Despite efforts to curb it, the wealth gap in America will likely only increase this decade. Here’s how to position yourself on the right side of that gap
On one side of the street, there’s a sprawling, $10 million home being built.
On the opposite side of the street are a row of tiny, dilapidated bungalows, built decades ago. Frankly, they appear to be falling apart.
It’s a striking visual of extreme wealth clashing with extreme poverty that leaves you feeling unsettled.
I know because this is in Venice, California, where I live.
Just a few blocks from this neighborhood is the Venice campus for tech giant, Google. A steel fence, wooden walls, and security guards protect a beautiful inner courtyard in front of Google’s buildings.
Outside these walls — quite literally on the sidewalk directly in front of Google’s fences — is a “tent city.” It’s a string of tents, tarps, and makeshift shelters that serve as home to some of the nearly 40,000 homeless in Los Angeles. I snapped this photo yesterday.
I walk by this area almost every day. On any given afternoon, you’ll see, say, a $90k luxury car — a Tesla or Porsche — pulling out of Google’s parking garage, as no more than 10 feet away, a homeless person sits on the sidewalk.
Here’s a high-end Mercedes parked directly in front of the row of tents outside of Google’s offices.
***This wealth gap is one of the most divisive issues in the United States today
According to data from Pew Research Center, though income inequality exists around the world, it is more pronounced here in the United States than in any of the other G7 nations.
To measure this, the Organization for Economic Cooperation and Development uses the Gini coefficient. It’s a measure ranging from 0 (perfect equality) to 1 (complete inequality).
As you can see below, the U.S. leads the G7-pack at 0.434. This puts us shockingly close to global highs, beginning at 0.5, which are found in various African countries.
Last spring, research from the Federal Reserve found that in 2018, the richest 10% of Americans held 70% of total household wealth. That was up from 60% in 1989.
If we go even more extreme, the share of wealth flowing to the top 1% jumped to 32% in 2018 — up from 23% in 1989.
Meanwhile, the bottom 50% of Americans saw essentially zero net gains in their wealth over the past 30 years. In fact, their share of total wealth has fallen to just 1%, down from 4%.
***Eric Fry, editor of Fry’s Investment Report, shed more light on the severity of this wealth gap to his subscribers last week, while highlighting one of the major contributors
From Eric:
… many Americans are locked in a cycle of debt, dependency, and grim employment prospects.
The middle class is shrinking … but not because more people are getting rich. Millions of folks are sinking below the poverty line.
In 1980, the richest 1% of Americans owned about 30% of all household wealth in the country … and the bottom 90% owned about 24% of all household wealth.
But by 2012, the share of all household financial wealth owned by the top 1% had skyrocketed to more than 60% … and the share owned by the bottom 90% had plummeted below 10%.
Eric has coined a name for this stark, wealth-gap divide.
The Technochasm.
As you can see, the root of Eric’s word is “tech.”
But what does technology have to do with the exploding wealth gap?
It turns out, quite a bit.
***Technology is rerouting trillions into the hands of an elite few
So that you don’t misunderstand me, please know that I’m not laying things like poverty and homelessness at the feet of technology. The causes of those social challenges are complex and multivariate.
But as to the growing spread between the “haves” and the “have nots,” — the wealth gap itself — we can absolutely point toward technology as a key contributor.
In the past decade, we’ve seen a tremendous shift taking place in our economy.
Amazon has taken over traditional retail. Uber has disrupted traditional taxis. Netflix has obliterated home video rentals, and even impacted how we view network television (the “binge” model).
In fact, look at virtually any major business sector and you’ll see tech’s fingerprints, reshaping and redefining it.
In short, in the past decade, tech has changed the game — and the changes it continues to make today are coming faster than ever before.
Now, on one hand, these technologies are great — they make life far easier and more convenient for us. That’s why we’re all more than willing to open our wallets for these new products and services.
But the flip side is that all of this money is now flowing toward a highly-select few companies … and by extension, a highly-select group of owners, key employees, and investors. And in doing so, it’s fueling this ever-growing, ever-widening wealth gap.
***Just look at the top 5 biggest companies in the S&P 500 — Apple, Microsoft, Alphabet, Amazon, and Facebook
As Eric wrote to his subscribers …
Those five companies now account for more than 17% of the S&P 500 Index … and 15% of the entire U.S. stock market. That’s up from 11% of the S&P 500 five years ago, with about two-thirds of the value, or $3.5 trillion, accruing over that stretch.
And if you want a truly jaw-dropping statistic, all we have to do is look at the combined net worth’s of three of the world’s richest Americans.
Back to Eric:
The Federal Reserve recently found that the three richest Americans were Microsoft founder Bill Gates, Amazon founder Jeff Bezos, and the legendary investor Warren Buffett.
The Fed also found that the total wealth owned by these three men ($348.5 billion) was higher than the total wealth of the bottom 50% of Americans ($245 billion).
***So, what does this mean for us as investors?
Simple — barring new legislation from our government that overtly redistributes corporate profits and private wealth, over the coming decade, technology will continue to make the rich richer, which will only widen this wealth gap.
As investors, there are two things we need to focus on as a part of this …
One, having our investment capital exposed to tech; and two, having our investment capital protected from those companies that will be destroyed by tech.
With this in mind, for the rest of this week here in the Digest, we’re featuring Eric and his research on the Technochasm, as well as its likely winners and losers.
From Eric:
I wish I could tell you this situation will be resolved soon.
But it won’t.
But you can educate yourself about the Technochasm.
And more than that … you can make sure your portfolio is positioned to make the most possible profits.
You want to make sure you’re on the right side of the Technochasm …
This is a fascinating story that can help you make a lot of money over the next few years.
If you’d like to watch Eric’s research video on this issue/opportunity, click here.
Have a good evening,
Jeff Remsburg
