The 100 Trillion Dollar Wealth Transfer

 An interesting thing happened to me a few weeks ago. A reader of MR just outside of London asked my opinion of book by Ken Costa entitled THE 100 TRILLION DOLLAR WEALTH TRANSFER (2003, Bloomsbury Continuum). By amazing coincidence, a Canadian reader from the Maritimes asked me the same question a few days later. The Brit loved the book and found it profound while the Canadian dismissed it as nonsense.

As you might expect, I came in somewhere between these two extreme positions. Hence this post.

Demographics have been a big part of my beat both personally and professionally for decades. This book, which has not gotten tremendous attention, raises issues that I found to be very interesting.

Ken Costa is a well-known investment banker in the City of London (think British Wall Street). Since his recent retirement, he has focused on intergenerational issues.

The basis thesis of the book is that Baby Boomers (born between 1946-64) will pass on 100 trillion dollars to their heirs. Some 84 trillion will come from the US, 5.5 billion pounds in the UK, and the remainder across the world.

He lumps together Millennials (born 1981-96) and Generation Z (1997-2012) and refers to them as Zennials. Somehow, Generation X (1965-80) gets short shrift.

Costa is quite the optimist, and positive reviews tend to describe the book as “hopeful.” He stresses that capitalism will not disappear but rather that the Zennials will engage in “socially energized” capitalism. There will be greater cooperation and harmony among generations. 

He defines the new capitalism as CO which is “a shift from the radical individualism of post-war generations to a prioritization of collaboration, comparison, community and collective experience.”

There will be more co-working, co-leading, co-owning, co-creating, co-investing, co-funding in this new world.

It all seems a bit too perfect to me. I agree strongly that the Zennials will overwhelmingly want to do something very strong about climate change. To a lesser but meaningful amount, they will also want more action on income and wealth inequality.

Interestingly, I ran Ken Costa’s thesis to a few acquaintances. The first was an erudite woman well into her seventies. Her response was that with the cost of elder care in the US, and people living longer these days, she doubted that many boomers would leave as much as Costa was projecting to their heirs. Candidly, I had not considered that angle.

I was floored a day later when I posed the same issue to a young entrepreneur. The independent thinker told me that some of what he said might work in Europe but, in the US, healthcare and expenses in the last few years of life would probably wipe out much of the expected seven figure inheritances. It might be true in certain provider state countries but not in the U.S.

Also, in the U.S. the first $12 million (as I type) is exempt from federal inheritance tax. And many well to do families have their wealth tied up in trusts that often eliminate that tax. Look up how few American families pay inheritance tax. It will surprise you!

One point that he does not cover is that people, particularly the affluent, are living longer lives. So, many who inherit these trillions will be in their sixties when they get their windfalls. It is hard for me to see people that mature changing their attitudes.

The book is interesting, and I recommend it BUT it strikes me as way too altruistic. As that great American philosopher Groucho Marx famously said, “When you get rich, you get Republican.”

If you would contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

How Many Million Do You Need?

 Way back in 1970, I had a summer job which largely consisted of managing state vehicle inspections. One day a fellow came in with his late model car and he breezed thru in a few minutes as his car did not need anything. I affixed the inspection sticker on his windshield, and he paid. He asked what my plans were, and I told him that I was majoring in economics in college and planned to go in to either finance or marketing. He smiled and said he was retired. I mentioned that he looked quite young. He laughed and said that had made and saved a million dollars in construction and decided to quit.

He went on to add that he lived fairly simply, and that he was content. As I look back, I realize that he was a quite unusual man. 

Now, having a million dollars has lost a lot of luster since 1970. Today, estimates are that the average American family has a net worth of $1.1 million but the super-rich pull up the average considerably. The median (50th percentile) US household has a net worth projected to be $193,000 (Federal Reserve estimate) as I type.

Today, the media is often focused on tech oligarchs who appear to have outsized economic and political influence. To me, they are nothing new. The “Robber Barons” of the 19th century had similar power and connections and an even greater share of total U.S. wealth than today’s billionaires. 

Over the years, I have often been annoyed by fabulously rich people saying that running up a huge net worth is a mean of keeping score. That tends to be with newfound wealth. They like to compare themselves to others. A truism, for sure, is the oft told comment that “old money whispers.” 

As a kid in New England, I noticed that the real generational money often drove old station wagons and wore nice clothes that may have been a bit old. Ostentatious displays were a no-no.

So, does money bring happiness? Not necessarily. Although, it does give people flexibility and reduces stress during hard times. The Zen answer often quoted is that a person is rich if “he rejoices in his portion.”

