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Luxury May Be Lethal
"...luxury is a classic late-bloomer." -- Financial Forecast, March 2011

By Bob Stokes
Fri, 07 Oct 2011 17:45:00 ET
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The affluent have been pursuing luxury like there's no tomorrow.

Is that a positive economic indicator? 

The title of this article gives a clue. In March, our Financial Forecast editors wrote:
"The demand for luxury will be the last fever to break; its latest push to a solitary all-time high and its reliance on the financial industry (which is actually leading in the opposite direction) signal that the mass pursuit of opulence is about to be quelled for a long, long time."
In the meantime, $349,000 4WD Ferraris have been selling out in the United States. And CBS News reports (3/16) that a Chinese tycoon splurged $1.5 million on a dog (the Tibetan mastiff is believed to bring its owner health and security).  In Paris (Reuters, 10/2):
"French luxury goods maker Hermes sees no sign yet of affluent buyers tightening their purse strings in spite of a somber global economic outlook..."
And while we're globe trotting, let's not leave out the Southern Hemisphere. The just-published October Financial Forecast says:
"In late August 2011, the Associated Press tracked what should be the final vestige of the yacht-buying frenzy to Brazil where yacht makers continue to enjoy booming sales. Brazil now accounts for 40% of one Italian boat maker’s sales, up from just 5% in 2007."
True, the social mood behind luxury spending may precede a deadly downturn in the economy -- and coincidentally, luxury itself can also be lethal -- literally. Returning to the latest Financial Forecast:
"The largest yacht in the world, the 563-foot long Eclipse, was delivered to Russian businessman Roman Abromovich last December. The $700 million ship is equipped with a missile defense system. This will undoubtedly come in handy in the bear market."
Naturally, anyone has a right to spend their money on whatever they choose. The point to ponder is what the demand for luxury today may be telling us about our economy tomorrow.
The demand for luxury goods is a late economic cycle indicator. But it is just one of many socionomic indicators of where we are in the current economic trend. 

Robert Prechter says the economy is not in recovery nor is it headed toward a "double dip" recession.

So what is going on with the economy? 


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