Saturday, April 7, 2012

Marc Faber's "Wealth Destruction" Fears Shouldn't Scare The Wealthy - Forbes

Marc Faber, author of the Doom, Boom and Gloom Report on CNBC said the U.S. will see "massive wealth destruction" in the years ahead, citing social unrest and high inflation. He blamed most of that erosion on the Fed and Washington. But while the middle classes might see their asset prices erode -- such as housing and even real incomes -- the wealthy are forecast to do just fine. And a new report by Citi Private Bank shows just how well the multi-millionaires have done post-2008.


I suppose it can be fun to stand for something.


Some pundits stand for the crumbling of China and beat that dragon like a …I don’t know, like a dead dragon.


Others take a more Ron Paul/Lyndon LaRouche approach: the end is near, the U.S. will crumble to Third World status and it is all because of the Fed. Maybe, at some point, they will be proven correct. We will see New York City penthouses, now valued at millions, worth a schilling; as cheap as a house in the Caribbean ‘hoods of Brooklyn.


Once in a while, you get it right. Nouriel Roubini was right about the U.S. housing bubble and what that meant for derivatives no one’s ever heard of until they took down two brand name banks in Bear Stearns and Lehman Brothers and hundreds of smaller and mid-sized lenders across the nation.


But Marc Faber’s (CNBC’s “Gloom, Boom & Doom Report”) concerns that there will be “massive wealth destruction” is right, only if you’re middle class and poor. Their wealth will probably shrink from inflation and no real income growth in his best case scenario. But if you are already a millionaire, you have nothing to worry about. Much of Faber’s forecast is just part of his Doom and Gloom narrative. It’s part of the Faber brand. He can’t possibly believe all of it, especially for American millionaires.


“I think that people should own some gold and I think that people should own some equities, because before the collapse will happen, with Mr. Bernanke at the Fed, they’re going to print money and print and print and print,” he said on CNBC Monday. “So what you can get is a bad economy with rising equity prices.”


In part, he is right, even with regards to wealthy individuals. He is a smart man, after all. A million dollars in a bank CD or a 10 year Treasury bond isn’t going to yield much income. These are historic low rates, and by that measure, rich people are receiving historic low returns. Middle income people with a paltry $100 grand in the bank and without access to savvy investment advisers watching out for their capital gains will be in worse trouble. As usual, they’ll sell at the bottom, buy at the top. They’ll buy bonds yielding 2% and trading 20% above par, and then sell them at maturity at a discount, losing everything they basically got from the income.


Faber blames the Fed for a lot of the problems, with its reliance on free money in these weak economic times. But Fed and general government policies post-Lehman have largely benefited one class of people — the wealthy, especially the super wealthy. Moreover, they also have undying political support for them in Washington, and one political party that works for them around the clock (the one that talks about populism…go figure).


The wealthy have lawyers and accountants and investment advisers; they have research firms tracking their interests and investment trends around the clock so they know the square footage of real estate in São Paulo versus Miami, and whether or not that city will be a hot spot in the future. They have enough money to diversify. Five percent can mean another million to them. Five percent for the average middle class 401k might mean another $5,000 that year, enough to buy a 1995 Chevy Malibu. The middle class have Dancing with the Stars. The poor have Medicaid. They both still have the Social Security Administration, their biggest ally.


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