochs. Currently, Stephen Schwarzman, the CEO of Blackstone Group, lives there. The building was developed by Jacqueline Kennedy Onassis’ grandfather.

https://www.zerohedge.com/sites/default/files/inline-images/mnu4_0.jpg?itok=TopA2YDH

https://www.zerohedge.com/sites/default/files/inline-images/mnu5_0.jpg?itok=3p1pygwf

Other than that, it’s just your average ordinary run of the mill apartment on Park Avenue: five bedrooms, a wall wood paneled library, a wet bar, a formal dining room, a private elevator, 11 foot ceilings, marble floors and a sweeping spiraling staircase that still has its original banister.

The first floor of the apartment has six bathrooms and an 800 square-foot living room.

https://www.zerohedge.com/sites/default/files/inline-images/mnu8_0.jpg?itok=51SeH33K

https://www.zerohedge.com/sites/default/files/inline-images/mnu9_0.jpg?itok=ZYPpvXPo

Upstairs, the apartment has a master suite, walk-in cupboards, study, two more bathrooms and three extra bedrooms. The apartment spans two levels in the building on both the eighth and the ninth floor and it also has a large kitchen with a “breakfast nook”.

While that all seems extremely glamorous, Mnuchin hasn’t even used this apartment as his main residence, reportedly. Mnuchin was living in California before his appointment to the Trump administration, but has since bought a $12.6 million apartment in Washington DC.

We’re glad to hear that Mnuchin was able to ride out the housing crisis successfully. We were worried about him for a moment.

https://www.zerohedge.com/sites/default/files/inline-images/mnu11_0.jpg?itok=tqTdqWfS

Source: ZeroHedge

Amazon Tops Trillion-Dollar Market Cap, Bezos Extends Lead As World’s Richest Man

Jeff Bezos was already the richest man in world history, but thanks to the surge in Amazon’s share price today – becoming the third company in history to top $1 trillion market capitalization (after Apple and PetroChina) – his net worth is up almost $70 billion in 2018, nearing $170 billion.

https://www.zerohedge.com/sites/default/files/inline-images/jeff-bezos.jpeg?itok=5v0_75dD

After a brief dip on its earnings, Amazon has not looked back, surging above the key $2050.27 briefly ($2050.50 highs) to become another trillion-dollar market cap company…

https://www.zerohedge.com/sites/default/files/inline-images/2018-09-04_8-39-46.jpg?itok=7eAuQkZ9

Amazon reached this milestone almost exactly one month after Apple. Next up – Microsoft or Alphabet?

https://www.zerohedge.com/sites/default/files/inline-images/2018-09-04_8-37-27.jpg?itok=rLny3RFV

Do not worry though – Amazon is not a bubble!

https://www.zerohedge.com/sites/default/files/inline-images/2018-09-04_8-31-10.jpg?itok=Ncw8mTOS

Interestingly, few remember that Apple was not the first company globally to ever hit $1 trillion in market capitalization.

The feat was achieved momentarily by PetroChina in 2007, after a successful debut on the Shanghai Stock Exchange that same year.

https://www.zerohedge.com/sites/default/files/inline-images/market-cap-petrochina.jpg

And as we noted previously, the $800 billion loss it experienced shortly after is also the largest the world has ever seen.

* * *

This pushes Bezos’ dominance of the global wealth leagues even higher…

https://www.zerohedge.com/sites/default/files/inline-images/2018-09-04_8-34-40.jpg?itok=yrTJazl7

Source: ZeroHedge

Out-Of-Warranty Tesla Owners Left With No Better Choice Than Fix Their Own Cars

Due to a lack of reputable mechanics, widespread service centers and aftermarket parts, some out of warranty Tesla owners are left with no choice but to try and fix their cars themselves. Such was the case of Model S owner Greg Furstenwerth, a self described “Tesla fan”. CNBC detailed his journey through repairing his own out of warranty Tesla when the company “treated him like [he] didn’t own a Tesla” after his warranty ran out.

