Seven Grey Swans a Swimmin’ in 2025: #3 Death of the Middle Class

“I believe we are on an irreversible trend toward more freedom and democracy – but that could change.”

–Dan Quayle

December 27, 2024— Are you better off now than you were four years ago?

That question, which Ronald Reagan first asked voters in 1980 after four inflationary years of the Carter presidency, resonated. It’s no wonder Donald Trump brought it back successfully in 2020.

The past four years, inflation hasn’t been terrible compared to the 1970s and 1980s. But in a world of 2% inflation expectations, the jump to 9% was huge. It caused millions to see, in real-time, the cumulative damage inflation does.

For wealthier Americans, inflation may have been painful, but it was also beneficial. That’s because inflation tends to mean rising asset prices.

For instance, since 2020, the Case-Schiller home price index has risen 47%. If you owned a “median” home valued at $300,000, it’s now likely worth closer to $450,000, plus or minus your local market conditions.

A $1 million home? Closer to $1.5 million.

And let’s not forget the stock market over the past four years, which has nearly doubled. Even the 2022 bear market is starting to look like just a speed bump in the rear-view mirror.

It’s no wonder that the four wealthiest Americans, Elon Musk, Larry Ellison, Warren Buffett, and Jeff Bezos, now have a combined wealth of $1 trillion.

But for millions of Americans who don’t own a home or invest in a 401(k) plan, rising inflation means lower take-home pay.

Food costs are up over 20% over the past few years. As are rents.

And next year, when Donald Trump starts ratcheting up tariffs again, there will be more pressure for prices on goods to rise even further. That will make it harder to keep prices down.

Time magazine reported that if Trump gets the full tariffs he has in mind, consumer prices could rise as much as 5.1%. That’s likely more than enough to offset any savings consumers might see from deregulations or a small reduction in tax rates.

When you’re on the liability side of inflation, it’s painful. And more and more Americans are falling behind.

This increasing wealth inequality, combined with tech trends that include major advances in AI and robotics, could lead to another Grey Swan event: the death of the middle class.

Grey Swan #3: Death of the Middle Class

The middle class, long considered the engine of our economy and the embodiment of our national values, is shrinking at an alarming rate, fundamentally altering America’s social and economic landscape.

According to a recent Pew Research Center study, the share of Americans living in middle-class households has plummeted from 61% in 1971 to just 51% in 2023. And bear in mind, the U.S. population has increased by 67% since then.

As the middle class contracts, the rift between lower-class and higher-class Americans grows wider.

From 1970 to 2022, middle-class incomes increased from $66,400 to $106,100, barely keeping pace with inflation.

Over that same time, upper-income households saw their median income skyrocket by 78%, from $144,100 to $256,900.

But as prices have risen, the middle class’s share of total U.S. household income has plummeted – from 62% in 1970 to just 43% in 2022.

Turn Your Images On

The middle class is disappearing, bleeding into upper and lower-income groups.

Chances are, if you’re reading this, you’re movin’ on up. Let’s make sure it stays that way.

One way to do so is to invest in some of the latest technologically transformative trends. As Grey Swan Investment Fraternity contributor and AI expert Zoltan Istvan recently told paid-up members of our fraternity:

If we just go back about two years, to when most people used ChatGPT for the first time, we see that the increased use and evolved complexity of AI is almost a straight line up on a J-curve graph.

In other words, the world is changing at an accelerating pace. The best way to ensure you’re not left behind is to invest in some of today’s top tech trends, as well as with assets that have massive return potential, such as bitcoin.

Regards,

Addison Wiggin,
Grey Swan

P.S. It’s not too late to review some of our most recent research in the tech space, including what we call “Quantum Energy.” We’ve identified several companies developing this technology, which is the key to fully unlocking AI’s potential.

There are many ways to play this trend, depending on your comfort level. While we believe that investors should focus on safety first, playing growth trends is crucial to growing your wealth above and beyond inflation’s incessant bite.

Your thoughts on the top Grey Swan events of 2025 are welcome here: addison@greyswanfraternity.com.

“I believe we are on an irreversible trend toward more freedom and democracy – but that could change.”

–Dan Quayle

December 27, 2024— Are you better off now than you were four years ago?

That question, which Ronald Reagan first asked voters in 1980 after four inflationary years of the Carter presidency, resonated. It’s no wonder Donald Trump brought it back successfully in 2020.

