On behalf of FINTRX, it is our pleasure to share the 2022 Family Office and RIA Yearly Roundup.
With an emphasis on family offices, investment advisors and the alternative wealth landscape at large, this unique newsletter edition features news articles and summaries of some of the most notable private wealth narratives that occurred each month throughout 2022.
World's Wealthiest Doubled Their Incomes as 99% of Global Income Fell
January 17, 2022
Warren Buffett, Jeff Bezos, Larry Ellison, Larry Page, Sergey Brin, Mark Zuckerberg, Steve Ballmer and Bernard Arnault Doubled Their Wealth Amid Pandemic as 99% of Incomes Declined
According to an Oxford report, 10 of the world's richest men saw a two-fold increase in their wealth during the COVID-19 pandemic. Between March 2020 and November 2021, their wealth rose from roughly $700 billion to $1.5 trillion. During that same time, 99% of global income fell.
According to Federal Reserve data, the wealthiest 1% of U.S. households own over 50% of all publicly listed stock on the market, while the bottom 50% possess less than 1%. The stock market increased significantly between March 2020 and January 2022 partly because of monetary policies implemented by the Federal Reserve. These policies have resulted in frequently untaxed gains for the wealthy.
According to Oxfam International Executive Director Gabriela Bucher, one strategy for "righting the violent wrongs of this outrageous inequity," is taxation. The research recommending a new tax on the world's wealthiest individuals came after a ProPublica investigation revealed the use of legal loopholes to avoid paying taxes on their wealth gains.
Various tax rates were mentioned in the Oxfam study, which required billionaires to pay taxes annually on any growth in wealth, whether the gains are realized or not. According to Oxfam's methodology, information on the declining earnings of the world's 99% was derived from World Bank data.
"Billionaires have had a terrific pandemic. Central banks pumped trillions of dollars into financial markets to save the economy, yet much of that has ended up lining the pockets of billionaires riding a stock market boom."
Gabriela Bucher, Executive Director, Oxfam International
According to Bloomberg, energy inflation in the European Union accelerated to a record high in January and looked likely to worsen as natural gas and oil prices continued to soar. The PCEPI (personal consumption expenditures price index) increased by 6.1% in 2021, causing a significant jump in the prices of goods and services. This was likely due to multiple factors including rising production costs, increased demand for goods and services and other economic conditions.
Commodity price spikes can have significant impacts, as they typically affect the prices of food and energy. Some countries may see benefits, but for many emerging markets, higher prices and capital outflows posed major challenges. Because emerging markets often rely on exports of commodities (i.e. oil and other natural resources) higher prices meant increased inflation and a weaker exchange rate.
Capital outflows would also put further pressure on the exchange rate, making it harder for a country to finance its debt. Commodity price spikes and capital outflows can pose significant risks for many emerging markets, especially those already struggling to recover from the effects of the pandemic or other economic challenges.
According to forecasts by Bloomberg Economics, energy inflation in the European Union accelerated to a record in January, which looked likely to worsen as natural gas and oil prices continued to increase. In the U.S., higher fuel costs meant delaying the peak of inflation.
"Employers added 678,000 workers to their payrolls in February, the biggest gain in seven months, the Labor Department said Friday. The jobless rate fell to 3.8% from 4.0% a month earlier, edging closer to the 50-year low of 3.5% hit just before the pandemic."
According to BofA strategists, the macroeconomic situation rapidly deteriorated, causing the U.S. economy to enter a recession as the Federal Reserve tightens monetary policy to combat rising inflation. In response to four-year decade-high inflation, the Federal Reserve indicated in April that it would likely begin removing assets from its $9 trillion balance sheet at its meeting in early May. A majority of investors anticipated the central bank to increase its benchmark interest rate by 50 basis points.
April saw emerging market equity funds receive $5.3 billion, the largest weekly inflow it had in 10 weeks while emerging market debt vehicles received $2.2 billion, the highest weekly inflow since September 2021. Additionally, European stocks lost $1.6 billion over the course of eight weeks, while U.S. stocks gained $1.5 billion. The analysis was based on EPFR data.
"In this environment, cash, volatility, commodities and cryptocurrencies may do better than bonds and equities."
Federal Reserve Chair, Jerome Powell gave some hawkish remarks in May, stating that the U.S. central bank would continue to increase rates to counteract historic inflation. In early May, the central bank raised its benchmark rate by 50 basis points in addition to telegraphing that similar hikes would be coming in June and July.
April inflation data did little to subdue any impending recession fears, with the CPI rising 0.33% month-over-month and 0.57% excluding Food and Energy inputs. Ultimately, if the Fed did not see enough convincing evidence of slowing inflation, it would choose to raise rates more aggressively.
"What we need to see is inflation coming down in a clear and convincing way, and we’re going to keep pushing until we see that..."
At the end of June, the French Government lowered its Gross Domestic Product forecasts for the 2022 calendar year, cutting estimates from 4% to 2.5%. The outlook for Europe's second-largest economy was negatively impacted by pricing pressures from the Ukraine War, increased Covid-19 infection rates and supply chain restraints caused by China's 'Covid Zero' policy.
This revision came after a 2022 budget plan that included efforts to prolong energy price caps and increased pensions, among other spending. Shrinking GDP estimates were not the only ongoing issue for the French Government, with average inflation hovering around 5%, the spending deficit passing $52 billion and the debt level sitting at 111.9% of GDP.
