The end of Wealth. What being rich means today?

Accumulating Wealth was one of the main goals of the post-WW2 western society. The stagnation of the inflation-adjusted wages since the 1970s redefined the path leading to Wealth. The pandemic crisis and the race for printing fiat currencies may change once for all what Wealth means. Up until 2020, Wealth was a tool that could bring to a layperson an extended degree of freedom. Coronavirus hit the different strata of society from different angles and Wealth in the traditional sense is not a guarantee for easy going through dark times. Both fiat cash and assets show very hectic dynamics.

For an individual investor, the key goal should be diversification. The portfolio diversification needs to evolve and to go beyond the simple choice of asset classes. Diversification should be planned in terms of type of markets (primary vs secondary), type of shares (public vs private) or type of exposure for commodities (physical vs. futures).

Moreover, Markowitz’s portfolio allocation should be re-engineered to encompass not only the utility of wealth but also is marginal impact on communities and environment. In other words, investors should assess whether their portfolios are generating only alpha or are improving the social dynamic of their communities.  

The widening Wealth gap that started from the late 1970 is currently increasing at a fast pace, and is generating several negative externalities, including environmental issues, political unrest and social divide. Therefore, the new strategies for building Wealth should also include constraints with respect to these externalities in order to make Wealth more sustainable as a concept. The economy is becoming more digitalised but building Wealth will become more pragmatic.

Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man's own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. Labour, therefore, is the real measure of the exchangeable value of all commodities.
Adam Smith, The Wealth of Nations

Market overview

The S&P 500 ended the week at its highest level in history, slightly above the point where it was before the pandemic outbreak. The hypothesis of a V-shaped recovery seems valid from a market perspective. But, the unemployment numbers show that in the US, 10.2% of workers are jobless compared to a historic low of 3.5% in February.

If we believe that the recovery reached is complete as the equity indexes are showing, it means that excess of unemployment of 7.7% may remain structural in the long run. Those people might never find a job again, due to the attrition of sectors where they were working or of the structural contraction of the economy.

Another consequence is that the GDP recovery expected in the third and fourth quarters may not match the contraction experienced in the second quarter.

Focus:

Apple

Apple’s share gain over 115% since the mid-March, thereby becoming the first American company reaching a 2 trillion USD valuation. The pandemic accelerated the digitalisation of the real economy and smartphones. Apple’s prime products became the main terminals for fuelling the demand in the new market. The translation to a fully-fledged digitalisation in all walks of life could unleash new sources of growth for Apple.

Therefore, the Cupertino-based company still has a lot of potential for delivering value to its investors. The only thing that can hinder Apple’s future is an antitrust policy that could dismantle the Californian giant in smaller companies.

Real estate:

Commercial property in hiatus

New York-based landlords are trying to save the commercial real estate and are asking the corporate occupants to minimize the remote work. Working from home, it does not kill only the renting revenue but also all the retail business serving the corporate employees.

Commercial property REITs remained in negative territory after the pandemic outbreak. Regional Malls REITs had the worst performance, the Washington Prime Group losing more than 80% of its value since February. Office and private prison REITs showed smaller losses.

A foreseeable commercial property crisis could have huge impacts on the banking sectors. Commercial banks massive exposures on their balance sheets to the commercial real estate and a significant drop in the low-to-value ratio could have a similar consequence to the subprime crisis. Only a quick release of an efficient COVID vaccine can save the real estate sector in big cities.

Commodities:

Lumber is on fire

Metropolitan real estate is suffering, but surprisingly people still want to build new residential properties. The pandemic is pushing citizens out of the big cities, and the fear of contagion makes them want to leave in isolated places.  Needless to say, that the flight from big cities is in fast motion and the quickest option to relocate are cabins and lodges. Therefore, after the lockdown the prices of lumber exploded, increasing by more than 100% since May. The next winter will test whether this trend has a long term perspective or is just a short term bubble.

Market outlook

Markets ended the week into a state of expectation.  The Gold ounce could not break the resistance level at 2000 USD, but there are no reasons not to see the Gold ounce at a higher price.  The Brent crude found support at 44 USD, but the mixed signals on the demand side are not good arguments for building momentum.

The Dow Jones remained close to the resistance level of 28,000, while NASDAQ continued to find support at 11,000. Biotech stocks could fuel the positive momentum of NASDAQ towards September. The Dow Jones’s future should follow the developments of one its peer, the S&P500 and we can expect a new climax.