You may have missed a fascinating article last week in the WSJ on a new breed of indice: Those based on luxury goods.
We have noted the bifurcated economy many times in the past. These new measures show exactly how much more freely spending the higher income demographics are versus the masses.
A 2005 Citigroup research note quantifies it rather precisely: The top 20% of American earners now account for between 37%
and 70% of total consumption. That’s quite a broad range, and like asset ownership, it is very disproportionate in numbers. You can clearly see the difference in spending patterns in the chart at right, showing the Merrill Lynch Lifestyle Index versus the Morgan Stanley Consumer Discretionary Index.
The higher end goods are selling much more briskly than the non-luxe brands.
Here’s an excerpt:
"The luxury boom is spilling into the investment world, as Wall Street firms and stock exchanges launch a slew of indexes tied to the spending of the rich.
Merrill Lynch, Goldman Sachs and the German stock exchange are among the players hoping to hitch a ride on the rising demand for designer handbags, luxury resorts, wine, art and $300,000 cars, by launching indexes assembled to reflect the highest end of the consumer economy. In many cases, these new yardsticks are linked to financial products, in the same way that many mutual funds track the S&P 500 or the tech-heavy Nasdaq 100 Index.
For spectators, the indexes offer a useful new barometer to measure the increasingly separate economy of the rich. And that economy is booming. Most of the luxury indexes have posted an average increase of at least 13% between 2001 and 2006. The Dow Jones Industrial Average, by comparison, has increased an average of 4.7% annually during the same period . . .
Merrill’s index, a group of between 15 stocks and 50 stocks, includes car makers BMW and Porsche; luxury conglomerate LVMH; fashion brands Bulgari, Coach and Burberry; jeweler Tiffany; auctioneer Sotheby’s; and private-banking firm Julius Baer. The index increased 23% in 2005 and 12.5% in 2006 — above the 14% and 7% posted for the Morgan Stanley’s MSCI World Consumer Discretionary Index, a widely used measure for global consumer stocks."
There are numersous versions of what WSJ called "Hedonism" indices. In addition to the aforementioned Merrill Lynch Lifestyle Index, Citigroup has the Plutonomy Index. The Deutsche Börse has the World Luxury Index, and includes stocks that derive 50% of their revenue from the luxury sector (Bulgari, Sotheby’s and Hermès International). The index annual average gains from 2001 to 2006 were 14%; over the same period of time, the Morgan Stanley Consumer Discretionary Index was essentially flat.
"Still, the new crop of "blingdexes" offer further proof the wealthy are increasingly creating their own consumer economy. The number of millionaire households in the U.S. has more than doubled since 1995, according to the Federal Reserve. The total wealth held by the nation’s richest 1% has increased more than 50% since 1998, to $16.7 trillion in 2004, the latest period measured by the Fed."
NOTE TO MIDDLE-AGED WHITE PEOPLE, ESPECIALLY BANKERS, INDEXORS, PR FLACKS AND MEDIA STILL USING THE WORD "BLING": Stop. Right now. For your own sakes. It does not make you look hip if you use hip-hop, urban, or black expressions — most especially those that are circa 1998. Please stop it immediately. All it does is reveal you to be a clueless middle-aged white guy.
The term Bling long ago jumped the shark. And because I am a middle-aged white person, I was more than a year late in making that observation — over two years ago. (See RIP Bling-bling for more details).
The Hedonism Index
As Luxury Spending Soars, Banks Add New Yardsticks; BMW, Bulgari — and Gap?
April 20, 2007; Page W2