Furstenwerth was one of the first Model S owners, pre-ordering in 2013. He was even one of the first in the state of Hawaii to own a Tesla. Like some fans of the company have done after buying their Teslas, he even undertook a cross-country journey to prove that the world did not need gas powered vehicles and that there was nothing to be anxious about regarding the vehicle’s range capabilities.

https://www.zerohedge.com/sites/default/files/inline-images/tsla%2011_0.jpg?itok=119Woivi

“Those were the golden years”, according to Furstenwerth. While the Model S was under warranty, he shared his experience in dealing with Tesla service, which was positive. The interactions with the company were plentiful.

“Tesla used to call me,” he told CNBC. “They’d tell me, ‘hey we noticed that there’s something going wrong with your car.’ Or when I had my flat they did their courtesy roadside service. They really took care of me, actually, as an original pre-order.”

But when the warranty ran out, so did the personal attention: “…as soon as I exceeded my warranty, the interactions all went away. I was treated like I didn’t really own a Tesla,” he told CNBC. 

Because he was one of the first to have faith and purchase a Model S, he is now being “rewarded” by being one of the firsts who will need to get repairs done to his Tesla while it is not covered under warranty. The number of customers that are falling out of warranty, like Greg, will increase in coming years.

Greg claims that after he fell out of warranty and needed repairs, the company would not offer him a loaner car or a mobile mechanic to help him when he needed to find a service center outside of Seattle, where he lived.

https://www.zerohedge.com/sites/default/files/inline-images/fix_0.jpg?itok=OzwymnK3

His next quest was to try and find independent mechanics, but he soon found out that there were very few who were willing and able to work on the Model S. He found out along the way that there are only a few mechanics who can fix the Model S, and they generally do it by buying scrap Model S cars and salvaging parts or reverse engineering parts using 3D printers.

This is apparently because Tesla doesn’t make spare parts, diagnostic tools or repair manuals readily available to people trying to perform service on their cars. And due to the modest size of the car fleet, there is also a surprisingly small aftermarket for Tesla parts.

So Furstenwerth was forced to take it upon himself to figure out how to fix his car on his own.

https://www.zerohedge.com/sites/default/files/inline-images/tsla%20B_0.jpg?itok=WnYC7zoK

He learned by “taking it apart and putting it together several times” while at the same time visiting online forums that offered suggestions. He was able to find some parts online, but it was tedious work trying to track them down individually. Among his problems since 2013 have been “leaking tail lights, failing door handles, a passenger window behind the driver that fell out of place and faulty wiring in his driver’s side door,” according to the article.

The process was so painful for him that at one point he even “considered destroying the car”.

The original article includes video showing Furstenwerth disassembling and reassembling his own Model S. 

In terms of quality, Furstenworth claims that when he finally got his Tesla open, it was built like a “lego car” and that disassembling and reassembling it was “like putting together legos [and] taking apart legos”.

“If you can put together Legos you can put together a Tesla Model S,” he told CNBC. 

After resorting to having to fix his own car, Greg, like many other loyal Tesla fans, isn’t getting mad at the company. Instead, he is trying to help other Model S owners learn how to fix their own cars, too. Despite this, he has some advice for the company:

“I want to see Tesla wildly succeed,” he says. “I have no problem with them being vertically integrated, and running things the way they do for cars that are in warranty. But if they want to get in the mass market, unless they’re gonna run every single service center in every single small town, there’s no way it’s acceptable to have people for minor issues drive and kill an entire day to go to the service center, just for some free Keurig coffee.”

We can imagine that the reaction of other Tesla owners who aren’t such vehement fans, will be far less supportive.

Source: ZeroHedge

Real Motive Behind Saudi Royal Flush Emerges: $800 Billion In Confiscated Assets

From the very beginning, there was something off about Sunday’s unprecedented countercoup purge unleashed by Mohammad bin Salman on alleged political enemies, including some of Saudi Arabia’s richest and most powerful royals and government officials: it was just too brazen to be a simple “power consolidation” move; in fact most commentators were shocked by the sheer audacity, with one question outstanding: why take such a huge gamble? After all, there was little chatter of an imminent coup threat against either the senile Saudi King or the crown prince, MbS, and a crackdown of such proportions would only boost animosity against the current ruling royals further.

