CNBC:. "The rich have stopped spending"

[Laura PourMeADrink]

https://www.cnbc.com/2019/08/28/the-rich-arent-spending-signaling-a-possible-recession-ahead.html

The rich have cut their spending on everything from homes to jewelry, sparking fears of a trickle-down recession that starts at the top.

From real estate and retail stores to classic cars and art, the weakest segment of the American economy right now is the very top. While the middle class and broader consumer sections continue to spend, economists say the sudden pullback among the wealthy could cascade down to the rest of the economy and create a further drag on growth.


https://theweek.com/speedreads/861627/warren-buffett-hasnt-stockpiled-much-cash-since-right-before-financial-crisis

Warren Buffett, known for being one of the world's most prescient investors, has kept quiet on whether U.S. equities are too expensive at a time when the global economy is slowing, Bloomberg reports. But he's reportedly hoarding a record $122 billion in cash at Berkshire Hathaway Inc., leading to some speculation that he sees a recession on the horizon, or at least is sending some sort of warning. The cash pile is more than half the value of Berkshire's $208 billion portfolio of public companies, and the only time that percentage has reportedly been higher since 1987 was in the years leading up to the 2008 financial crisis.

[JCMach1]

1. Smart Money has cash on hand to buy at the bottom

Buffet knows...

[Nay]

8. Yep. Don't think that the rich just got "frugal." They are saving all their money in

a big liquid pile so, at the lowest point of the coming recession, they can buy up everything WE own at ten cents on the dollar. After we've been thrown out onto the street, that is.

[Newest Reality]

21. Exactly.

If you read enough, you come across explanations about how that actually works

They save up so that they have plenty of resources to hoover up more at bargain basement prices which means they can acquire more land, real estate, buy out businesses dirt cheap, clean up in the stock market on the way down and back up, etc. It's an extravaganza extraordinaire.

We have to remember that a crash/recession is bad for most of us, but not those with great assets, it is a boon and history shows that. An analogy that we commoners can relate to is it's like waiting for a sale before you buy a product when you know one is coming up.

Another recession or big crash will only help to consolidate the Feudal estates of the Lords to come and then we get to Serf City USA.

[pbmus]

27. 2 girls for every boy...

[Newest Reality]

31. Ah, haven't heard that in a while!

[democratisphere]

43. Serfs up!

Won't be all that bad with a 2 to 1 ratio! Always have to be concerned about the GREAT WHITES; very greedy!

[Mopar151]

30. The motto of the Rosthchilds:

BUY - when the streets run with blood!

[democratisphere]

39. Hopefully we will still be able to live in our cars or will the wealthiest

come for those too?!

[Hoyt]

2. Lots of people have jobs that depend on the wealthy spending.

[struggle4progress]

3. "I think we'll move our money to Russia!"

[democratisphere]

40. Rubles will become the new reserve currency as US dollars

won't be worth sh't.

[Newest Reality]

4. Does this mean

we get to see if all the money going to the top is not a benefit to the economy at large? They can only spend so much, anyway. So, I question the impact of the cascade.

While I realize that the people who work for industries that cater to the needs of the wealthy elite will be effected, this concerns the mythical relationship that a small percentage of our population has with the whole. It will be interesting to see just how far their spending cuts do cascade.

It is most assuredly a sign about the fragility and downturn of the economic situation. From what I have seen the continued spending by the middle-class is heavily dependent on using credit, or should I say accruing debt, to do so. That can only go so far and is not a good sign, either.

Nonetheless, this is an noteworthy portent.

[Blue_true]

20. I too doubt the rich not spending will sink the economy.

The problem comes when the middleclass stops spending on extras (outside of food, transportation to work and housing).

[House of Roberts]

51. I've stopped spending on extras.

I've put off getting a new TV, fixing the AC in my truck and new eyeglasses in the last two months.

[Blue_true]

52. What were the reasons you stopped those purchases?

Was it fear of loss of a job, or did you have other higher order priorities?

[House of Roberts]

54. I don't think my job is a problem.

I just need to see a higher balance in my checkbook. I rented a storage for my old cars, added 1% to my 401k withholding because my company increased the match from 4 to 5%, and expect higher utility bills as winter gets here.

My worry is that my 401k will crash before I can get it out of stocks, they are so slow making requested changes.

[Blue_true]

60. Most economist that are seeing a recession are saying next year.

So stocks likely won't start a sustained decline until the signs are clear, which some are saying will be around December of this year.

[kimbutgar]

76. My husband is seriously thinking of taking a loan against his 401k because he thinks

The economy is going to crash soon and the stock market will go down even more. I’m usually cautious about money and I am in agreement now.

[ck4829]

71. +1. "Oh no, what about the Trickle Down?!"

[superpatriotman]

5. I retail to the 1%

Their spending slowed last year and has slowed even more in the last two quarters

[Wellstone ruled]

6. The end of last summer

there was not in what we used to call the Fall return of those fat and sassy Customers. Big ticket purchases that usually happen after Labor Day just slowed way down. All my Retail Contacts were concerned about how much inventory they would be looking at after this next two weeks. High enders are not spending.

