The Occupy Wall Street movement encapsulates concerns about the unequal distribution of wealth in the United States in a clever way: It's the 1% vs. the 99%. The phrase is catchy and has made some people mad. But if you want to know how those percentages might become less extreme, don't look to Occupy Wall Street protestors for the solution.

 

Instead, look for a bear market. It has always been the great leveler. We believe that the bear market that started in 2000 (we are currently in a bear market rally) will move that ratio toward more equality. Here's how, as explained by our analysts Steve Hochberg and Pete Kendall in the most recent Elliott Wave Financial Forecast. Once you read this, you will understand how we see the big picture.

 

Excerpted from the December 2011 Elliott Wave Financial Forecast, published Dec. 2, 2011

 

The share of wealth held by the top 1% of Americans is lower today than it was at the major market peaks of 1929 and 2000. Yet the impetus to redistribute wealth is far stronger, because social mood is less positive. Ironically, tempers are flaring just as the most powerful phase of the bear market prepares to “even the playing field” naturally by destroying most of the wealth created in the preceding bull market. As we said in 1999, the bear market will take care of the distribution-of-wealth “problem.”

Our suspicions are confirmed by NYU researcher Edward Wolff, who has shown that the current wealth disparity is caused by a heavy concentration of stocks and other investments in the hands of the rich and super rich. A rise in the percentage of wealth held by the top 1% in 2008 and 2009 (the latest figures available), despite the stock market’s decline from its 2007 peak, is due to the corresponding decline in housing. “While stock prices fell more than house prices, houses were a much larger share of the gross assets of the middle class than stocks were of the rich,” says Wolff.

As the middle class exits the housing and stock markets, this line will fall fast. The true relationship is displayed by the bottom line on the chart [Editor's note: Chart not shown.], which shows the income share of the top 1%; it rose dramatically with the bull market from the early 1980s, and fell hard with stocks from 2000-2002 and 2007-2009. As the bear market intensifies, the rich will get poorer faster, and the concentration of wealth will follow income downward.