Sotheby’s volatile stock price continues to beguile all manner of commentators. With that in mind, we offer this additional data point from the Wall Street Journal’s Wealth Report blog that suggests Sotheby’s stock is not a bubble indicator at all but a highly volatile security that tracks a market that has even more potential volatility undergirding it if the spending patterns of Ultra-High Net Worth Individuals follows the patterns suggested below:
Take a look at the chart below. The red line shows the Dow Jones Luxury Index, which tracks 30 stocks of companies that make or sell luxury products to the affluent and wealthy. The other line is the Dow Jones U.S. Consumer Goods Total Stock Market Index. […]
What is surprising is the degree of volatility compared to the rest of the country. In a research paper looking at the top earners in the U.S., economists Jonathan A. Parker and Annette Vissing-Jorgensen found that the consumption of the top 5% is more than two and a half times as volatile as the spending of all U.S. households.
“Consumption in the current recession has fallen substantially more for high-expenditure households in the current deep recession,” they write.
What’s the reason? Parker and Vissing-Jorgensen point to the highly cyclical incomes of the wealthy – a point also made recently by the IRS. But there may also be psychological reasons, as the wealthy become more manic in their spending. When times are good, they spend like there’s no limit. When times are bad, they go into lockdown mode.
The Manic Spending of the Wealthy (Wealth Report/The Wall Street Journal)
