Signs Of Economic Change: Rich Are Hoarding Cash

Don't look now but the so called "smart money" is hoarding cash.

With ominous sounding economic news headlines peppering the media like "yield curve inversion" and prognostications of a coming recession, there is another not-so-publicized event happening which has might also be pointing to stormy seas ahead in the stock market ahead.

The "rich" as they're called are supposedly hoarding cash in significant amounts.

CNBC reports spending by those that can have reduced their buying of real estate, jewelry, retail stores, and toys such as boats and classic cars to name a few.

Reports have the middle class still opening their wallets, but the thought is when the very rich stop buying or a least slow down their spending and start banking the cash, there is a very good reason.

For instance, luxury retailer Barney's filed for bankruptcy and no other than the famous Nordstrom's is seeing three straight quarterly declines in sales. (Bloomberg). Manhattan real estate priced over $1.5 million have seen their sales fall 5 percent during the second quarter of 2019 (Redfin). Playgrounds for the rich and famous like Aspen and the Hamptons are seeing similar anemic results compared to past year's.

Million-dollar-and-up automobiles, another favorite toy of the super-rich are also finding the same lack of exuberance. Art auctions are down with a 10 percent decline at Sotheby's and a stunning 22 percent at Christie's from a year ago.

I would imagine few people will lose sleep or shed tears over such facts, but the recent pullback in the spending of the wealth can be an indicator of something that will have farther reaching effects than just a drop in sales figures at the exotic retailers and "toy" sellers.

The top 10 percent of earners amount for about half of consumer spending (Moody Analytics) and if that's the case, when the rich stop spending, overall economic performance may start to suffer.

When the wealthy are not spending, they are stockpiling cash.

Although the middle-income people have picked up some of the overall slack, slowing job growth could affect that as well.

The rich also own the lion share of stocks with 80 percent attributed to this high-income group. They also own the majority of large businesses and businesses that export to other countries.

With tariffs the talk of the town, a tariff war could combine with an overall business slowdown and lagging stock market, giving the super-rich yet another reason to close their wallets.

Although comparatively few in numbers, the rich control a large proportion of the wealth, and when that wealth stops moving or even slows down, history shows so can the general economy and the rest of us with it.

Marc Cuniberti is an investment advisor representative through Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cuniberti can be contacted at SMC Wealth Management, 164 Maple St., #1, Auburn, 530-559-1214 or moneymanagementradio.com.