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Dear fellow investors,
Over the last four years, we have argued that the glamour monopoly technology companies have a low multiplier effect in the U.S. economy. At the same time, home ownership and the creation of new homes has historically been a powerful driver of economic activity. With interest rates normalizing and the stock market punishing the prior financial euphoria, how can we invest to succeed in the coming five to ten years? What does the chart below tell us about how much the stock market will impact the economy going forward?
What got us started thinking about this subject was a tweet from the writer, John Authers. He wrote on September 14, 2020 that Apple’s (AAPL) market capitalization exceeded the FTSE 100 Index. He also determined that the capital spending at Apple (AAPL) was $7 billion versus the FTSE 100 companies at $100 billion. To us, this meant that the FTSE 100 companies were approximately 14 times as impactful on other businesses than Apple was. In other words, Apple had a low multiplier effect in the U.S. economy.
The chart shows why. Apple is predominately owned by the wealthiest of the wealthy. At the end of 2021, the top 1% income Americans owned 48% of their wealth in common stocks and Apple was the largest holding in that mix (followed closely by the other FAANG stocks). Therefore, when the glamour tech stocks get crushed, the bulk of that thrashing hits the wealthiest of the wealthy.
The spending of these wealthy folks has caused an explosion in the price of vacation homes and desirable weather locations around the country. We read all the time about the third or fourth home of the top 1% of income earners. At the same time, you see loads of spending on expensive jewelry and art, spendy vacations and other luxury items.