So far, everyone is focused on the short-term trends such as rising interest rates and quantitative easing but what about the long-term outlook of America? How would we even access this? The answer is the middle class.
Middle Class; the Worker Base and Lifeline of the Economy
I truly believe that the middle class is the blood of our economy since majority of consumer companies cater to this demographic. One trend that we observed with China is the rise of the Chinese middle class. A similar phenomenon happened in the U.S. after WW2 compared to the poor prior to the war thanks to the Great Depression. The middle class has enjoyed the standards of living throughout time ever since the 1950s but how are they doing today?
Middle Class in 2021
You may have seen articles stating how the middle class is going to disappear and that there’s going to be a large wealth divide. Well that’s not entirely true. I don’t believe the middle class is going to entirely disappear but instead we’ll have the upper middle class families take over the middle class while the middle and lower middle classes become the new poor class. Take a look at these 2 charts.
As you can see, the middle and lower income classes are growing a lot slower than the upper income class. In fact, the former 2 have experienced negative growth with the middle income tier losing the most while upper income increased by 19%. In fact, the richest 5% of families were the only group that experienced positive growth since the Great Recession while the rest have decline:
Wealth inequality is growing in America and we’re seeing traditionally middle-class jobs such as truck driving disappear and being replaced with technology while in contrast the middle class in China is only growing.
So what does this mean for my portfolio?
The economic future is no longer in America, but in China. Before you even start throwing accusations, no I’m not a Chinese shill and I’m not being paid by the Chinese government but the data doesn’t lie. China is growing and they have the largest population in the world with a healthy middle class, things that America doesn’t have. In contrast, America has declining birth rates, a shrinking middle class, and a growing wealth gap. Things don’t look so great for America in the long-term and we may even experience something similar to the Soviet Union where we spend all our money in the military until we collapse! This is why almost half of my personal portfolio is in emerging markets which includes China. This is the future if we don’t address our problems at home and why our version of laissez faire capitalism doesn’t work, but we’ll get into that in another article.