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When enough is enough

When enough is enough
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First Published: Sat, Jan 05 2008. 01 50 AM IST

Updated: Sat, Jan 05 2008. 01 50 AM IST
For the wealthy, 2007 was the year that bigger was better—from yachts and incomes to personal staff and art collections. In 2008, the rich are likely to be uttering a new mantra—downsizing. The fallout from the debt market crisis, along with growing concerns about inequality and the environment, are likely to usher in a year of moderation for the rich. Don’t worry: Conspicuous consumption won’t disappear.
Yet the recent surge in the population of millionaires and billionaires is likely to slow, at least in the near term. Buzzwords such as “mass luxury” and “exclusive” are likely to be replaced by terms such as “authenticity” and “sustainability”. In?2008,?the?rich?will?strive?to be more down to earth, even as they take off in their new G550 private jets.
“I think there is increased anxiety among the wealthy,” says Peter White, a New York-based counsellor to rich families. “But I also think there is a greater understanding of the interconnectedness of things, that what they do in their individual lives can have broader implications.”
Here are some of the most likely trends among the super rich for 2008.
What goes up
Conventional wisdom today says the wealthy are exempt from the forces of economic gravity. Luxury real estate sales are booming, say real estate agents, even as the rest of the housing market craters. Neiman Marcus is outshining Wal-Mart. The rich will continue to spend, we are told, because they are receiving the lion’s share of the nation’s wealth and income growth.
This has held true—so far. The rich (especially the super wealthy) will fare better than the broader consumer since they have more of a financial cushion. Yet, because so much of today’s wealth is tied to financial markets, the wealthy will feel the effects of any dramatic decline in stock markets, hedge funds and private equity. One key issue: Mergers and acquisitions—the main drivers of big wealth—could die down with tighter credit.
The rich have also been funding their lifestyles with debt—from art loans and jumbo mortgages to jet financing. So if credit contracts further, high-end spending also will shrink.
Gregory D. Curtis, chairman of Greycourt and Co., a Pittsburgh-based wealth advisory firm, says he knows several wealthy families who have already been burned by investments linked to subprime lending. “The wealthy may have a bigger cushion between themselves and the wolf at the door,” he says, “but they’re not immune.”
Tiny bubbles
The runaway prices for art, wine, vintage cars and other collectibles are sure to slow next year. The bubble may not pop, per se, since there is so much demand from the newly rich in China, Russia, West Asia and Latin America. And so far, prices of collectibles have held firm. Yet the markets have become so overrun with financial speculators—with art becoming the new “non-correlated asset” and wine becoming the ultimate liquidity event—that there’s bound to be a correction. Look for price drops of 10% or more for some of the secondary artists and winemakers that rely on American buyers.
Green is good
Private jet makers are all touting their new “green” programmes, helping the wealthy ease their consciences about burning 600 gallons of fuel to fly to Florida. Carbon-offset programmes will grow in popularity, along with efforts to reduce the number of jets flying empty on return trips.
Green-friendly homes, or eco mansions, will also make headlines, oxymoron or not. Look for more solar-powered home theatres, drought-averse (yet expensive) gardens and indoor bowling alleys made from recycled wood chips.
Experience is the new luxury
Any mere millionaire today can buy a Bentley, Hatteras yacht or Gucci bag. Yet how many people can say they’ve been to outer space?
Experience and access are quickly becoming new status symbols for the wealthy. The most prized experiences have an educational or altruistic bent, which help deflect populist criticism. Rather than buying another house or Swiss watch, the rich are trekking with penguins at the South Pole, having lunch with Nelson Mandela in South Africa or visiting a village in Bhutan to help build a school.
The final frontier in conspicuous consumption: space. In the end it’s all about quality dinner conversation, and a rare trip aboard the space station will always outshine stories of another yachting trip to Greece.
Write to Robert at wsj@livemint.com
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First Published: Sat, Jan 05 2008. 01 50 AM IST