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2010 in Richistan: The Year of the Muddling Millionaires

December 30, 2009

George Heery Founding Partner

Submitted by George Heery, REALTOR® and Founding Partner Atlanta Fine Homes Sotheby’s International Realty.

The population of U.S. millionaires shrunk more than 15% in 2008. With Lehman Brothers Holdings having collapsed, 2009 was shaping up to be even worse. Stocks were falling, along with most other asset classes. Hedge funds and private equity were locking up cash, leaving even billionaires short on liquidity. Throw in Bernie Madoff, higher taxes, investigations into offshore tax havens and an increasingly populist government and you had the makings of the greatest destruction of wealth–and global attack on the rich–since the Great Depression.

Was “Richistan” gone for good? Would wealth ever return?

Here is a list of specific predictions for 2010 from the Wall Street Journal:

1: A slight increase in millionaires. In 2009, there were either modest declines or slight gains in the population of U.S. millionaires. My guess is that 2009 will show a change somewhere in the range of -2% to +2% and that 2010 will show an increase of 3% to 5%. It will take another few years at least to get back to the 2007 population of three million liquid millionaires in the U.S.

2: Greater inequality among the rich. Lower Richistan, or those with a net worth of $1 million to $10 million, have gotten hurt the most by the crisis among the wealthy, since losing half of a $2 million fortune radically changes a person’s financial life. Those in Middle Richistan ($10 million to $100 million) and especially Upper Richistan (more than $100 million) are better able to weather a 30% to 50% drop in their wealth without changing their lifestyle. What is more, Upper Richistanis were better able to take advantage of the risky opportunities in 2009 that netted such big profits.

3: Goodbye Instapreneurs; Welcome back Slow-Money Millionaires. Before the leverage craze and asset bubbles of the 2000s, which enabled the creation of instant fortunes through acquisitions, IPOs and buy-outs, wealth was acquired incrementally, sometimes over generations. Next year may bring a return to a more old-fashioned, incremental wealth.

4: Luxury returns, but on a more-modest scale. There will be more and more headlines about high-end products selling again. But don’t expect many more $300,000 watches that don’t tell time. Conspicuous consumption will continue to be replaced by conscientious consumption, with pricing, quality and morality (impact on the environment, etc.) becoming more important in high-end spending.

5: Higher taxes. The top marginal tax rate, currently at 36%, is likely to shoot well past 40% by the end of 2010. Some economists say it even may top 50%. That doesn’t include the possible increases in the estate tax, capital gains, dividends and the inevitably higher taxes at the state and local levels.

What do you think 2010 will bring for the rich?

Please click here for the entire article from the Wall Street Journal on the predictions of the wealthy in 2010.

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