Equity Strategy: Plutonomy, buying luxury, explaining global imbalances

This is the summary of a paper that Citgroup published and Cryptome posted on its web site. The Citigroup writer looks at the industrial world in terms of Plutonomies and the egalitarian bloc.

The US and Switzerland are plutonomies because neither nation experienced the worst horrors of World War 2. The US was spared by geography and Switzerland by remaining neutral during the war.

After World War 2, many of the European nations , the UK and Japan had to rebuild. Fascism and militarism were defeated in these counties and a more egalitarian economic system arose that Republicans would call socialistic.

Now you know why the US is always complaining about NATO not spending enough on defense.

This is also why Donald Rumsfeld's "Old Europe" comments were such a misnomer. Europe rebuilt after WW2. The US didn't and still suffers from a  crumbling infrastructure.

Here is the Citigroup summary of its document: 

➤ The World is dividing into two blocs - the Plutonomy and the rest.  The U.S., UK, and Canada are the key Plutonomies - economies powered by the wealthy. Continental Europe (ex-Italy) and Japan are in the egalitarian bloc.
➤ Equity risk premium embedded in “global imbalances” are unwarranted.  In
plutonomies the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc.  This imbalance in inequality
expresses itself in the standard scary “ global imbalances”.  We worry less.
➤ There is no “average consumer” in a Plutonomy.  Consensus analyses focusing on the “average” consumer are flawed from the start.   The Plutonomy Stock Basket outperformed MSCI AC World by 6.8% per year since 1985.  Does even better if equities beat housing.  Select names:  Julius Baer, Bulgari,
Richemont, Kuoni, and Toll Brothers.    

One of many interesting graphics in this study. 

Check out the complete article at http://cryptome.org/0005/rich-pander.pdf. It is fascinating reading and provides insight on how the corporate board of a large bank looks at the world.


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