The great Ben Franklin wrote, “He does not possess wealth that ties it to possessions.” The Buddhist definition is “the greatest wealth is contentment.” 

When I first saw the Buddhist statement, I immediately thought of my acquaintance from the 1970 car inspection. The crusty construction foreman who became a builder would have dismissed the comment, but he escaped the rat race and was content with modest affluence. 

My favorite story about how much is enough involves two accomplished American novelists. Both Joseph Heller and Kurt Vonnegut were invited to a party at a very wealthy man’s summer cottage. Scanning the surroundings Vonnegut allegedly said to Heller, “Joe, does it bother you that our host makes more in one day than all your years of royalties from CATCH-22? 

Heller responded, “No, because I have something that he will never have.”

“What’s that”, asked Vonnegut. “Enough.”

If you would like to contact Don Cole directly, you can email him at doncolemedia@gmail.com or leave a message on the blog.

The Next Financial Crisis

 Over the years, I have subscribed to a number of investment advisory services. Some were fairly good and many were not worth the money. One I have kept for 35 years. When I cancel one of the dogs, it appears that the dropped newsletter sells my name, address, and e-mail to another advisory service. I understand why they do it. Both my e-mail and my conventional mailboxes fill up with solicitations.

In recent months, the forecasts are getting increasingly shrill from those who wish me to subscribe to their service. I confess that I am more confused than ever about financial markets but do not see many of these “advisers” having a steady hand on the goings on in the marketplace.

There is a sense of urgency that I have never seen in my 47 years of subscribing. Now, I understand some of it. Right now, markets seem heading toward a bubble. The PE Ratio, the CAPE ratio, and the Market Cap/GDP statistic are all near all time highs. A thinking person has to wonder if there will be a reversion to the mean. Also, treasury debt sits at $36 trillion with a certain increase in the new administration, and social security, medicare/medicaid commitments plus FDIC insurance guarantees total somewhere between $100-200 trillion in unfunded liabilities.

Here are some of the forecasts that I have received in an effort to lure me into plunking down $300-1500 per year for an analysts wisdom. I paraphrase a bit:

1) The US dollar is toast--Well, for the foreseeable future it is still functioning as the world’s reserve currency and will likely do so for the rest of my life. One painful truth is that all fiat currencies die. Sometimes the death is so gradual that people do not see it. For example, why is the British pound referred to as “the pound sterling.” For years, that is exactly what it was. It was a receipt of sorts for 16 ounces of silver. With silver hovering at $30 per ounce today, that would mean the original pound sterling if it held its purchasing power would be $480. Today, the pound is worth US $1.25. So, while the pound sterling exists as a name, it is a far cry from what it purchased 200 + years ago.

To put it in perspective, several MR readers have told me that they are fans of early 19th century author Jane Austen (aka Janettes). In some of her novels such as MANSFIELD PARK, PRIDE & PREJUDICE, AND EMMA young ladies were often pursuing well heeled bachelors with an income of 10,000 pounds per year. They were rich! Take $30 x 16 x 10,000 and you get today’s equivalent of $4.8 million per year and remember those lucky lads did not pay personal income tax.

How about our almighty US dollar? If you go back to the 1913 creation of the Federal Reserve, the dollar has lost about 97-98% of its purchasing power. Yet, it remains the world’s reserve currency and many long term contracts are written in US dollars. It will very likely remain the reserve currency for some time as most nations are printing money as loosely as the US government is.

2) Silver will be selling for $600 an ounce in two years--This one amazes me. Not only did I see it in writing, but a fellow in my foursome in a golf tournament told me the same thing. He said that he was going to get rich on silver. I gently reminded him that for silver to move that high so quickly would mean that we would be experiencing a Weimar Republic style hyper-inflation that Germany suffered through in 1923. So, the nominal dollars that he received for his silver horde would have very little purchasing power. Also, I added that along the road to $600, millions of people around the world would sell their silver flatware and jewelry (particularly in India where people have hoarded it) and would dampen a sharp run-up in price. He told me that I did not get it. I smiled. A small holding in silver may make great sense in terms of diversification but it is unlikely to be a sure fire get rich quick scheme.

3) All cash will be banned within two weeks-- Has this writer never heard of the underground economy? Does he/she know how many people are unbanked? Cash will definitely be less a factor in our economy as time goes on but it will not disappear in a fortnight.

4) The stock market will fall 80% in 2025 just as it did in the 1929-1933 period. Anything can happen but this seems a bit much in a one year time frame. Yes, equities are high in the US markets these days but millions contribute to 401ks each payday and there are billions on the sidelines waiting for a correction. The market will fluctuate but this forecast appears to be way too extreme.

