World Millionaires Parties on Central Bank Policies

I am not a fan of the political correct issue called “inequality”, whereby populist politics calls for political solution to redistribute wealth in order to make economic standings “equal”. 

This inequality issue for me is really nonsense. Simple reasons, there is no such thing as “equal” (e.g. even public schools’ rating of students have ranks). Second, political ways of solving inequality extrapolates to a shift in inequality from the markets to politics or from market inequality to political inequality. Wealth (or resource distribution) will be skewed towards those whom political patrons anoint as beneficiaries. So when you hear "it is not what you know but who you know", those are signs of politically based inequality.

For instance when Ben Bernanke, yet as a university professor wrote a “smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse”, which became a social policy, popularly known as the Bernanke/Greenspan PUT, this translates to an implicit subsidy to equity market owners, financed by the ordinary citizens. 

And since global central banks have embraced and assimilated US Federal Reserves’ policies of ZIRP and QEs that has inflated asset markets, these has increased “wealth” of mainly of equity (as well as other asset) owners around the world.

From the Wall Street Journal Real Time Economic Blog

Overall, the world’s wealth grew by 15% to $152 trillion, led by a 31% jump among countries in the Asia-Pacific region (excluding Japan) to $37 trillion. In North America, the world’s richest region, wealth grew by 16% to $50.3 trillion, thanks largely to strong returns in the stock market.

Globally, the number of millionaire households hit 16.3 million in 2013, a 19% rise from the previous year.

Millionaires in China have reportedly eclipsed Japan to place second behind the US.

The difference has been that growth in the millionaires of Chinese, instead of coming from equity markets, has been mostly a product of shadow banking.

The Chinese saw their portfolios swell as wealth in the country grew by a whopping 49% to $22 trillion last year. The report’s authors attributed that explosive rise to specialized financial products such as trusts — the amount of wealth in trusts rose 82% in 2013 — “reflecting the country’s rapidly expanding shadow-banking sector.”

While booming stock markets fueled wealth growth in many other countries, including the U.S., China’s investors experienced the opposite: Wealth in equities actually fell 6.8% on the year among Chinese.

Notice that inflated assets markets have been the basis of “wealth” which means they are artificial and depends on sustained central bank subsidies. This includes China’s shadow banking system.

And as I pointed out here, in the US booming stocks mostly benefit the elites.

The sad part is that while inflationary boom supports a few, when the bust comes most will get hurt.

In short, central bank policies have both serious externality and inequality issues.

Shrinking American Millionaires

This is not about increasing number of Americans fleeing the US. Instead this about Americans enduring sharp losses from stock market investments.

From CNBC.com

America’s millionaire population declined last year for the first time since the financial crisis, according to a new report.

The population of U.S. millionaire households (households with investible assets of $1 million or more) fell to 5,134,000 from 5,263,000 in 2011, according to The Boston Consulting Group’s Global Wealth study.

Total private wealth in North America fell by 0.9 percent, to $38 trillion.

The ultra-rich were the largest losers in dollar terms. Households in North America with investible assets of more than $100 million saw their wealth decline 2.4 percent. Their population declined slightly to 2,928 from 2,989.

The main reason for all this wealth loss? Stocks.

With the wealthy today increasingly dependent on stocks for wealth, last year’s stalled stock market shrunk the population of millionaires and nicked the fortunes of existing millionaires. According to BCG, the amount of wealth held in equities declined 3.6 percent last year.

Globally, the picture looked a little brighter. Virtually all of the growth in global millionaires came from emerging markets last year. While the United States lost nearly 130,000 millionaires, the rest of the world added 175,000 millionaires. There are now 12.6 million millionaire households globally, according to BCG.

That’s a study made last year.

Before yesterday’s stock market rout, US equities have been performing relatively better than the world.

Chart from Bespoke Invest

The S&P has been gradually reclaiming dominance and has outperformed the MSCI World index in late 2011 until May 30th.

This means that if emerging market millionaires are exposed to stock investments too, then the above dynamic may have partly been reversed.

And I think that with many global stock markets entering bear market territory, the number of shrinking millionaires could be a global phenomenon.

Paper money ‘wealth’ is being extinguished.

Heyday for Asian Bankers as the Region’s Millionaires Swell

Asian bankers are having a field day as the number of millionaires in the region swell

From Bloomberg (bold emphasis mine)

Asia-Pacific millionaires outnumbered those in Europe for the first time in 2010, according to a survey by Capgemini SA and Bank of America Corp. More millionaires means more spending and more demand for private wealth managers from banks such as BSI SA, JPMorgan Chase & Co. (JPM), UBS AG (UBSN) and HSBC Holdings Plc. (HSBA)Recruiters say too many banks are hunting too few experienced staff in the region, pushing up salaries and crimping profits.

“Good bankers have at least one offer on the table, if not two,” said Collardi, 37. “Today, if you want to be successful in hiring, you need to be forceful.”

Global demand for client relationship managers is expected to rise 13 percent over 2011 and 2012, while growth in the Asia- Pacific region will be double that, PricewaterhouseCoopers LLP said in an e-mail. That’s pushed top salaries in Singapore to almost twice the level in Switzerland, the world’s biggest offshore wealth manager, according to London-based recruitment firm EMA Partners International.

Senior private bankers in Singapore earn between $160,000 and $410,000 a year, while the comparative range in Switzerland is $152,000 to $210,000, EMA estimates.

“People are simply paying too much and that cannot be justified from an economic point of view,” said Thomas R. Meier, Zurich-based Julius Baer’s CEO in Asia. If a bank pays 30 percent more than a person’s salary at his previous employer, and the new recruit ends up adding just 5 percent more to revenue, the bank will feel the pinch, the 48-year-old said.

The premium to attract somebody new in Asia is 20 percent to 30 percent of their base compensation, said Matthew Streeton, partner at The Consulting Partnership, a Singapore-based recruitment firm. Usually, private bankers get a guaranteed bonus in their first year on top of the base salary and thereafter earn an annual bonus based on performance, he said…

Asia’s 3.3 million high-net-worth individuals had $10.8 trillion in assets, compared with the $10.2 trillion accumulated by their 3.1 million counterparts in Europe, according to the report published in June by Capgemini and Bank of America’s Merrill Lynch Global Wealth Management.

Recruiters say private bankers need an apprenticeship because wealthy clients expect to be advised by someone with experience who can understand their goals.

Remarkably Asian bankers are even paid more than their bosses or multinational employers.

Yet all these signify as mounting evidence of an ongoing paradigm shift from a myriad of agglomerated forces, such as globalization, wealth convergence, the internet, technology driven innovation and differences in the degree of the welfare state, economic freedom and applied administrative, fiscal and monetary policies.