For wealthier Americans, inflation may have been painful, but it was also beneficial. That’s because inflation tends to mean rising asset prices.

A $1 million home? Closer to $1.5 million.

And let’s not forget the stock market over the past four years, which has nearly doubled. Even the 2022 bear market is starting to look like just a speed bump in the rear-view mirror.

It’s no wonder that the four wealthiest Americans, Elon Musk, Larry Ellison, Warren Buffett, and Jeff Bezos, now have a combined wealth of $1 trillion.

But for millions of Americans who don’t own a home or invest in a 401(k) plan, rising inflation means lower take-home pay.

Food costs are up over 20% over the past few years. As are rents.

And next year, when Donald Trump starts ratcheting up tariffs again, there will be more pressure for prices on goods to rise even further. That will make it harder to keep prices down.

When you’re on the liability side of inflation, it’s painful. And more and more Americans are falling behind.

This increasing wealth inequality, combined with tech trends that include major advances in AI and robotics, could lead to another Grey Swan event: the death of the middle class.

Grey Swan #3: Death of the Middle Class

As the middle class contracts, the rift between lower-class and higher-class Americans grows wider.

From 1970 to 2022, middle-class incomes increased from $66,400 to $106,100, barely keeping pace with inflation.

Over that same time, upper-income households saw their median income skyrocket by 78%, from $144,100 to $256,900.

But as prices have risen, the middle class’s share of total U.S. household income has plummeted – from 62% in 1970 to just 43% in 2022.

Turn Your Images On

The middle class is disappearing, bleeding into upper and lower-income groups.

Chances are, if you’re reading this, you’re movin’ on up. Let’s make sure it stays that way.

If we just go back about two years, to when most people used ChatGPT for the first time, we see that the increased use and evolved complexity of AI is almost a straight line up on a J-curve graph.

Regards,

Addison Wiggin,
Grey Swan

Your thoughts on the top Grey Swan events of 2025 are welcome here: addison@greyswanfraternity.com.

For now, the mixed economic data means stocks will likely trend higher, until there’s a crisis. And when there is a crisis, the Fed will finally make its move and aggressively cut rates.

And, for now, bond yields are still near their highest level in 15 years. Bond yields, even on U.S. Treasury bonds, are over the rate of inflation.

In short, it’s not a bad time to lock in bond yields now – which will go lower during a crisis, pushing bond prices higher. And in a crisis, today’s high-flying stocks, driven by retail investors with a fear of missing out – could easily get crushed.

Markets are humming, policy dazzles, but beneath the gloss — tech booms, liquidity surges, digital currencies — the very foundations of money, governance, and investor sentiment are cracking, realigning, even smoldering.

The post-World War II Pax Americana isn’t evolving; it’s being dismantled rather quickly.

What’s emerging is accompanied by a load of distraction and showmanship. So it’s important to focus on the actual events taking place right now that are going to affect your portfolio this year.

And, we can’t overstate this, the changes that are actually happening right now to your money.

Today, digital dollars masquerade as cash, tariffs are cloaked as protection, AI layoffs spun as productivity, private assets packaged as democratized. And yet, none of it matters if the final pillar — confidence — crumbles.

When belief falters, no trumpet of “seismic event” grants you shelter.

Private equity tends to perform better than the stock market, provided you do so over time.

Private credit, a newer asset class but a rapidly growing one, also shows strong returns, as well as relatively high current income.

And if you have a retirement account, chances are you’re willing to think long-term.

Win-win, right? Not necessarily.

First, these new funds would also come with an incentive structure similar to investing in a hedge fund. That includes a higher fee than a market index ETF – think 2% compared to 0.1% (or less).

Plus, many of these funds have a hurdle rate attached to them as well. Once they clear 5% returns – which, with private credit, can be easily cleared by making deals with cash returns over 5% – additional incentive fees may kick in.

Several factors are likely at play here. Rising uncertainty over Trump’s tariff and trade policies – even though he’s largely walked those back.

A bigger factor? The rise of AI.

Many big tech companies have been making layoffs this year, citing increased productivity as a reason. For instance, Microsoft just announced another 9,000 in layoffs.

Of course, when an individual company announces layoffs, it’s usually bullish for shares. That company is doing the same – or more – with a smaller headcount. That’s lower costs and higher productivity.

But in a world where every company can lay off a sizable percentage of their staff, we have more unemployed consumers, who tend to cut back on spending.