Things gradually started to make sense when it emerged that some $33 billion in oligarch net worth was “at risk” among just the 4 wealthiest arrested Saudis, which included the media-friendly prince Alwaleed.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/10/21/rich%20saudis%20confiscated.jpg

One day later, a Reuters source reported that in a just as dramatic expansion of the original crackdown, bank accounts of over 1,200 individuals had been frozen, a number which was growing by the minute. Commenting on this land cashgrab, we rhetorically asked “So when could the confiscatory process end? As we jokingly suggested yesterday, the ruling Saudi royal family has realized that not only can it crush any potential dissent by arresting dozens of potential coup-plotters, it can also replenish the country’s foreign reserves, which in the past 3 years have declined by over $250 billion, by confiscating some or all of their generous wealth, which is in the tens if not hundreds of billions. If MbS continues going down the list, he just may recoup a substantial enough amount to what it makes a difference on the sovereign account.”

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/10/21/saudi%20reserves.jpg

Then an article overnight from the WSJ confirmed that fundamentally, the purge may be nothing more than a forced extortion scheme, as the Saudi government – already suffering from soaring budget deficits, sliding oil revenues and plunging reserves – was “aiming to confiscate cash and other assets worth as much as $800 billion in its broadening crackdown on alleged corruption among the kingdom’s elite.

As we reported yesterday, the WSJ writes that the country’s central bank, the Saudi Arabian Monetary Authority, said late Tuesday that it has frozen the bank accounts of “persons of interest” and said the move is “in response to the Attorney General’s request pending the legal cases against them.” But what is more notable, is that while we first suggested – jokingly – on Monday that the ulterior Saudi motive would be to simply “nationalize” the net worth of some of Saudi Arabia’s wealthiest individuals, now the WSJ confirms that this is precisely the case, and what’s more notably is that the amount in question is absolutely staggering: nearly 2x Saudi Arabia’s total foreign reserves!

As the WSJ alleges, “the crackdown could also help replenish state coffers. The government has said that assets accumulated through corruption will become state property, and people familiar with the matter say the government estimates the value of assets it can reclaim at up to 3 trillion Saudi riyal, or $800 billion.”

While much of that money remains abroad – and invested in various assets from bonds to stocks to precious metals and real estate – which will complicate efforts to reclaim it, even a portion of that amount would help shore up Saudi Arabia’s finances.

However, this is problematic: first, not only is the list of names of detained and “frozen” accounts growing by the day…

The government earlier this week vowed that it would arrest more people as part of the corruption investigation, which began around three years ago. As a precautionary measure, authorities have banned a large number of people from traveling outside the country, among them hundreds of royals and people connected to those arrested, according to people familiar with the matter. The government hasn’t officially named the people who were detained.

… but the mere shock of a move that would be more appropriate for the 1950s USSR has prompted crushed any faith and confidence the international community may have had in Saudi governance and business practices.

The biggest irony would be if from this flagrant attempt to shore up the Kingdom’s deteriorating finances, a domestic and international bank run emerged, with locals and foreign individuals and companies quietly, or not so quietly, pulling their assets and capital from confiscation ground zero, in the process precipitating the very economic collapse that the move was meant to avoid.

Judging by the market reaction, which has sent Riyal forward tumbling on rising bets of either a recession, or devaluation, or both, this unorthodox attempt to inject up to $800 billion in assets into the struggling local economy, could soon backfire spectacularly.

A prolonged period of low oil prices forced the government to borrow money on the international bond market and to draw extensively from the country’s foreign reserves, which dropped from $730 billion at their peak in 2014 to $487.6 billion in August, the latest available government data.