For the first time in nearly 20 years, the euro and the dollar traded in parity with one another, meaning the two currencies have the same worth. The euro's sharp decline came as a result of continuous headwinds from the Ukraine War, energy disruptions and an overall slowing of Europe's major economies.
The decline in the currency's value put the European Central Bank (ECB) in a rather difficult position, needing to carefully navigate the end of their bond purchases and begin monetary tightening. However, not all was bad as the majority of Europe's largest companies were expected to beat initial earnings estimates, signaling a potential recovery.
"The ECB is in a very, very difficult position. You could argue that the ECB has been rather late to the party both in terms of ending their bond purchases but also considering monetary policy tightening."
U.S. Labor Remains Sturdy In Light of Economic Contraction
August 8, 2022
In the wake of rising inflation, geopolitical uncertainty and rising interest rates the labor market remained strong. Despite the growing gap between the labor market and the broader economy, job listings continued to increase while unemployment remained near economic cycle lows.
On average, following economic peaks, payrolls decreased by more than 1.5%. After the peak in December 2021, payrolls increased nearly 2%, the most since World War II. Also worth noting, companies operating in the business service, retail and manufacturing spaces have surpassed their pre-pandemic levels, however, demand for work far exceeded their ability to hire.
According to the WSJ, "Job openings in transportation, warehousing and utilities have surged nearly 78% since February 2020 as Americans binged on goods. Companies in the sector have hired just 14% more workers in the same period."
"Labor demand is strong enough that workers who are losing their jobs are likely to find new ones much faster than in a typical downturn... That will largely interrupt the vicious cycle of a recession where job losses trigger cutbacks in consumer spending and less revenue for businesses, which forces additional layoffs.
Fund Managers Buy the Dip Following Market Selloff
September 14, 2022
During the pandemonium of the market selloff, caused by a higher-than-expected inflation report, Ark Invest CEO Cathie Wood was busy adding to her ARK ETFs. Wood and her team made a total of 27 purchases across eight ETFs, including Roku Inc. its largest buy, dropping 70% since January.
The street criticized the firm's largely underperforming funds including $ARKK which is down more than 55% this year. In a tweet from Woods, she stated "deflation is in the pipeline" and declining inflation pressures would provide a more optimal environment for equities.
"Her buys have gone down quite a bit after January but are starting moving up last few days. It just seems like her conviction is higher now... It seems like she is just walking the walk."
In a move that shocked many, Elon Musk made a proposal in a letter to Twitter offering the initial deal established between the two sides back in April. The Musk v. Twitter trial was set to begin proceedings on October 17th in Delaware, however, signs pointed to the two parties coming to an agreement while avoiding litigation that would seemingly cost extraordinary amounts of legal fees.
According to insider reports, Musk's legal team began to recognize that the case was not going well for their side, citing many instances where the judge sided with Twitter during pretrial rulings. In a tweet from Musk, he mentioned the Twitter deal would "accelerate" his plans for X Corporation, a business idea he explains as "the everything app".
"It's a pretty grand vision and of course that could be started from scratch but I think Twitter would accelerate that by three to five years."
Midterm Elections Reveal Economy & Inflation as Key Factors November 9, 2022
In the polls leading up to midterm elections, would-be voters routinely cited inflation as one of their top concerns. Many Americans looked to blame either Democrats or Republicans for rising prices, however, data pointed to inflation being a bi-partisan issue that has been "socially corrosive and politically destabilizing". Inflation remains a global issue that has been exacerbated by a lack of investment in the energy industry.
Both fossil fuel and renewable energy supply chains remained crippled, leading to higher prices across the board. As a result, many politicians reaped the congressional rewards of higher inflation but may have had just as much difficulty in finding a solution as their predecessors.
"It is understandable that some people are questioning whether or not too much support was provided...In those dark days of the pandemic, the [bank] judged that the bigger policy mistake would have been to do too little, rather than too much."
Midterm Elections Reveal Economy & Inflation as Key Factors December 7, 2022
According to an Oxford report, 10 of the world's richest men saw a two-fold increase in their wealth during the COVID-19 pandemic. Between March 2020 and November 2021, their wealth rose from roughly $700 billion to $1.5 trillion. During that same time, 99% of global income fell.
As abruptly as the meme stock retail trade movement burst onto the scene during the height of the Covid-19 pandemic, it seemed to have disappeared just as quickly. The so-called 'dumb-money crowd' of traders flocked to trading highly volatile equities and derivatives in search of exponential and life-changing returns.
However, for every success story, there were many more cases of people losing either a large portion or all of their entire savings. Many of the same investors fell victim to the collapse of FTX where millions of accounts remain locked and perhaps now worthless.
A recent JPMorgan Chase report highlighted the dismal returns posted by retail traders this calendar year, down 40% on average. High-growth technology stocks have had a particularly rough year, declining more than 30%. Overall retail trade across U.S. equities made up nearly 20% of the total volume, this figure was down from 37% during the height of the craze.
"High-flying technology stocks have especially fallen out of favor, as seen in the performance of the ARK Innovation exchange-traded fund, a pandemic darling that’s down 63% this year...And according to one measure by market researcher SentimenTrader, confidence among retail investors is hovering near early pandemic lows."
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