We’re Getting Back to Basics

Take a look at this…

Money Morning

Source: Roy Morgan
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In the last decade, the rich have gotten richer, while the poor have barely seen their wealth increase.

In some cases, like for the poorest Australians, net wealth has actually declined.

The poorest 10% of us — who don’t own anything — with debt of $20,000, now have debt of $22,000.

How does this happen? How, in the lucky country, do the poor get poorer while the rich get richer?

Today I’m going to show you how, along with some exciting new changes here at Money Morning.

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The problem with capitalism…

Change maybe isn’t the right word.

We’re getting back to grass roots. We’re getting back to what this e-letter used to always be about.

BIG IDEAS. BIG OPPORTUNITIES.

And just maybe those ideas help you get from one wealth strata to another.

But before I get to that…

What’s going on with wealth inequality?

How has Aussie GDP grown from $926 billion to $1.3 trillion, yet the poorest are no better off?

Who’s the culprit here? Is it capitalism…?

Even in places like the US, the capitalist golden child, the gains go to the very few at the top. Institutional Investor writes:

The economic engine we have in place today has for decades produced virtually no increase in wealth for the majority of earners. According to information pulled from the Federal Reserve, the median net worth of the bottom three quintiles of families declined in inflation-adjusted dollars from 1998 until 2013, tumbling by 20 percent or more. This decrease has hit working-class families the hardest; their real net worth has been halved over this time.

And you know why…

It’s because we don’t have enough capitalism, according to Institutional Investor

I’d argue that we don’t really have all that much capitalism anymore. 

Individuals simply do not have equal, competitive rights to own the means of production. Corporations, which have replaced both the feudal empires of the 1600s and the trusts of the early 1900s, are the contemporary preferred owners of capital goods to be extended privileged rights by central governments.

Institutional Investor goes on to list the advantages corporations have over individuals…and there’s plenty. Yet they then start talking about anti-trust and monopolies. Have a read…

Ford, GM, Fiat-Chrysler, Toyota, and Honda combined account for 68 percent of U.S. auto sales. 

CNN, MSNBC, and Fox News control 80 percent of the cable news ad revenue market. 

The four largest agricultural technology companies control 80 to 85 percent of the bean and seed market for important crops such as corn and soy. 

Ninety-five percent of credit ratings are performed by just three firms: Standard & Poor’s, Moody’s, and Fitch. 

And Google alone has approximately a 93 percent market share in search. 

Such market domination is thanks in no small part to a far more liberal approach to antitrust reviews by the Federal Trade Commission.

The FTC and the Department of Justice are supposed to use laws such as the Hart-Scott-Rodino Act to review all proposed mergers over a certain size in the United States and prevent any anticompetitive mergers that would “substantially lessen competition.”

Yet I would argue tearing down so-called monopolies just because they dominate large shares of a market is not capitalism.

The first example Institutional Investor uses are autos, companies like Ford and GM. Yet these businesses are hardly profitable. And because profit margins are so thin, few dare to enter the wasteland of auto manufacturing.

The story is the complete opposite for companies like Moody’s and Google however. Both are insanely profitable. And some would argue they hold their customers by the throats.

It’s a situation that could change if competitors were forcibly let in. Yet, doing so would be not only unfair, but unjust.

These profitable companies were not monopolies at conception…

It was only after so many decades of work, refining their credit models and building up that knowledge that Moody’s became a trusted name in the credit rating market (which they carelessly used leading up to the 2008 US housing crisis).

It’s the same for Google.

They’ve invested millions, likely billions on a search algorithm that’s better than any other.

What right does the government have to forcibly take away business that took time and money to develop?

I’m of course talking in general terms here, not on a case-by-case basis.

In reality, companies like Google and Microsoft can’t abuse their power too much. They can’t increase prices 1,000% or spend absolutely nothing on product development.

If they do, they’ll fall, just like any other company. The first chance consumers, suppliers and the entire value chain of that industry gets to switch, they will!

It’s not monopolies that have put gains into the hand of the few, in my opinion.

It’s the banks…

The real problem is banks

I’ve talked about this before.

When central banks print money, which inevitably finds its way into financial markets, the rich benefit. And that’s because they have a majority of their wealth in things like businesses and stocks.

Money Morning

Source: Institutional Investor
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What do the poor have? Usually a whole lot of debt to pay off.

And because interest on this debt is compounding, the poor end up paying banks almost as much in interest as they do for the original amount they borrowed.

Take a $500,000 30-year mortgage at 4.5%, for example.

Assuming you don’t pay it off early, you’ll be paying $412,033.56 in interest alone, along with the $500,000 in principle.

So it’s no surprise the rich get richer and the poor go nowhere.

The rich buy appreciative assets and have small sums of debt, while the poor get buried in debt and make many bad financial decisions.

And who’s to thank for that…

The banks!

But here comes the solution…

Our solution

You saw the chart above, yes?

The one that shows the rich own a whole lot more stocks than the poor. You can substitute stocks for just about any appreciable asset.

Well, that’s what we want to refocus on doing here at Money Morning

We want to bring you more of the big ideas the mainstreams aren’t. More of the insight that actually leads to huge opportunities. The left of field ideas that hardly anyone has caught onto yet.

Of course, we’re not always going to get it right.

But hopefully, this leads you to owning far more of the stuff that makes people rich: appreciable assets.

To be clear, I’m not talking about the ideas that earn a solid 10% each year. I’m talking about opportunities and ideas that potentially shoot up five to 10 times in value…and in a relatively short period of time.

To help in our move back to basics, you’ll be seeing a whole lot more of our small-cap and exponential experts, Sam Volkering and Ryan Dinse.

A lot of you are likely familiar with these names already.

Both of these guys have invaluable insights into Aussie small-caps, the crypto world, technology frontiers and much more…

So why not let them share those insights with you, dear reader, more regularly.

More to come,

Harje Ronngard,
Editor, Money Morning

PS: Free report reveals three tiny mining stocks set to ride the lithium frenzy. Click here to find out who they are.


Harje Ronngard is the lead Editor at Money Morning. He’s also the Editor of Wealth Eruption and Gold & Commodities Stock Trader, and co-Editor of the Third Wave Portfolio.

The aim of both Wealth Eruption and the Third Wave Portfolio is to find misunderstood opportunities. These are the type of investments that multiply small amounts of money five- to 10-times in size.

Harje has an academic background in investments and valuation. He’s had experience across a range of asset classes, from futures to equities.

For any investment, Harje believes you only need to ask two questions. What is it worth? And how much does it cost? These two questions alone open up a world of opportunities, which Harje shares with Money Morning readers five days a week.


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