The Ultra Wealthy

During tough times, many people are hit hard. We often hear about industries and sectors that are “recession proof.” These are areas of the economy that cannot be negatively affected by a recession for a variety of reasons. Either they exist in an area where demand is constant, or their business model is such that a slower economy can do little to derail them.

But have you heard about recession proof people yet? These are the people that no matter how bad things get, they are able to maintain their current lifestyle for one simple reason: They can still afford it.

If you’ve got enough money, a small percentage rise in inflation isn’t going to break your bank. And I’m not just talking about the upper-middle class family in the big house down the street. Even those people are thinking about home equity and capital gains taxes. I’m talking about the guys cruising around on 60-foot yachts, on their way to an island not found on maps, eating some rare and exquisite delicacy we haven’t heard of yet.

In short, I’m talking about real wealth. The kind of luxury and decadence once reserved for a king and his heirs.

Ultra-High-Wealth Individuals

During a recent Agora Financial editorial meeting in Baltimore, one editor talked about the buying habits of people called “ultra-high-wealth individuals” (UHWIs). These people are not just rich, but really rich. They embody the old maxim that “If you have to ask, you can’t afford it.”

UHWIs are a fast-growing cadre, and not just in the U.S. and Europe. There are rapidly increasing numbers of UHWIs in Russia, Asia, South America, Africa and, of course, the Middle East. And there are discernible investment ideas in this. UHWIs buy planes, trains, automobiles, fancy houses and all other sorts of bejeweled bling. UHWIs have enough money to not worry about energy prices. They do not know scarcity.

Because how can anything be scarce when you have seemingly unlimited means? Some people worry about gold prices as a hedge against a falling dollar. Others worry about gold prices because they are installing a new solid-gold bathtub in one of their several master bathrooms. And others aren’t worrying about the price at all.

If food prices go up 20% or 30%, it means nothing to people with money. But it means everything to those billion or so who earn about $1 per day. So UHWIs do not know scarcity.

Still, do you remember this scene in Titanic? The rich guy offered a wad of cash to one of the ship’s crew for a seat in the lifeboat. The crewman smacked the wad away and said, “Your money’s no good anymore.” But our civilization could never get to that point, right?

“Different from You and Me”

In 1926, the great writer F. Scott Fitzgerald published one of his most famous stories, The Rich Boy. The narrator begins with words that have become very famous. “Let me tell you about the very rich,” says the narrator. “They are different from you and me.” Later on, Ernest Hemingway added his own spin to that comment by noting, “Yes, they have more money.”

The rich may or may not be all that different from you and me in some fundamental ways. But one thing is for sure. Many of these UHWIs are making their money via the recent increases in the prices of energy and natural resources. So rising costs for energy, and the increasing scarcity of resources, have consequences for some fortunate few.

Now that may be the main difference, and something for many investors to think about. While scarcity can certainly hurt your investment portfolio, and even alter your lifestyle, there is always opportunity lying within scarcity. Of course, nothing is free, and you need to know where to look, but as goods become scarce, opportunities and windows will begin to present themselves.

And while I can’t promise you a new life of helicopter rides and exotic vacation spots, I certainly can offer you some helpful insight and observations. You just need to keep your eyes open…

Until we meet again,
Byron W. King
May 5, 2008

The Daily Reckoning