Inside investment: Bye, bye snowbird
Affluenza has caught a cold. Those hoping to piggyback off an ever expanding middle-class piggybank should take due note.
During a hard winter in the northern hemisphere, the public has been struck by reports of birds falling from the sky en masse. Less reported, however, is the decline in the migrations of those retired individuals known as snowbirds. They have been deterred from their seasonal sun-seeking by the virus of austerity, which is affecting the middle classes’ quality of life and lifestyle.
A few years ago, in an article titled "Cost of living now outweighs benefits," news-spoof website The Onion said that "a report by the Federal Consumer Quality-Of-Life Control Board indicates that the cost of living now outstrips life’s benefits for many Americans. ‘This is sobering news,’ said study director Jack Farness. ‘For the first time, we have statistical evidence of what we’ve suspected for the past 40 years. Life really isn’t worth living.’"
The study took benefits such as median income ($43,000) and added intangibles such as finding inner peace ($15,000), closeness with family members ($3,000), and moments of joy ($5 each) and subtracted such costs as housing ($18,000) and child rearing.
The study concluded that since 1965 the net benefit has been declining. Since the study was concluded in 2005, things in the western world have clearly been getting worse. In Bavaria, where unemployment is only 3.5% and skilled workers are in short supply, people are working more hours and retiring much later for 4.5% less in real incomes than a decade ago (see ‘Bavaria booms, but Germans feel economic malaise,’ New York Times, December 25 2010), they are a Welt of Schmerz.
UK universities are doubling or tripling student fees, as are many US state universities. There is increasing disillusionment with the payback on the $50,000 a year charges of elite private colleges as studies show that only three Fortune 500 CEOs have attended such schools (see Who needs Harvard? Gregg Easterbrook, The Brookings Institution, October 2004), while the current crop of graduates are applying their skills in Renaissance French literature to mowing lawns and stocking shelves.
Every year since 1984, PNC bank in Pittsburgh has compiled a cost-of-Christmas index based on the goods and services in the carol Twelve Days of Christmas.
PNC gets prices from the same sources every year and makes no hedonic adjustments.
In 2010, the package cost $23,439.38, up 9.2% on 2009. The biggest increases were turtle doves (+78.6%), French hens (+233%), golden rings (+30%). The smallest increases were calling birds, geese and milkmaids (all +0%), piper and drummers (both +3.1%), lords (+8%), partridges (+1.3%) and swans (+6.7%).
The index contains goods (tree, various fowl, gold) and services (milkmaids, ladies, lords, pipers, drummers.) Over the past 10 years, the goods have increased 194% while the services have increased 46%. The hardest hit were the leaping lords, who commanded only 23% more (less even than the understated US CPI of 27% for the period) in 2010 than in 2000, compared with a general increase in the Christmas index of 132%. Even pipers, up 52%, have done better.
I don’t know how long this displacement of people by goods has been going on, but the cost-of-Christmas index was almost flat between 1984 and 2000, while in the past 10 years it has increased 54%. Budgets are being stretched. Looking back even further, to the origins of the song, perhaps around 1400 in England, Scotland, or France, one can image how two hussies (‘housewife’, from ‘huswif’) might have talked about costs when meeting one day in the local suet market:
Fyrst Hussy: God dæg, huswif, and Merrie Yule.
Sicond Hussy: God dæg. Gegan [will you go] to the Costa Brava eft [again] æfter Twelth Niht?
Fyrst Hussy: Nay. Min tru luv cunnan nich afford it. His giefus to me of partridges, ffrench hens, rynges, and other fyne thynges have gone thru the thatch, but his labors forþbringan [produce] little more than ær [before].
Sicond Hussy: Min manne is the self [same]. I drede we must work till we gefaran [die].
How true these words remain! Work will, for the great majority of the middle class, end only in death or incapacity. Since the Second World War, western society has employed a social model in which each generation is to a greater degree independent of the others. Demographics mean that this model is not sustainable.
Households will become increasingly multigenerational through economic necessity. Parents and their adult children will live together. Granny will do the cooking and childcare, while Grandpa pumps gas part time at the filling station. Maiden aunts will often constitute a chilling presence. This new model has implications for any business that believes middle-class wealth and saving is as unchangeable as the winter migration of (snow) birds.
Lincoln Rathnam, PhD, CFA, is an investment professional based in Singapore and Boston. In a career spanning almost 30 years he has managed equity, debt and venture capital portfolios and was a pioneer investor in emerging markets in the late 1980s