[ck4829]

74. It's a recession

[maxsolomon]

7. What's left to buy?

How many yachts, private planes, or mansions do you need?

Once you've bought 1 Jeff Koons Michael Jackon w/ Bubbles sculpture, you don't need more!

[Laura PourMeADrink]

9. So true. I always fantasize about what I would do

If I was super wealthy. It just seems like when you have a home and a couple vacation places, money in the bank...what more do you need?? You could do so much ...down to just handing out cash at the subway...like that movie.

[Blue_true]

22. If you own a company, you would need to insure adequate retained cash to support that company.

Also, if you have a trust or charitable trust, you would need to keep adequate liquidity in that.

I tend to agree with the people that see the rich keeping their powder dry for a big downturn in the economy. Once other classes hear that the rich are not spending, they will wonder about whether they should, fulfilling the rich'a objectives of getting value for little money.

[DBoon]

26. You buy governments

You force your political opinions on the rest of the citizenry by financing candidates via dark money conduits.

You gain the sort of power a Roman emperor could only dream of.

[Celerity]

67. Marcus Licinius Crassus was the archetypal progenitor for the American .0002% ($1bn net wealth & up)

[ooky]

10. Exactly. So let's repeal the tax scam and put that money in the hands of

people who don't have everything they need. And while we are at let's bring back top tax brackets in the range of 70-90% for these people who already have everything they need and contribute nothing to spending.

[12GT]

12. OK

You mean like socialism?

[ooky]

13. Was that what you called it when Republicans stole the money for their

wealthy campaign financiers?

[12GT]

16. Stole

what money?

[ooky]

17. Enjoy your stay.

[marble falls]

58. I hear a pizza struck warming up.

[Caliman73]

61. Get the door, it's Dominos

I miss the tombstones.

[marble falls]

63. They got the Tombstone, it appears.

[ck4829]

72. Your money

[Bradical79]

14. You think we had a Socialist government in the '60s?

[hatrack]

19. Bracingly original and to-the-point!

[John Fante]

41. Sounds like 1950s America to me.

I thought you and your ilk longed for a return to that era?

[lunatica]

42. So you think socialism for the rich, paid by us is OK?

[Squinch]

56. Yes. That ole' Reagan socialism. Because that's about what the top rate was under Reagan.

Son, that billionaire with his hand in your pocket wants what is left of YOUR money and will do anything he can to protect his own.

I don't know how he convinced you that putting a high tax on his last million is against YOUR interests, but you might want to research that a little and stop being his chump. You probably pay a higher tax percentage than most people in the one percent.

PS: Your slip is showing.

[JHB]

57. Were we "socialist" during the Eisenhower administration?

[marble falls]

59. You mean like that socialist Dwight Eisenhower that had 80-90% effective taxes on the wealthiest???

[ck4829]

73. What ISN'T "socialism" today?

[Blue_true]

23. I totally agree. nt

[Judi Lynn]

24. Things worked well then. If I'm not mistaken, that was during Eisenhower, wasn't it?

People weren't going wild with rage then about how horrible it was for the obscenely rich to pay their share of taxes to the system which had made them wealthy in the first place. It didn't happen, and there were tons of very wealthy people in spite of the tax rate.

[ooky]

28. Yup. And, it would be a good way to pay for needed infrastructure improvements

that were promised and then not delivered by Trump lies and Republican's tax policies.

[Mopar151]

33. The high rates were offset by other factors

Like tax credits for reinvesting in your own business. Maybe a carbon offset, and credits for paying a decent wage and not crapping in the koi pond.....

[uponit7771]

11. +1

[VOX]

15. From "Chinatown," 1974: "The future, Mr. Gittes! The future."

https://tinhouse.com/chinatown-tunnel-end-light/
“...Late in Chinatown, Jake asks Noah Cross, “Why’re you doin’ it? How much better can you eat? What can you buy that you can’t already afford?” Cross answers, “The future, Mr. Gittes. The future.”

[Blue_true]

32. Unfortunate reality of life. Those that have abundant money control the gates in and out. nt

[Blue_true]

18. So Warren Buffett is sitting on a pile of cash.

And there are some on DU that think being fully invested in stocks now is smart. Whatever, now is too late to go into cash, those people should prepare themselves psychologically to enjoy the ride down, my suggestion is to start buying like crazy once the trip hits the 25% level, even if there is lots of downside left, the rolling mean loss becomes less painful.

[Laura PourMeADrink]

25. What does " once the trip hits 25%" mean?

[Blue_true]

34. Stock market declines are measured in the distance that they drop.

Say that the Dow will eventually drop 8,000 points (I think it will be much worse), the 25% mark would be a 2,000 point drop, a person starts buying at that point and increase the buying as the drop continues. Eventually the market will bottom and start a rise back up under better leadership. What the tactic does for a person that use it is reduce the average loss and helps improve the overall value of holdings as the Dow starts rising again. No one can predict exact bottoms or tops in security markets and would be idiots to even try, the averaging technique allows investing without trying to time the market.

[mr_lebowski]

48. If you can't predict a 'bottom' there's no way to know the market will drop 8K points

... ergo it's impossible to know where this 25% point is.

