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We begin this Sunday Digest with a quick notice… Our offices will be closed tomorrow in honor of Independence Day. On that note, “Happy 4th” to you and yours! Given the market holiday, we’ll be taking the day off here in the Digest. We’ll pick back up on Tuesday. If you need any help from our Customer Service team, they will be glad to assist you on Tuesday as well when our offices reopen. Have a wonderful Independence Day. Moving on to today’s Digest… Last month, Jeff Bezos’ ex-wife, MacKenzie Scott, donated $2.7 billion to various nonprofits. As to the motivation behind the gifting, she pointed toward “disproportionate wealth…concentrated in a small number of hands.” We applaud her generosity. However, as our macro specialist, Eric Fry, writes below…
The problem here is something that regular Digest readers have come to understand quite well – the Technochasm. Today, with Eric’s help, let’s revisit the dynamic behind the Technochasm, why it won’t be solved anytime soon, yet how you can position your wealth on the right side of it. I’ll let Eric take it from here. Have a wonderful Fourth of July, Jeff Remsburg |
Why This $2.7 Billion Donation Won’t Fix the Wealth Gap
By Eric Fry
In 2016, I won the Portfolios With Purpose stock-picking contest – Wall Street’s most prestigious investment competition.
With an overall 153% one-year return in my “gentlemen’s bet” portfolio, I beat out the entire 650-person field. That included some of the biggest names in investing, guys like Joel Greenblatt and David Tepper.
That win meant I got to send $46,800 to the Roberto Clemente Health Clinic in Nicaragua.
I felt pretty good that day… as I do every time I write a check for one of my favorite nonprofits.
But my efforts are just a drop in the bucket – a drop in the ocean, really – when it comes to the global philanthropic world.
Earlier this month, MacKenzie Scott announced that she had just given $2.7 billion to 286 nonprofit and educational organizations.
Scott, if you don’t know the name, is the ex-wife of Amazon.com Inc. (AMZN) founder Jeff Bezos.
In the last year, Scott has given away $8.5 billion, putting her in the upper echelon of global philanthropic donors.
But don’t worry about her. She’s still worth around $60 billion and holds on to a 4% stake in Amazon… so she can afford the largesse.
In a blog post on Medium, Scott wrote:
In this effort, we are governed by a humbling belief that it would be better if disproportionate wealth were not concentrated in a small number of hands, and that the solutions are best designed and implemented by others. Though we still have a lot to learn about how to act on these beliefs without contradicting and subverting them, we can begin by acknowledging that people working to build power from within communities are the agents of change.
Clearly, Scott is troubled by wealth inequality: the increasing concentration of vast wealth among a small population.
So am I. In fact, I’ve made wealth inequality in America one of the main focuses of my research.
Millions of Americans are sinking below the poverty line. As this massive socioeconomic shift continues, a shrinking sliver of our population controls an ever-larger portion of our national wealth.
According to the latest Fed data, the top 1% of Americans have a combined net worth of $34.2 trillion (or 30.4% of all household wealth in the United States), while the bottom 50% of the population holds just $2.1 trillion combined (or 1.9% of all wealth).
So, Scott and I are on the same page here.
Where we differ is what we believe causes America’s wealth inequality – and the potential solutions.
So today, let’s take a closer look at the causes of the wealth gap… and what can be done to prevent regular Americans from landing on the wrong side of it.
While the Senator’s prescriptions may keep you off the soup line, mine could put you on a path to growing prosperity…
Pin the Blame on Tech
I’m not fluent in the nonprofit jargon Scott uses in her Medium essay… but reading between the lines… she doesn’t really explain the cause of wealth inequality, only naming “social structures.”
That may be because Scott and her former husband are themselves, in a way, a major force behind the widening wealth chasm.
A couple of years ago, the Federal Reserve found that the three richest Americans were Bezos, legendary investor Warren Buffett, and Microsoft Corp. (MSFT) founder Bill Gates.
The Fed found that the total wealth owned by these three men at the time ($348.5 billion) was higher than the total wealth of the bottom 50% of Americans ($245 billion).
That’s right.
Just three men (and their wives) controlled more wealth than the bottom 160 million Americans.
Here’s how that happens: Year after year, dynamic, upstart companies topple established businesses that seem fairly sturdy and dominant in their markets.
In many cases, these dying businesses employ tens of thousands of workers. But the seeming strength of these businesses often hides their underlying weakness.
Companies that fail to adapt die a slow but certain death. For just one pertinent example, since early 2009, shares of Amazon have soared more than 6,000%, making Scott very rich along the way. Meanwhile, dozens of old-school brick-and-mortar retailers shuffled slowly into bankruptcy.
Here’s the thing: Technology advances so quickly that, thanks to a phenomenon known as the Law of Accelerating Returns, the rate at which these huge disruptions occur keeps speeding up.
Those disruptions will make the wealth gap grow wider every year.
Exponential progress – the kind taking place in research labs and tech businesses right now – radically accelerates the pace of change we see in the world… and radically accelerates the wealth gap.
It’s not a board room full of old men in expensive suits and military uniforms making the decisions that are changing the world. Nor is it “social forces.”
Pin the blame on technology itself.
That’s why I call this wealth gap the “Technochasm.”
That’s Where the Solution Is, Too
While her explanation in the Medium essay is clearly well thought out, Scott’s solution to this problem seems to boil down to throwing money at colleges, interfaith centers, arts and cultural organizations, local antipoverty teams, and others… and trusting them to do the work needed.
She writes:
Because we believe that teams with experience on the front lines of challenges will know best how to put the money to good use, we encouraged them to spend it however they choose. Many reported that this trust significantly increased the impact of the gift… It empowers receivers by making them feel valued and by unlocking their best solutions. Generosity is generative. Sharing makes more.
I applaud Scott’s generosity and trust. And I bet that some of the work she funds will be helpful, at least short term.
But no matter how many billions Scott and other philanthropists spend, those dollars will only act as Band-Aids on a gaping wound.
I wish I could tell you this situation will be resolved soon. But it won’t.
Technology is creating a wealth chasm that politicians cannot really fix.
In other words, if you want to avoid landing on the wrong side of this wealth gap, you can’t depend on Washington. You’ll have to take action yourself.
Amazon shareholders who bought in at the 1997 IPO could have watched their investment rocket nearly 7,000% in less than two years. And if those shareholders were still hanging onto to their original shares, they would have reaped an otherworldly gain of 200,000%.
That’s why I recently put together a special video presentation on the Technochasm. In it, we discuss the importance of owning the fastest growing, most disruptive, and most profitable “outsider” tech companies available in the markets today.
I’m talking about a portfolio of small-cap tech companies that are poised to become the next Amazon… companies that could rise 10-fold, 20-fold, even 100-fold.
You can check it out here.
Regards,
Eric Fry
NOTES: On the date of publication, Eric Fry did not own either directly or indirectly any positions in the securities mentioned in this article.