Am I a bit nervous about the state of markets? You bet. Do I believe that government(s) can avert another financial crisis? No, I do not.

My reason comes from a noted economist who developed a theory that is a bit counter-intuitive but, when you think about it, makes good sense. The man was Hyman Minsky and he was a professor at Washington University in St. Louis (his graduate work was done at the prestigious University of Chicago). Professor Minsky also understood banking and served as a director and consultant to the Mark Twain Bank in St. Louis.

His basic thesis is not via some mathematical formula or complicated set of equations. In clear English he laid out his opinions. Most observers feel that things are kept in check with tight regulation. Minsky did not argue that things do not get better with stronger guardrails after a crisis or strong downturn. He wrote that things get shaky when things are going well. Lenders get looser with the quality of their customers and start to take bigger chances in order to increase profits (witness what happened in 2008 with sub-prime mortgages). So crises are inevitable especially as human nature does not change and greed tends to blind many from danger.

Today, we have geo-political tensions, runaway federal debt, domestic political tensions and uncertainty, increasing credit card debt, fewer first time home buyers, possible inflationary tariffs, and a younger generation who may never do as well as their parents. Something in the system may break in my view. When? I have no idea. So, I ignore the screamers with their exaggerated headlines to get me to subscribe, and discount the talking heads on CNBC who only see blue skies ahead.

This is a time to be defensive in my view. You can bet some unpleasant surprises will hit us. No bell will ring to tell you that it is coming. 

If you wish to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Comcast NBC Universal and Spinco

 About a month ago, Comcast surprised but did not shock the media world by announcing that they were divesting most of their cable channels. The properties affected were: CNBC, MSNBC, E!, SPFY, USA, OXYGEN and The Golf Channel.

Some observers said that it was a good thing as some of the networks could move into the digital world and dodge the problems cable is facing with millions of Americans cutting the cord. Tom Rogers, former head of NBC Cable and the creator of both CNBC and MSNBC saw the move as positive as his former “children” could be more imaginative and pursue other avenues with new revenue streams. 

Others said the job of the capable management that is taking over the new entity will merely manage the decline of these cable channels as best they can. Watching coverage of the story the term “problem assets” has cropped up with some frequency. That, to me, does not bode well for the venture.

A few optimists have said that private equity groups may come in and prop up a channel or two. Possibly, but my observing private equity over several years usually indicates that the partners do well and often leave the entity saddled with debt.

To the credit of Comcast, they are spinning off this new entity debt free. That is most unusual and highly ethical. A handful of pundits have suggested that Paramount and Warner/Discovery spin off their channels or merge with Spinco. It does not appear that they would be debt free so a merger might not be a good thing for Spinco.

Who could survive? I would say that CNBC has the best chance of the group. Their offices are in New Jersey rather than Rockefeller Center. Also, they are an established brand that has a devoted following (me included). Ad revenue has been good, and some say they currently give back profits to Comcast. In the digital world, they may be able to gin up enough subscribers to survive and prosper. They may be an attractive target for a behemoth in the financial world but that might slant their editorial content.

MSNBC has a bigger problem. Their offices are in the same building as NBC News and they will lose the support they can get from them. Also, their audience, never huge to begin with, has taken a big hit since Trump won the election on November 5th. Their programming is interesting but rather strident politically which may not appeal to advertisers.

The Golf Channel is a niche player and perhaps they could be absorbed by another big sports entity.

One final not so minor issue. Can these channels keep their names for a while? That would be very helpful as they try to build standalone entities.

This, to me, is the opening of another big change in the media landscape. Comcast is recognizing the reality that streaming is dethroning cable and they have accepted that.

May I take a moment to wish a wonderful holiday season to MR readers all over the world. Some 52% of you come from outside the U.S. I love hearing from all of you.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

An Honest Look at Greed

In 1987, Michael Douglas starred in a film entitled WALL STREET in which he played an unscrupulous investor named Gordon Gekko. He won an Academy Award for his performance. The most memorable part of the film to many was when he made a speech to shareholders of a company that he was “raiding.” To refresh your memories, the most quoted part of the speech was when Gekko said, “The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit.”

Most of us were taught either by our parents or religious instruction that greed was anything but good. In Christianity it was looked on as one of the seven deadly sins. It is often defined as the disordered desire for more than is appropriate or deserved.

The media tells stories of the greed of corporate executives or investors and question why there is so much inequality in the U.S as well as other nations. They have a point.

To me, the question that I always ask is: How much is enough? When does your desire to live in comfort (not unreasonable) graduate into greed?