No offense but you're not making mathematical sense here

[Blue_true]

49. You are correct, a bottom can't be predicted.

With the Dow where it is now, 25% would be a drop of around 6,000 points, which is possible, it happened before with the Nikkei Index. Japanese stocks were around 30,000 in the early nineties, before they started a sharp correction that they haven't recovered from (mostly because leadership there has been tepid and they have had two major disasters, one natural, the other human caused).

I think that if the Dow reaches 20,000, a person should start buying and increase the buying if it goes lower. The companies bought should have strong balance sheets, otherwise a buyer is a fool.

[mr_lebowski]

53. You are moving the goalposts, so to speak ... you said this:

"Say that the Dow will eventually drop 8,000 points (I think it will be much worse), the 25% mark would be a 2,000 point drop, a person starts buying at that point"

Since you cannot know that it will eventually drop by 8K in ADVANCE, there is no way to know when the -25% point ... (2K in your example) ... has been reached ... because it is based upon an unknown value (8K) in the first place.

See what I'm sayin'?

[Blue_true]

66. My thinking is based upon where the Bush market declined to.

When I used the 8,000 number, I prefaced that with the words "for example". Maybe I should have been more precise. The sustained decline for the Bush market was around 50% (his market never bottomed, the bottom came under President Obama). Using the Bush numbers, and they are good ones to use, a Trump Dow would be falling through 12,000 when he leaves office. Bush had higher interest rates that could be lowered, along with people buying houses that they could not afford. Trump won't have any of that, Europe has been trying negative interest rates for about a year and their economies are stalled. Business is not going to trade getting money for 2% less versus having high confidence of getting it's money back on an investment in 3 years or less, only a fool would do that. In a nutshell, all I see ahead is bad stuff happening to the Dow. I have my own concerns since I have a business, but I should have enough cash to ride out through Trump's defeat next year and saner leadership taking over.

If I had to give a Dow marker, I would say have new money all in cash and don't start buying anything until the Dow drops below 20,000 (around 25% of where my guess is it is headed). I am not invested in the Dow and I am praying that Trump doesn't stupidly push the Fed to bring about negative interest rates to save himself (such a thing would start hurting my business), but what I pointed out was how I looked at things in early 2007 when I was in the Dow and chose to go into cash. I did not reinvest until after President Obama took office, I lost for a few months, but my investments rose large after that period.

[mr_lebowski]

68. Thanks for the clarification. Good luck with your biz! nt

[Blue_true]

69. I have tried to prepare the business for what I think is coming,

but a person can't prepare for all unknowns, can only make informed guesses. But that point applies to all of life.

[DBoon]

29. good

They can give their money to the rest of us, who will spend it on housing, food, education, and other things the wealthy do not worry about.

If they can't spend it, we can

[Blue_true]

35. What you are talking about is better done with tax policy.

The procedure helps everyone, including the rich.

[lame54]

36. Who is John Galt?

[hatrack]

38. A cardboard character in a shitty, shitty book

.

[lunatica]

44. A character in the book "Atlas Shrugged" written by Ayn Rand

It’s an odd book in which her belief was that there should be no government. Where the rich take care of themselves only and everyone else can eat shit. It’s worth looking up and getting a general idea because the topic comes up every once in a while.

[lame54]

45. And in that book the rich go on strike

[lunatica]

46. So you know the book?

Sorry, I just assumed you didn’t know about it.

[lame54]

47. I was using a repeated line from the book...

Who is John Galt? Is the most famous line of the book

I have not read the book

[lunatica]

55. Yes, it is famous

I would have gotten your reference if you had used quotation marks. It’s not a good stand alone line for that purpose.

[Mopar151]

37. Will Rogers is priescent here:

The money is all appropriated for the top, in the hopes that it will trickle down to the needy. Mr Hoover did'nt know that money trickles UP! Give it to the people at the bottom, and the people at the top will have it before night, anyhow. But it will have at least passed through the poor man's hands!

[DFW]

50. Buffett is no fool

His stock, BRK.A is still within 10% of its high. Far from all are. If he has moved into a cash position of over 50%, he sees something nasty on the economic horizon. Gold has surged upward as well, indicating movement out of equities, and some central bank interest, where de-acquisition was more in vogue during the Obama years.

One area that I have found to be a decent economic barometer has been collectibles in the mid-range, say $500-$5,000,000. Some friends of mine in Dallas handle nothing but that. No $50 million Van Goghs or $50 million pink diamonds (yet, anyway). So far business seems robust. Downturns make themselves known VERY quickly.

[Hotler]

62. As consumers so should we. No more shopping, especially for the Holidays (heheheh)...

until the orange one resigns or voted out. Let his supporters keep the economy alive. We should threaten him with a consumer stick. This would be perfect before Christmas (Holidays hehe).

[TexasBushwhacker]

64. Maybe Trump is tanking the economy on purpose

so that he and his buddies can scoop up stocks and real estate after they've crashed.

[Laura PourMeADrink]

65. Does trump have a stock portfolio? Never heard

Anyone talk about it

[ck4829]

75. Quite possible

[ck4829]

70. It's a recession