Wealthy, Fat and Falling Apart

In case you thought the growing bad news was hurting only the working man, we can take heart in the news brought to us by the New York Times that we are all suffering, even the wealthy among us. Have you stopped hitting Wendy's at lunch? A bit more Ramen, less pork roast and deli meat? Carpooling maybe? Not going drinking after work or bringing your own liquid indulgences when you do?

Well here in the United States we all take our suffering together, democratically. How are the (N.Y.C.) wealthy cutting back?

So New York’s very wealthy are addressing their distress in discreet and often awkward ways. They try to move their $165 sessions with personal trainers to a time slot that they know is already taken. They agree to tour multimillion-dollar apartments and then say the spaces don’t match their specifications. They apply for a line of credit before art auctions, supposedly to buy a painting or a sculpture, but use that borrowed money to pay other debts.

It hurts doesn't it? Whether it's the single semi-racist mom of West Virginia (according to Hillary) who struggles to feed the seven kids she shares with her brother (according to Vice President Dick Cheney's recent cracks), or the average John Carney the 3rd, struggling to maintain the appearance of comfort in the competitive waters of Manhattan, we all hurt.

Justin Sullivan, managing director of Regent Jet, which leases private airplanes, said most clients in real estate and on Wall Street are switching to chartered jets over private jets, and cutting their flight budgets by about 25 percent. One New York real estate developer cut his budget to less than $250,000 a year from $1.5 million a year.

We are moved. Heartened. Leave it to the Times to remind us that to be human is to suffer. But our hope is to always pull a thimble of valuabe information--preferably financial-- from the mountain of anecdotal tonguing that is the New York Times at its worst, and here is an important passage:

The very wealthy can’t hide anything from their nutritionists and personal trainers, because they see the weight gain. Heather Bauer, a dietitian who works with many Wall Street executives who pay $600 to $800 a month for her services, says her clients have been eating and drinking more in the last six months. She sees results of this indulging each time they step on a scale, and in their journals that record what they’ve eaten.

Do you see it? No, look harder. Read that paragraph again. Yes, if you are seeing what we are seeing, then you are seeing a valuable new investment tool. A brand new economic indicator that will help you fine tune your portfolio in these parlous times. And it's very contrarian in its complexity.

The normal assumption is that in hard times, people will spend less. Maybe even eat less. This usually happens after the first phase of income instability where people eat more as a substitute for actually doing real but costly activities. Thus they stay home and order Pizza Hut for the family in lieu of Disneyworld, but this is quickly usurped by the "spend no money, sell the second car, can't pay the mortgage, move to a rental and eat ramen phase,"; waistlines grow thinner.

But the wealthy, well they eat and drink more when times get rough, according to the NY Times, so they provide an excellent observational data point to determine when it is time to reverse your portfolio and stampede into the housing and banking sector.

So keep your eyes on the wealthy and their guts. The more gutless, the better the times we are in.

Just in case you are misreading that indicator, and are thinking, "Well they look fat enough to me now," (relative to one's own starving situation) let me offer some real data points to act as corrective to your faulty analysis.

First, construction spending is continuing its two year downward journey, falling .04% in April. Ultimately this is good, since eventually supply and demand will fall into balance. but until that equilibrium happens, it is, well, kinda bad. This drop was dominated by declines in residential housing contruction, while the commercial sector headed ever so slightly in the opposite direction.

And as if to remind us that these stats involve real businesses, Toll Brothers announced huge drops in income and revenue for the third quarter.

Toll Brothers Inc, the largest U.S. luxury home builder, posted a quarterly net loss on Tuesday, hurt by weakened demand in most markets amid the nation's housing slump, but the results were not as bad as Wall Street had expected.

The net loss totaled $93.7 million, or 59 cents per share, in the second quarter ended on April 30, compared with a year-earlier profit of $36.7 million, or 22 cents per share.

(Reuters, via N.Y. Times)

But the kernal of valuable information amidst the losses is the strengthening of the balance sheet and capital. Are you buying this yet? No really, are you buying this? Because at some point, you should be buying this.