As I write, the net worth of three Americans—Elon Musk, Jeff Bezos, and Larry Ellison is equal to the total wealth of the bottom 50% of American citizens. Even a staunch free market fan such as I have to shake my head and wonder. This is like the later part of the 19^th century when the Vanderbilts, Rockefellers, and Carnegie had a dominant part of US wealth.

A question that I always ask myself is who determines what the lid on wealth should be? Congress? Many members talk about fairness but then more loopholes are put into our Swiss cheese of a tax code and the rich only become richer.

Most of us, if we are honest, realize that we are a mix of Scrooge and Robin Hood. Greed becomes a sickness if we devote all our waking hours to capital accumulation at the expense of real wealth—personal relationships.

In the 1980’s “trickle-down economics” received a bit of traction. The theory was that the affluent and the rich do not spend all their income so part of that surplus in invested in new businesses that create jobs and generate new tax revenue. True, but as one old friend has told me, the trickle down is not spread out very evenly across the population.

Two economic giants have weighed in saying that greed is an integral part of a capitalist system. Milton Friedman, a Nobel laureate, wrote that the “world runs on individuals pursuing their separate interests.

My hero, Adam Smith, the father of economics put it this way back in 1776: “It is not from the benevolence of the butcher, the brewer, and the baker that we expect our dinner, but from their regard to their own interest.” Call it self-interest or even greed but it clearly drives the bus in a free market society. Greed motivates competition and we need competition for market growth. 

Analysts who look at inequality across the globe have often recommended income taxes as high as 70% would smooth things out. Few pay that much as an army of tax accountants and attorneys help the super-rich to sidestep some of the taxes or move assets offshore to more friendly venues.   

A few years ago, French economist Thomas Pikettywrote a best seller called CAPITAL IN THE 21^ST CENTURY. I read it and found he went even further than the people calling for a 50-70% tax rate. He called for a wealth tax on top of the confiscatory income tax. With massive wealth tucked away in high end art and collectibles plus global real estate, it would require a large bureaucracy to enforce, and the wealthy and their slick advisers would likely find a way to diminish the bite significantly.

Technological innovation has improved our lives tremendously in the last two decades. And, it has made some innovators mega-billions. 

Charities are receiving some of this newfound wealth. I hope that it increases in the years to come. As the great Greek poet Hesiod wrote: “Observe due measure: moderation is best in all things.”

 Even, I might add, in wealth accumulation.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

 

 

BORN ON 2ND BASE?

 At one time or another, you probably have heard the term “born on 3rd base.” Although there are several stories about its origin the term is widely attributed to football coach Barry Switzer who once said at a news conference, “some people are born on third base and go through life thinking they hit a triple.” 

Today, we will take on a group a bit further down the wealth scale. I dub them “born on 2nd base” while a long-time reader of MR calls them “the top 19%” who are ruining the chances of many Americans for upward mobility. My frequent MR reader said, “most of us despise the 1% but I really resent the next rung usually referred to as the upper middle class". I responded so you mean people born on 2nd base instead of third? He laughed and said I had captured it well. I found it interesting in that the Federal Reserve has recently released a report stating that as of December 2022, some 18% of American households had a net worth more than one million dollars. Given the rise in both equity and real estate values, we are probably up to 20-21% of total households hitting the now relatively meaningless statistic.

Is this reader alone in his anger? Nope. Over the last 18 months, I have heard from several readers who vented about how the upper middle class is practically building a moat around themselves. Here are some of their gripes:

1) Legacy college entrance—for years, elite colleges and universities tended to favor children of alumni. The time-honored reason was that the family would continue to be generous givers to the institution and the next generation would do that as well. Also, the noveau-riche could land a spot for a son or daughter with a seven-figure contribution. Some of this has gone by the boards as the most prominent institutions have huge endowments and face strong media scrutiny. Smaller colleges continue the practice as they are struggling for cash and are not under the media radar that the Ivies and other leading schools face.

2) Upper middle-class parents send their children to SAT prep courses. Others take them on frequent foreign trips that widen their perspective and sharpen their foreign language skills. Most families cannot afford this.

3) Internships—This is generating some noise. An internship at the right firm is a terrific resume builder for a college student. So, Mom or Dad asks a friend to take their child on for a summer and often they will bring the friend’s child into one of their companies. This type of closed loop really occurs. A bigger problem is the coveted internships in NYC or in Washington, DC. Well-heeled parents can put their student up in expensive and safe digs for the summer. People of more modest backgrounds cannot do this. Many internships used to be non-paid. That has changed and some allow for college credit to be awarded for certain jobs. This tends to exclude all but the millionaire plus group if the internship is out of town.

