News

Half Million People Watch Millionaire Status Go -- Poof

The plunge in stock market values has left the U.S. with far fewer millionaires.

Here's an excerpt from a May 24 Bloomberg article titled "America's Millionaire Ranks Shrink by 500,000 in Record Time":

At the close of 2019, there were an unprecedented 11 million American millionaires, a reflection of the longest bull market in history thanks to ultra-low interest rates and tax cuts.

Fast forward just a few months and it's a starkly different picture. The number of households in the U.S. above that threshold has dropped by at least 500,000 as of Friday [March 20], according to research firm Spectrem Group.

The tandem financial and health crises wrought by Covid-19 have disproportionately eroded the fortunes of the wealthy, who are more likely to own equities than the overall population. At the end of 2019, the top 1% of households owned 53.5% of equities and mutual fund shares, according to Federal Reserve statistics.

The losses affected the rich at every level, from the mass affluent to those worth more than $25 million, according to the report. The wealth destruction at the very top has been especially steep.

The world's 500 richest people have lost almost $1.3 trillion since the start of the year, according to the Bloomberg Billionaires Index. That's equivalent to a 21.6% decline in their collective net worth. Americans on the ranking, who currently number 180, have lost $433 billion.

This brings to mind what Robert Prechter in his book, Conquer the Crash:

Only a very few owners of a collapsing financial asset trade it for money at 90% of peak value. Some others may get out at 80%, 50% or 30% of peak value. In each case, sellers are simply transferring the remaining future losses to someone else. In a bear market, the vast majority does nothing and gets stuck holding assets with low or non-existent valuations. The "million dollars" that a wealthy investor might have thought he had in his bond portfolio or at a stock's peak price can quite rapidly become $500,000, $50,000, $5000 or $50. The rest of it just disappears. You see, he never really had a million dollars; all he had was IOUs or stock certificates. The idea that it had a certain financial value was in his head and the heads of others who agreed. When the agreement about price changed, so did the value. Poof! Gone in a flash of aggregated neurons. This is exactly what happens to most investment assets in a period of deflation.

Elliott Wave International's analysts believe that you should prepare for what they see ahead.

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