Confirming our speculation was advisory firm Eurasia Group, which in a note said that the crown prince “needs cash to fund the government’s investment plans” adding that “It was becoming increasingly clear that additional revenue is needed to improve the economy’s performance. The government will also strike deals with businessmen and royals to avoid arrest, but only as part of a greater commitment to the local economy.”

Of course, there is a major danger that such a draconian cash grab would result in a violent blow back by everyone who has funds parked in the Kingdom. To assuage fears, Saudi Arabia’s minister of commerce, Majid al Qasabi, on Tuesday sought to reassure the private sector that the corruption investigation wouldn’t interfere with normal business operations. The procedures and investigations undertaken by the anti-corruption agency won’t affect ongoing business or projects, he said. Furthermore, the Saudi central bank said that individual accounts had been frozen, not corporate accounts. “It is business as usual for both banks and corporates,” the central bank said.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/07/2017-11-08.jpg

Meanwhile, for those still confused about the current political scene in Saudi Arabia, here is an infographic courtesy of the WSJ which explains “Who Has Been Promoted, Who Has Been Detained in Saudi Arabia

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/11/07/arrested%20saudi.jpgSource: ZeroHedge

Why Governments Will Not Ban Bitcoin

Those who see governments banning ownership of bitcoin are ignoring the political power and influence of those who are snapping up most of the bitcoin.

To really understand an asset, we have to examine not just the asset itself but who owns it, and who can afford to own it. These attributes will illuminate the political and financial power wielded by the owners of the asset class.

And once we know what sort of political/financial power is in the hands of those owning the asset class, we can predict the limits of political restrictions that can be imposed on that ownership.

As an example, consider home ownership, i.e. ownership of a principal residence. Home ownership topped out in 2004, when over 69% of all households “owned” a residence. (Owned is in quotes because many of these households had no actual equity in the house once the housing bubble popped.)

The rate of home ownership has declined to 63%, which is still roughly two-thirds of all households. Clearly, homeowners constitute a powerful political force. Any politico seeking to impose restrictions or additional taxes on homeowners has to be careful not to rouse this super-majority into political action.

But raw numbers of owners of an asset class are only one measure of political power. Since ours is a pay-to-play form of representational democracy in which wealth buys political influence via campaign contributions, philanthro-capitalism, revolving doors between political office and lucrative corporate positions, etc., wealth casts the votes that count.

I am always amused when essayists claim “the government” will do whatever benefits the government most. While this is broadly true, this ignores the reality that wealthy individuals and corporations own the processes of governance.

More accurately, we can say that government will do whatever benefits those who control the levers of power most, which is quite different than claiming that the government acts solely to further its own interests. More specifically, it furthers what those at the top of the wealth-power pyramid have set as the government’s interests.

Which brings us to the interesting question, will governments ban bitcoin as a threat to their power? A great many observers claim that yes, governments will ban bitcoin because it represents a threat to their control of the fiat currencies they issue.

But since government will do whatever most benefits those who control the levers of power, the question becomes, does bitcoin benefit those holding the levers of power? If the answer is yes, then we can predict government will not ban bitcoin (and other cryptocurrencies) because those with the final say will nix any proposal to ban bitcoin.

We can also predict that any restrictions that are imposed will likely be aimed at collecting capital gains taxes on gains made in cryptocurrencies rather than banning ownership.

Since the wealthy already pay the lion’s share of federal income taxes (payroll taxes are of course paid by employees and employers), their over-riding interests are wealth preservation and capital appreciation, with lowering their tax burdens playing third fiddle in the grand scheme of maintaining their wealth and power.

Indeed, paying taxes inoculates them to some degree from social disorder and political revolt.

I was struck by this quote from the recent Zero Hedge article A Look Inside The Secret Swiss Bunker Where The Ultra Rich Hide Their Bitcoins:

Xapo was founded by Argentinian entrepreneur and current CEO Wences Casares, whom Quartz describes as “patient zero” of bitcoin among Silicon Valley’s elite. Cesares reportedly gave Bill Gates and Reed Hoffman their first bitcoins.

