Celebrating the Wealth Effect’s Last Hurrah

Lacy Hunt, a gray eminence of the financial world and no doomsayer, was out with a Hoisington Report recently that should scare the pants off anyone concerned about the direction of the U.S. economy.  His meticulously detailed take on a commercial real estate debacle that has been metastasizing for more than a year should dispel any notion that Americans will be spared from deepest recession. And yet, judging from the stock market’s nearly vertical rise since early October, one might infer that things are going gangbusters. Microsoft shares alone added about $587 billion to the so-called wealth effect. To put that in perspective, it would buy a Mercedes-Benz GLC for every man, woman and child in L.A., Chicago, Houston and Phoenix. If you were to spread the lucre more charitably, it would house every homeless person in America — luxuriously and for a long time. With an estimated 582,000 street people on the receiving end, each would have a tad more than a million dollars to spend.

And it’s not as though MSFT is the only high-flier caught up in the market’s ballistic rise. The shares of Amazon, Google, Meta, Apple and some others in the trillionaire club rose almost as steeply, adding enough play-dough to the wealth effect to make ALL of us rich — or at least rich enough in theory that no self-respecting American should ever again have to fly on Spirit Air.

Stuffed Camel Entrée

So where are the customers’ yachts? Unfortunately, precious little of the wealth-effect ‘money’ will ever trickle down to Levittown, much less to the nation’s ramshackle tent cities. Even the rich will hoard most of it once they’ve covered their essentials — i.e., chartering floating mansions for summer cruises on the Mediterranean, and throwing garden parties with stuffed camel as the main course and the cast of Hamilton as entertainment. The rest of their money will continue to ‘work’ in an elitist hodgepodge of investables, including exotic private equity deals that will spare stakeholders from the unseemliness of knowing exactly how much they and their friends are worth.

It’s a good thing the big winners won’t be spending their windfall gains at the same time, since the money is just a gaseous by-product of inflation driven by mass psychosis, about as stable and solid as the Hindenburg. That’s why it is called the ‘wealth effect’ rather than, simply, ‘wealth’. For it is only in our fevered, shareholder dreams, where all of us get to be rentiers, that inflation has made us rich; and even then, only because we tend to overlook the unpleasant fact that bear markets happen. Because they cannot but mirror the excesses of gluttony that have preceded them, it is certain that the next will usher in very lean times indeed.