We are living in times of widespread impoverishment. The collapse of the system, which began in the summer of 2007, is already wiping out most of the wealth of the upper-middle and upper classes. And the worst thing is that It does so to no avail, as this is not a matter of redistribution but rather of a destruction of wealth, of which many of its owners are not even aware.
As we have said time and time again, personal wealth usually consists of three types of assets: Financial, iProperty and business. Well then, The Tsunami of Impoverishment which is beginning to unsettle many wealthy individuals, regardless of the size of their fortunes, is also unfolding at a macabre moment:
- The first leg One sector of the asset market that has suffered enormous losses is the financial sector, as during late 2007 and throughout 2008, investments in the stock market (including structured products of all kinds) and the misnamed ‘fixed-income’ instruments – such as preference shares and perpetual debt – have suffered colossal losses. In this regard, it is worth noting that investors were unethically pressured by salespeople and intermediaries of all kinds. The greed, a lack of knowledge and common sense did the rest.
- As far as property is concerned, it is true that prices have already fallen significantly compared with those of a couple of years ago, to which we unconsciously remain tied. However, in our view, we have not yet experienced the sharpest fall in prices. The latent supply arising from the large portfolios of properties that the banks are set to dump onto the market has only just begun. Similarly, multi-property owners, whose income from rents and other sources is being severely eroded, are set to flood the market with properties, a market where demand is – and will remain for many years to come – purely residual. And when that phenomenon occurs and gradually intensifies, we will witness the real collapse in property prices.
- Finally, corporate profits have also disappeared in many family-run businesses and corporate assets in general. However, the decline in a company’s value is not only due to falling profits, but also to capital losses on its premises and fixed assets in general. Furthermore, the current climate is often forcing companies to make adjustments that go beyond simply reducing staff numbers and costs; we are referring to substantial changes to their business model. And many companies will not be able to achieve this, thereby resulting in a loss of corporate asset value of almost 100%.
The timing of the wealth drain was largely triggered by financial losses, with the slump in property values and capital losses in business assets coming only once the tsunami had hit the coast. In other words, the financial collapse first affected monetary investments, at a time when there was talk that something serious was happening with credit, but society was still only feeling the effects in the bank statements of those who held securities accounts. Instead, it is the severe social decline that will coincide with the massive fall in property and corporate values.
Obviously, if we add up the losses we are going to see (and are already seeing) across the three types of wealth we have defined, the drain on wealth will be overwhelming and will deal a cruel blow to the efforts of a lifetime. However, few will be aware of the severity of their wealth loss because most will only regard the financial loss as such. And that The ‘head-in-the-sand’ approach to wealth management will prevent them from taking the drastic measures needed to stop a lifetime’s work – or even the work of generations – from being destroyed in this major crisis of the 21st century. The ‘heritage haemorrhage’ has only just begun, and the only antidote is the one we have been recommending for the past couple of years: It’s time for cash to prevent a loss of value, and it is also the necessary first step towards taking advantage of the opportunities that the mother of all crises will bring us (and is already bringing us).