Their first bitcoins. That suggests the billionaires have added to their initial gifts of BTC.

The appeal to the wealthy is obvious: any investment denominated in fiat currencies can be devalued overnight by devaluations of the currency via diktat or currency crisis. Bitcoin has the advantage of being decentralized and independent of centrally-issued currencies.

I submit that not only are the wealthy the likeliest buyers of bitcoin for this reason, they are the only group that can afford to buy a bunch of bitcoin as a hedge or speculative investment. Lance Roberts of Real Investment Advice recently produced some charts based on the Federal Reserve’s 2016 Survey of Consumer Finances (SCF) report– Fed Admits The Failure Of Prosperity For The Bottom 90%.

Put another way: how many families can afford to buy a bunch of bitcoin?

Here is a chart of median value of family financial assets: note that this is far below the 2000 peak and the housing bubble of 2006-07:

https://i1.wp.com/www.oftwominds.com/photos2017/assets-family1017a.png

Here is mean family financial assets broken out by income category: note that virtually all the gains have accrued to the top 10%, whose net worth soared from $1.5 million in 2009 to over $2.2 million in 2016, a gain of $700,000.

https://i0.wp.com/www.oftwominds.com/photos2017/assets-family1017b.png

The Fed’s 2016 Survey of Consumer Finances is a treasure trove of insights into wealth and income inequality in the U.S. Here are the highlights: Changes in U.S. Family Finances from 2013 to 2016.
As you’d expect, the report starts off on a rosy note: GDP rose by 2.2% a year, unemployment declined to 5%, and the median family income rose 10% between 2013 and 2016.
Blah blah blah. Meanwhile, on page 10, it’s revealed that the top 1% receives 24% of all income, and the families between 90% and 99% receive 26.5%, for a total of 50.5% of all income flowing to the top 10%.
The top 1% owns 38.6% of all wealth, and the families between 90% and 99% own 38.5%, so the top 10% owns 77% of total wealth.
On page 13, we find that the total median net worth of all families between 40% and 60% went from $57,000 to $88,000, a gain of $21,000, while the median net worth of families in the 60% to 80% bracket rose from $166,000 to $170,000, a grand total of $4,000.
Meanwhile, back in La-La Land, the median net worth of the top 10% soared by $468,000, from $1.16 million to $1.62 million.

Which family has the wherewithal to buy a bunch of bitcoin at $5,900 each as a hedge or investment,
 the one that gained $4,000 in net worth, the one that gained $21,000 in net worth or the one that gained $468,000?

You see the point: the likely buyers of enough bitcoin to count are the politically powerful financial elite.
 If any politico was foolish enough to propose banning bitcoin, a few friendly phone calls from major financial backers would be made to impress upon the politico the importance of blockchain technology and cryptocurrencies to the U.S. economy.
Heck, the financial backer might just suggest that all future campaign contributions to the politico will be made in bitcoin to drive the point home.

My vision of cryptocurrency, laid out in my book A Radically Beneficial World: Automation, Technology & Creating Jobs for All, is of a truly decentralized currency that directly funds work that addresses scarcities in localized community economies.
 The reality of existing cryptocurrencies is that they are probably being snapped up for buy-and-hold storage by the wealthy.
Those who see governments banning ownership of bitcoin are ignoring the political power and influence of those who are buying enough bitcoin to matter.

What Is Going On In The Vintage Auto Market?

https://s3.amazonaws.com/apps.hagerty.com/sitecore-assets/USHome/homepage/largerHeroImages/US_1440_challenger-new.jpg

The fate of asset bubbles under the new regime.

Everyone is hoping that next Friday and Saturday, at Sotheby’s auction in Monterey, California, the global asset class of collector cars will finally pull out of their ugly funk that nearly matches that during the Financial Crisis. “Hope” is the right word. Because reality has already curdled. Sotheby’s brims with hope and flair:

Every August, the collector car world gathers to the Monterey Peninsula to see the magnificent roster of best-of-category and stunning rare automobiles that RM Sotheby’s has to offer. For over 30 years, it has been the pinnacle of collector car auctions and is known for setting new auction benchmarks with outstanding sales results.

