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.

We noticed yesterday, Michael Burry, of Big Short fame, just set up a Substack page to help understand the proper depreciation values of the “Nvidia Model.”

The simple fact is that longevity estimates determine the entire profit picture for Mag 7 companies, whose earnings have been beating expectations.

The current numbers don’t reflect reality. Model sizes grow faster than chip cycles. Performance requirements leapfrog hardware before the ink dries on the purchase orders. Depreciation schedules assume years of usefulness that, in practice, last months.

If that mismatch becomes undeniable, or even a popular meme, the bubble doesn’t burst spectacularly — it simply deflates through balance sheets. Slowly. Silently. Just enough to take the glow off the entire narrative.

When the Fed began hiking rates to combat inflation, bond holdings tanked. Banks have been sweating it out, anticipating a rate cut cycle.

If the Fed cuts rates in December — odds now 80% — bond prices will continue to rise. Banks will be in better shape as unrealized losses decline. Hopefully, before a crisis breaks out.

But banks are not out of the woods, yet. And increased competition from digital assets (Dollar 2.0) will further squeeze the traditional banking business model.

I’m happy to say I feel better about the second half of my life than the first. My advice: Don’t beat yourself up over past mistakes—learn at least a little from them and move on. It is never too late to improve. Get the right heroes and copy them.

Remember Alfred Nobel, later of Nobel Prize fame, who—reportedly—read his own obituary that was mistakenly printed when his brother died and a newspaper got mixed up. He was horrified at what he read and realized he should change his behavior.

Don’t count on a newsroom mix-up: Decide what you would like your obituary to say and live the life to deserve it.

Greatness does not come about through accumulating great amounts of money, great amounts of publicity, or great power in government. When you help someone in any one of thousands of ways, you help the world. Kindness is costless but also priceless. Whether you are religious or not, it’s hard to beat the Golden Rule as a guide to behavior.

New York Fed President John Williams gave traders a holiday treat on Friday, admitting there may be “room for a further adjustment.”

Futures traders promptly lifted the odds of a December rate cut to nearly 75%, up from 40% just a week ago.

Two consecutive cuts in September and October have already greased the rails. If the Fed goes for a third, the “Santa Powell Rally” may arrive early.