On The Money by Romel Dhalla
Something is happening today that I don’t feel right about. We’ve all heard about the income gap between the rich and the poor and how it’s widening, but I’m not sure those of us with means truly appreciate the degree to which those without them are strained financially and stressed out. World Inequality Report data produced by the World Inequality Database (www.wid.world) shows that 50 percent of people on Earth earn 8 percent of the available income in the world and own just 2 percent of the available wealth. I know, this isn’t shocking anyone as most of us recall the Occupy Wall Street movement that advocated greater income parity.
Before I go on, I must say that I’m not setting out to rant against the rich. I am a staunch believer in capitalism and earn my keep in the corporate finance world… much of what I do relates to expanding wealth and mainly doing that for those that already have it. But, I don’t feel that makes me a hypocrite in pointing out the wealth gap because the companies I help and the investment returns that are generated go back into the economy and help create jobs and create wealth that gets moved around and that generates more economic activity, thus creating more wealth, and so on. So, I see my work as necessary in creating jobs and more wealth throughout the economy and that helps everyone. Having said that, there has been record levels of investment into initial public offerings on the public markets and corresponding records are being broken in the private equity markets as well. So, there must be a heck of a lot of economic activity helping lots of people, right? What’s the problem with the poor, why are they not catching up?
Well, aside from the obvious inflation we are experiencing today, that is a hard question to answer. It requires an honest look at what’s really going on. On one hand governments are responsible for creating much of the problem with a lack of intelligent regulation. On the other hand governments are spending on every shiny new social program imaginable and are handing gobs of cash to people and companies that meet their ESG (environmental, social, and good governance) agenda. Money for the people! In response, corporations quickly learned how to capture much of that by creating historically unprecedented access to the stock markets, investments, and also to crypto and without an advisor or bank to take any liability for the investor’s actions – the rich cannot and do not trade anywhere close to as aggressively as online traders. That’s your first clue, retail trading is more speculative casino-like gambling than it is investing. Thus, the money the government spent to “help people” out essentially went right back to Wall Street (or Bay Street, or whatever) as it squeezed the sponge dry with banks, asset managers, and hedge making record profits in 2022. The House always wins, that’s how casinos work. The “smart” money held by the rich and their bankers generally avoid speculative trades, meme stocks, and crypto, whereas the average investor was left holding the bag with their “diamond ape hands” waiting for their investment to “go to the moon” (research the vernacular of meme stocks and the apes, a totally ridiculous and sad story of the wealthy fleecing the poor).
The rich have gotten richer, far richer, and will continue to do so as interest rates will stay higher for longer along with inflation. I should also mention that corporations now own a record number of houses that they then rent out, which is just another tax on a middle-class family that can’t afford buying a house. So, the poor will be getting poorer, no doubt.
But, that’s capitalism’s fault, isn’t it Romel? No, capitalism doesn’t work when the government prints money for everyone, picks some companies to be the winners of their grants, and when special interests get a better deal than the rest of us. Capitalism fails when there isn’t full transparency behind trades and deals. Notably Robin Hood, the most popular online trading platform in the US, was selling their customer trade data secretly to hedge funds who would then trade against those customers. It’s a sick system and bad actors have polluted capitalism to a point where, sadly, it isn’t working anymore. I am by no means advocating for socialism, but I am a believer in fair regulation that enhances transparency and honesty in all our dealings. I am also against crony capitalism where friends of the government get rich on favoured deals.
Why is all of this important, so what if 50 per cent of people are poor? Well, if you’re so lacking in compassion for the welfare of your fellow man, then you need to look in the mirror and start asking yourself some tough questions about your values. Otherwise, you must consider that half the world is really struggling and that our politicians no longer care or lack the courage to tackle the problem. The problem isn’t going away, and I think the system will break. I don’t see how we can get around it. I don’t see a solution, yet. I hope we find one because people will eventually get angry and do something about it and that can only lead to violence, destruction of property, and death. I didn’t mean to write a macabre article. I’m just trying to tell it the way I see it, because I don’t think that governments or large companies will tell it to you straight. Things need to change, or our society will be in big trouble. Let politicians know that they need to make things right with our economic system and fast.
Romel Dhalla, President of Dhalla Advisory Corp., provides strategic corporate finance advice to companies and high net worth individuals and was a portfolio manager and investment advisor with two major Canadian banks for 17 years.