4) Living in neighborhoods or counties with strong public schools

This one does not get a lot of media notice but, over the years, I have certainly heard many discuss it. Once, years ago, at a luncheon, a media rep said that he was moving to a suburban area with great schools. A colleague berated him saying why not stay in your current jurisdiction and fight for better schools. The rep said “why should I use my daughter as an experiment? It may take 10-15 years to turn the current school system around. If we move, we will pay higher property taxes, have a higher mortgage payment, and I will have a longer commute. But, I am giving my child a chance to get in to a top rated school. I make no apologies for that. I love my daughter!” Tied into this is that affluent neighborhoods fight against high density housing entering their domain. Part of may be to maintain strong property values but some could be racist tendencies.

5) Tax policies that favor the affluent—few people except some extreme progressives bring this up. Mortgage interest in the US is largely tax deductible. I have received several e-mails from readers saying that it is unfair to give homeowners such a tax break. Gently, I counter that it would be damn near impossible to strip that rule away with nearly two thirds of American households benefiting from it. Yes, it is not allowed in Canada but our friends to the north have never had this loophole.

Do children of the affluent but not super rich have an advantage over the middle and working class? Absolutely! Yet, they are often the ones reading to their children every night, driving them to soccer games or music class and being deeply involved in their youngsters lives. They are only wanting what is best for their children. This is an integral part of the American dream of having your children living better than you.

Is it unfair? Yes, those born on 2nd base do have advantages that most do not. I simply do not see it as a conspiracy against the underprivileged as some of my angry readers do. 

If you have any ideas on how to level this playing field, please drop me an e-mail.

You may contact Don Cole directly at doncolemedia@gmail.com or leave a message on the blog.

MUSINGS ON STATISTICS

 Author and humorist Mark Twain allegedly once said, “There are three kinds of lies—lies, damned lies and statistics.” It often gets a laugh despite advances in research over the last 150 years.

I spent a large part of my career working with numbers and still do. Statistics still fascinate me yet, sadly, I see them misused increasingly in the media and more glaringly in social media.

My first real encounter with statistics came when one of my older brothers took a college course in statistics. We discussed it quite a bit and, as a high school student, I bought a copy of HOW TO LIE WITH STATISTICS by Darrell Huff. The book was published in 1954 and by the time I purchased and devoured it, the year was 1966 and it had sold hundreds of thousands of copies.

Huff was cynical about statistics and stressed how marketers could be selective about what you were shown in making decisions. I vividly remember one effective example in the book. He talked of a survey taken in 1950 regarding the income of Yale graduates in the class of 1924. The average income reported was several times that of the national average. One might say no surprise as many Yale graduates were and are among America’s elite. Huff probed a bit—what of those who did not respond? Were they struggling compared to their classmates? Embarrassed by their relative lack of financial success? This was my first exposure to non-response error, and he did a better job explaining it than any college or graduate school professor that I ever had.

In college, I did fine in Statistics and firmly understood the difference between average and median which many in the media and business world still do not grasp or worse, use the two terms interchangeably.

In the advertising and marketing world where I spent the bulk of my career, the response to any research presented was varied. A wealthy businessman who owned 20 fast food restaurants chewed out a young and earnest member of my negotiation team by saying her buy was worthless as he did not watch the programs on the TV schedule. I had had enough and told him that he was a multi-millionaire, and it was logical that he was watching vastly different programs than his 18-34 target audience. He got red in the face, but his fellow members of the advertising co-op backed me up. Sales moved up nicely and he stayed quiet at the next meeting.

Other clients told me that all Nielsen ratings were nonsense as they had never been in a survey. A primer on sampling theory would have accomplished little.

Over the last 50 years, I have seen good, mediocre and poor studies. Here are a few things to keep in mind:

1) When you see the research, take your own temperature. How do you react to it emotionally? If it is a totally new topic, you are likely to be cool-headed. I have seen CEO’s or senior management bristle when research says consumers have issues with their product or service. “All our customers love us” was a line heard frequently yet their market share was not high. A new CEO was likely to be much more open to hearing bad news than their predecessors as they were there to turn things around. I have seen the same thing with shareholders. If an analyst posts a less than positive forecast for a stock that they own, often the response is that the category specialist is an idiot.

2) Try to separate your personal feeling from what the larger sample is telling you. I saw broadcasters dismiss cable and then digital possibilities as they felt their growth would hurt their livelihood. They were not objective at all.

3) Ask if anything is missing from the data and how was it asked. Most do not. 

4) I realize this is hard for all of us but try hard to keep an open mind and remain curious. Most people are not, and this is deadly in our era of rapid change.

I could not on forever and  provide some colorful examples of reaction to research, but I think it best if I take those stories to the grave.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.