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.

Relative to GDP, the net international investment claim on the U.S. economy was 20% in 2003. It had swollen to 65% by 2023. Practically every type of American company, bond, or real estate asset now has some degree of foreign ownership.

But it’s even worse than that. As the federal deficit has pumped up the GDP figures, and made a larger share of the economy dependent on government spending, the quality and sustainability of GDP have deteriorated. So, foreigners, to the extent they are paying attention, are accumulating claims on an economy that has been eroded by inefficient, government-directed spending and “investments.” Why should foreign creditors maintain confidence in the integrity of these paper claims? Only to the extent that their economies are even worse off. And in the case of China, that’s probably true.

As global government interest expense climbed, gold quietly followed it higher. The IIF estimates that interest costs on government debt now run at nearly $4.9 trillion annually. Over the same span, gold prices have tracked that burden almost one-for-one.

Silver has recently gone along for the ride, with even more enthusiasm.

Since early 2023, Japan’s 10-year government bond yield has risen roughly 150 basis points, touching levels not seen since the 1990s.

Over that same period, gold prices have surged about 135%, while silver is up roughly 175%. Zoom out two years, and the divergence becomes starker still: gold up 114%, silver up 178%, while the S&P 500 gained 44%.

According to the American Association of Individual Investors, the average retail investor has about a 70% allocation to stocks. That’s well over the traditional 60/40 split between stocks and bonds. Even a 60/40 allocation ignores real estate, gold, collectibles, and private assets.

A pullback in the 10% range – which is likely in any given year – will prompt investors to scream as if it’s the end of the world.

Our “panic now, avoid the rush” strategy is simple.

Take tech profits off the table, raise some cash, and focus on industry-leading companies that pay dividends. Roll those dividends up and use compounding to your overall portfolio’s advantage.

In a healthy economy, production and consumption communicate constantly. If a company builds something useful, customers respond by buying it. If they overbuild, inventories pile up and prices fall, sending a signal to slow down.

AI infrastructure, by contrast, is being built largely on faith. Companies are scaling up compute power without clear signs of sustainable demand. Unlike oil and gas, where prices adjust second-by-second, AI companies operate in a fog. They release tools, collect usage stats, and hope that paid conversions will follow.

But hope is not a business model.

Silver has recently gone along for the ride, with even more enthusiasm.

Since early 2023, Japan’s 10-year government bond yield has risen roughly 150 basis points, touching levels not seen since the 1990s.

A pullback in the 10% range – which is likely in any given year – will prompt investors to scream as if it’s the end of the world.

Our “panic now, avoid the rush” strategy is simple.

Take tech profits off the table, raise some cash, and focus on industry-leading companies that pay dividends. Roll those dividends up and use compounding to your overall portfolio’s advantage.

But hope is not a business model.