loosecannon
Senior Member
- May 7, 2007
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Citigroup Oct 16, 2005 Plutonomy Report Part 1
SUMMARY
➤ The World is dividing into two blocs - the Plutonomy and the rest. The U.S.,
UK, and Canada are the key Plutonomies - economies powered by the wealthy.
Continental Europe (ex-Italy) and Japan are in the egalitarian bloc.
➤ Equity risk premium embedded in global imbalances are unwarranted. In
plutonomies the rich absorb a disproportionate chunk of the economy and have
a massive impact on reported aggregate numbers like savings rates, current
account deficits, consumption levels, etc. This imbalance in inequality
expresses itself in the standard scary global imbalances. We worry less.
➤ There is no average consumer in a Plutonomy. Consensus analyses focusing
on the average consumer are flawed from the start. The Plutonomy Stock
Basket outperformed MSCI AC World by 6.8% per year since 1985. Does
even better if equities beat housing. Select names: Julius Baer, Bulgari,
Richemont, Kuoni, and Toll Brothers.
WELCOME TO THE PLUTONOMY MACHINE
In early September we wrote about the (ir)relevance of oil to equities and introduced the
idea that the U.S.is a Plutonomy - a concept that generated great interest from our
clients. As global strategists, this got us thinking about how to buy stocks based on this
plutonomy thesis, and the subsequent thesis that it will gather strength and amass
breadth. In researching this idea on a global level and looking for stock ideas we also
chanced upon some interesting big picture implications. This process manifested itself
with our own provocative thesis: that the so calledglobal imbalances that worry so
many of our equity clients who may subsequently put a lower multiple on equities due to
these imbalances, is not as dangerous and hostile as one might think. Our economics
team led by Lewis Alexander researches and writes about these issues regularly and they
are the experts. But as we went about our business of finding stock ideas for our clients,
we thought it important to highlight this provocative macro thesis that emerged, and if
correct, could have major implications in terms of how equity investors assess the risk
embedded in equity markets. Sometimes kicking the tires can tell you a lot about the
car-business.
Well, here goes. Little of this note should tally with conventional thinking. Indeed,
traditional thinking is likely to have issues with most of it. We will posit that: 1) the
world is dividing into two blocs - the plutonomies, where economic growth is powered
by and largely consumed by the wealthy few, and the rest.
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