This asset class of beautiful machines – ranging in price from a 1962 Ferrari 250 GTO Berlinetta that sold for $38.1 million in 2014 to classic American muscle cars that can be bought for a few thousand dollars – is in trouble.

The index for collector car prices in the August report by Hagerty, which specializes in insuring vintage automobiles, fell 1.0 point to 157.42. The index is now down 8% year-over-year, and down 15%, or 28.4 points, from its all-time high in August 2015 (186).

Unlike stock market indices, the Hagerty Market Index is adjusted for inflation via the Consumer Price Index. So these are “real” changes in price levels.

The index has now fallen nearly 7 points below the level of August 2014. That was three years ago! In fact, the index is now at the lowest level since March 2014.

The chart below from Hagerty’s August report shows how the index surged 83% on an inflation-adjusted basis from August 2009 to its peak in September 2015, and how it has since given up one-third of those gains. This is what the inflation and deflation of an asset bubble looks like (I added the dates):

https://i0.wp.com/wolfstreet.com/wp-content/uploads/2017/08/US-classic-cars-Hagerty-market-index-2017-08.png

During the Financial-Crisis, the index peaked in April 2008 at 121.0, then plunged 16% (20 points) to bottom out in August 2009 at 101.39. By then, the liquidity from the Fed’s zero-interest-rate policy and QE was washing across the world, and all asset prices began to soar.

The current drop of 15% from the peak in “real” terms is just below the 16% drop during the Financial Crisis. But the current 28.4-point-drop from the peak exceeds the 20-point drop during the Financial Crisis.

Concerning the current market, the Hagerty report added:

While the auction activity section of the rating had been kept strong by increases in the number of cars sold at auction so far this year, the trend hasn’t continued and auction activity decreased for the second consecutive month thanks to a 2% drop in the number of cars sold compared to last month.

Private sales activity also experienced its second consecutive decrease, again thanks to a small drop in the average sale price as well as a small drop in the number of vehicles selling for above their insured values.

The number of owners expressing the belief that the values of their vehicles are increasing continues to gradually decline, and this is true for the owners of both mainstream and high-end vehicles. The drop is particularly pronounced, however, for owners of previously hot models like the Ferrari 308 and Ford GT.

For the second month in a row, expert sentiment dropped more than any other section.

The asset class of vintage automobiles was among the first bubbles to pop. This didn’t happen in one fell swoop. It’s a gradual process that started in the fall of 2015, and observers brushed it off because it was just a minor down tick as so many before. But since then, it has become relentless and persistent, with plenty of ups and downs. Every expression of hope that it would end soon has been frustrated along the way.

And every day, there’s still hope. For example, back in May, the Hagerty report commented that “prices have started to normalize.” Since then, the index has continued its methodical decline.

This may be what asset class deflation looks like under the new regime. There will be talk of “plateauing,” as is currently the case in commercial real estate. Then there will be talk of prices “normalizing,” as is the case in collector cars. Then there will be talk of “buying opportunities,” and so on. And there are ups and downs, and this may drag on for years.

But month after month, buyers of vintage cars become a little less enthusiastic and sellers a little more eager. Yet, unlike during the Financial Crisis, there are no signs of panic. The tsunami of liquidity is as powerful as before. Financial conditions are easier than they were a year ago. There’s no forced selling. Just an orderly one-step-at-a-time asset bubble deflation.

Now the Fed is tightening. QE ended about the time the classic car bubble peaked. The Fed has raised its target for the federal funds rate four times so far in this cycle. It will likely announce the QE unwind in September and “another rate hike later this year,” New York Fed president William Dudley told the AP. And the below-target inflation is not a problem. Read… Fed’s Dudley Drops Bombshell: Low Inflation “Actually Might Be a Good Thing”

By Wolf Richter | WolfStreet