Wealthy people are spending less – are they seeing signs of a recession?
Do the ultra-wealthy know something we don’t? US consumers in general are still spending, but the 1%? Not so much.
A UBS report released last week found wealthy investors around the world are holding a relatively high level of cash in anticipation of global turmoil in 2020. That report added to a growing body of evidence that suggests the wealthy see trouble on the horizon.
UBS’s global wealth management surveyed more than 3,400 “high-net worth” individuals split across 13 markets to take the temperature of their overall economic sentiments.
More than half predicted recession next year, while nearly all respondents felt the US-China trade war will have major implications for the year ahead. Sixty per cent said they were preparing for a recession next year by increasing their cash reserves to 25% of their total, a couple of percentage points higher than normal.
“Given where we sit in the geopolitical uncertainty, people are looking to put cash to work,” said Sameer Aurora, executive director in UBS Wealth Management’s client strategy office.
Nearly four-fifths of respondents say volatility will probably increase, and 55% think there will be a significant market sell-off before the end of 2020. Sixty per cent are considering increasing their cash levels further.
“People are looking to diversify their portfolios, which is a natural response to the environment we’re in, and they’re looking for advice as we stand at the doorstep of what might be a watershed year with Brexit and a US election looming. Putting money into cash is a reflection of that,” said Aurora.
The move to cash is another signal of a pervasive anxiety about the direction of the global economy at the end of 2019.
“The rapidly changing geopolitical environment is the biggest concern for investors around the world,” said UBS’s Paula Polito, who noted that investors are more concerned about significant global changes than they are about natural economic cycles.
This move to cash comes after the billionaire Warren Buffett’s Berkshire Hathaway investment conglomerate indicated a record $128bn in cash, up more than $100bn since 2009, when it was reportedly holding about $23bn in cash.
While that could signal that the “Oracle of Omaha” can’t find anywhere to invest or is saving up for a big purchase, Berkshire recently noted that “prices are sky-high for businesses possessing decent long-term prospects”.
But there are other signs that the wealthy are keep cash under their well-feathered mattresses rather than splashing out on something fittingly luxurious, artistic or expansive.
Last week’s biannual art sales in New York were notably lacking in bigticket items with no painting or sculpture estimated to sell for more than $45m. By contrast, the spring sales in May raised $2bn in purchases, including a $91m Jeff Koons stainless steel Rabbit sculpture.
A report by the French database Artprice that global auction sales were down 17.4% in the first half of 2019. Chinese shoppers, who kept the marked bubbling for the last few seasons, have vanished. In July, one the business’s heavy-hitting private galleries, Pace, closed up shop in Beijing.
After the $90.3m sale of David Hockney’s 1972 Portrait of an Artist (Pool with Two Figures) last November, the market assumed a rediscovered canvas , Sur la Terrasse of the painter’s boyfriend at the Hotel La Mamounia in Marrakech in 1971 would sell over its $25m to $45m estimate. In the end, it scraped through at $26m.
At the end of the week ArtTactic found that sales of contemporary art at Christie’s, Sotheby’s and Phillips, in New York this fall fell 31.5% from last November’s results to a total $581.8m – the lowest number since November 2011 – and significant drop since May when the Koons sale and a $110.7m Monet fooled the market into thinking everything was rosy.
“Whittled expectations are a sign sellers are wary to part with their trophies at a time when broader global markets are weighed down by trade wars, Brexit and political scandals,” the Wall Street Journal opined.
The same is true for property. After a record boom in construction, Manhattan’s market in luxury condos has been falling since 2015 – and is continuing to drop. According to an estimate by appraiser Miller Samuel Inc, there will be more than 9,000 unsold new condo units on the market in Manhattan at the end of this year, a supply that could take nine years to sell out.
That’s also true in the Hamptons, the summer playground of wealthy New Yorkers. Property at the far end of Long Island had its worst spring selling season since 2009 and the number of unsold homes doubling. At the high end there is a three-year supply of unsold properties.
According to Aurora, the fact that 25% of wealthy individuals assets are held in cash is a reflection of the fact that they are looking for something to do with it.
“People are still looking to put money to work in high-quality assets, but people are looking to rebalance their portfolios so they are well-positioned for the months ahead where they see uncertainty. We’re living in an uncertain times and looking at factors, like the US-China trade war, that didn’t exist even two or three years ago.”