While cruising down Collins Ave, Miami, I stumbled upon a precarious situation when stopped at a light: In front of my whip was a bright red Maserati Granturismo. Black rims, red trim, tinted out- you know, the kind of car douchebags drive around Lan Kwai Fong just to be seen. On the sidewalk, and next to this gentleman driver, was a homeless man begging for his next meal, or drink, whatever has you.
Now, this was much before the eruption of OWS and before the slides of graphs & pages of research rifled through the media about global income disparity. But it occurred to me, when so many people talk about a vanishing middle class, why not try to profit off it?
Say there was an ETF with holdings in the companies I am about to discuss, would a long-term increase in income disparity/the Gini index translate into substantial growth for these companies?
- Louis Vuitton Moet Hennessey (EPA: MC). While JP Morgan Private Bank is overweight on the company, the stock price has been rather stagnant this year because of a possible slow down in China. Nonetheless, its brand image is huge in the developing world- Mainlanders line outside of LV stores in Hong Kong just to get a chance to purchase LV's pricey handbags. Moët is also a great way to celebrate your new Ferrari/ trophy wife.
- Dollar Tree (DLTR) / Dollar General (DG). Both retailers have been adding stores nationwide at an astounding rate. Dollar Tree just copped a large dollar retailer in Canada and has doubled their store count in the last two years.
- McDonalds (MCD) . We all know these guys just cant stop making money in rain or shine, and their recent earnings proved it. With Mikey D’s reported to open up a store in China every day for the next five years, can we also bet on them doing it big on the home front?
- Tiffany’s (TIF). Perhaps not a completely diversified conglomerate like LVMH, but with rising sliver prices, Tiffany’s appears to be getting more pricey. Their light blue boxes also scream brand equity when you factor in all the panties they’ve helped drop over the years.
I’m sure you could add Apple to the list, as well as a lot more companies with target demographics in either the lower or upper quintiles. I'd be interested to hear your suggestions, but the real question is, what catchy name we should call this ETF?
No, because you are assuming that an increase in the Gini coefficient means that wealth is being transferred out of the middle class and into the upper class, thus pushing people towards poor and rich, and with no increase in real wealth at all for the lower and middle class. But this is not at all an accurate description of what is happening in the US when income disparity increases.
so the rich getting richer has no effect on how many LV bags get sold?
No, it probably does have a positive impact on LV sales, but if what I quoted in this post is your thesis then why not just go long luxury brands and leave out the poorman's brands?
My point was that increasing income disparity doesn't necessarily mean that the poor's income is decreasing or that mid-level incomes are decreasing. And in fact, throughout the history of the US it has never been the case that increasing income disparity has been driven by or even accompanied by decreases in lower level incomes. It has only been the case that the rich's income/wealth has been increasing at a faster rate then everybody else's.
It would, but would it reflect disparity? It could reflect an economic upturn, seasonality, etc. This portfolio looks pretty bullish with a bit of conservatism inserted with the MCD/DLTR stuff. I don't think the Gini coefficient is that big of a deal in all honesty. THe way to find a good correlation would be to look a tthe performance of your basket (or a better one) over the past 44 years as the Gini coefficient in the U.S. climbed from 40-45.
You don't seem to comprehend, mfriedman. The Man's explanation is perfectly reasonable. Go on, and invest in those companies, but any changes in their values will not occur due to changes in the Gini coefficient. The logic in your argument is severely faulty!
Cant prove anything without modelling it.
thats what I'm thinking, an earlier comment suggested the same thing. I just wanted to provoke discussion.
In the past, increasing income inequality has not decreased the real income of the lower classes. However, to suggest this is a causal relationship is post hoc ergo propter hoc.
It's definitely possible that at at a point, an increase in inequality leads to a decrease in aggregate demand which leads to a decrease in total output (and hence lower income). Note that I think it will never be possible that POTENTIAL real gdp will decrease, but a possible situation is that as the wealthy upper class controls more and more of the capital and the lower class controls less and less, the upper class simply stops putting their capital to work because the lower class no longer has any means of trade and thus there are no benefits for the rich to be gained from trade.
Welcome to the global economy.
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