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Sun 5 Jul 2009 04:00 AM

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Mega-wealthy survivors have never had it so good

There has probably never been a better time to be mega-rich, Matthew Lynn argues.

Mega-wealthy survivors have never had it so good

You might be forgiven for thinking this was a rotten moment in history for the mega-rich.

Crooked hedge-fund managers such as Bernard Madoff are waltzing off with your fortune. Taxes are being raised around the world, and are likely to rise further. Every politician is taking potshots at the excesses of bankers and oligarchs.

Even the offshore financial centres, usually the one place you could count on to welcome you with open arms and a waiting limo, are contemplating handing over the details of all your accounts to the tax authorities back home.

It is enough to leave you crying into your last glass of Cristal champagne.

Don't be downhearted. There has never been a better time to be mega-wealthy. The plutocracy is entering a gilded era.

The reasons are simple: all the things you need to maintain your lifestyle are getting cheaper. And there are a lot fewer of you around. The main point about being rich is not how much you have, but whether you have more than everyone else.

Anyone who tracks the price of luxury items knows that while life is harder for ordinary people, it is getting cheaper for the seriously wealthy.

The London-based wealth management firm Stonehage calculates the cost of living for what it calls ultra high-net-worth families. Its index includes everyday essentials such as Beluga caviar, dinner at the Ivy, a day's grouse shooting, a grand tier box at the Royal Opera House, and breast-enhancement surgery (in case the trophy wife isn't quite as impressive as she should be after all that Beluga).

None of them are cheap. They are, however, a bit cheaper than they used to be. Stonehage says the price index dropped about four percent in the 12 months through April 2009, as luxury property rents and discount travel deals fell.

By contrast, the inflation rate for the rest of the UK population, measured by the consumer-price index, was more than two percent.

Meanwhile, the World Wealth Report produced by Capgemini SA and Merrill Lynch & Co found the number of US-dollar millionaires in the world dropped 15 percent last year to 8.6 million people, wiping out the increase in their ranks during the previous two years. The overall value of assets held by millionaires dropped 20 percent to $32.8 trillion in 2008.

Clearly that is unfortunate for those people who have dropped out of the club, and now have to reacquaint themselves with coach class on airlines, and finding out where the local Hyundai dealer is.

Still, there is no cloud without a slither of silver in it somewhere. And the thinning of the ranks of the world's wealthy is good news for those who remain.

In reality, whether you are rich or not doesn't depend on how much money you have, or how many possessions you own.

It depends on what everyone else has. It is all relative.

Obviously, it is preferable if you pull ahead of the pack by making lots of money. But if everyone else loses money, and you just stay where you are, you can achieve the same result.

The last two decades, marked by successive bull markets, were a period of rising mass affluence. Everyone seemed to be getting richer all the time, which made it harder for the seriously loaded to stay ahead of the game.

A limo? Every Saturday night they were cruising around any big city packed with shop girls. A Rolex? They were selling them in every mall. A private jet? They could be rented by the hour.

At the same time, rising asset markets meant new millionaires were being minted by the second.

Take London, for example. By 2007, just about anyone who owned a fairly modest family home in the British capital could hardly help but be a millionaire. Much the same was true in the US, Ireland or Spain. There wasn't much cachet to being a millionaire anymore.

Now that has been thrown into reverse. Mass affluence is on the retreat. It won't return any time soon.

The property market may not be sinking like a stone anymore, but it will be many years before anyone makes much money by buying a house. The credit won't be available.

Nor are the financial markets going to be spitting out 29-year-olds with million-dollar bonuses the way they did for much of the last decade. The banks that have survived will have to be run in a far more sober way in the next 10 years.

And with fewer millionaires around, it will be a lot easier to stand out from the crowd. You won't have to constantly come up with new and ostentatious ways of displaying your wealth to distinguish yourself from the rest of the herd.

You can relax and enjoy your money. So long as you managed to hang on to the bulk of your fortune during the past year, there has probably never been a better time to be mega-rich.

Matthew Lynn is a Bloomberg news columnist. The opinions expressed are his own.

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