Here are a couple charts that go nicely together, the first coming in this presentation by David Rosenberg and the second from this new Gallup survey on stock ownership.

Thanks in part to the world’s central banks, a widening gap in income and wealth between rich and poor is now a worldwide phenomenon and some of the most extreme examples are now seen in Asia, for example Mumbai Slumscrapers on a recent episode of HBO’s Vice.

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In my visit back to Pennsylvania last week the subject of reverse mortgages came up on several occasions as more and more seniors have little recourse other than to tap their home equity in order to pay, primarily, medical bills. Long-term care costing upwards of $10,000 a month (i.e., after the three months that Medicare pays) will quickly wipe out whatever savings most elderly have, leaving them with few alternatives other than a reverse mortgage that, surprisingly, are now taken out as a lump sum by a margin of two-to-one.

Until reading this Wall Street Journal story, I didn’t even realize it’s possible to default on these loans, but, clearly it is, and those default rates are on the rise, but help is on the way.

Defaults occur when a borrower fails to pay property charges, including property taxes and homeowners insurance. Of the almost 600,000 reverse mortgages outstanding, 9.8% are currently delinquent, up from 8% in 2011, the first year for which statistics are available, according to the federal Department of Housing and Urban Development, whose Federal Housing Administration insures virtually all reverse mortgages.

Delinquencies have increased in recent years as up to 70% of borrowers have opted for lump-sum payouts.

“For many homeowners, taking all eligible cash upfront results in insufficient cash flow in later years for property upkeep, taxes and insurance,” HUD warned in a November report to Congress.

The good news: Help is available. Under guidelines HUD released in 2011, lenders—before initiating foreclosure proceedings—are required to notify borrowers who fall behind of free financial counseling. Such sessions can help them get back on track by, among other things, tapping benefit programs for some older individuals.

I haven’t seen any data on this recently, but reverse mortgages have got to be a booming business for banks with, as I recall, some very big up-front fees.

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The Rich Get Richer – Part 63

The results of this new Pew Research study on changing wealth in America shouldn’t be too surprising as it covers the time period from 2009 to 2011 when equity markets were rebounding from the 2008 financial crisis and the housing market was still struggling.

Pew Wealth StudyDuring the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.

From 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.

These wide variances were driven by the fact that the stock and bond market rallied during the 2009 to 2011 period while the housing market remained flat.

Affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home.

They note that during the period they studied, U.S. stocks rose by 34 percent whereas home prices actually fell by 5 percent, meaning that, if home prices continue to rise, the lower 93 percent should see a pretty good boost to their net worth the next time around.

Nonetheless, the message remains the same. Paraphrasing Mel Brooks, “It’s good to be rich”.

This is Impressive (or Stupid)

I’m not sure if doing back flips as you’re trying to outrun an avalanche is an indication of great skill or a death wish, but, here it seems to work.

This is from the 2013 Swatch Skiers in Zermatt, Switzerland. I think I have the same yellow back pack as skier Severre Liliequinst – that’s about the only thing that we have in common.

While there is nothing good about elderly savers being “crucified on a cross of ZIRP”, as David Stockman recently put it, there is a much more dangerous side-effect to Fed Chief Ben Bernanke’s zero interest rate policy – seniors reaching for yield. As detailed in this story at the Washington Post, retirees are particularly vulnerable to a growing number of scams aimed at separating them from their money much fast than the central bank ever could.

Senior citizens are being lured into riskier investments — and often outright scams — as carefully laid retirement plans have been scuttled by five years of low interest rates.

Washington PostGovernment regulators and advocacy groups say unscrupulous dealers are taking advantage of a growing fear among seniors that they will run out of money in their final years of life. That’s in large part because many seniors have parked their cash in safe investments, such as government bonds, where returns have barely kept pace with inflation. As a result, their savings are stagnating as their life expectancy grows — and that is making many older Americans increasingly desperate.

In Georgia, regulators nabbed a man who bilked seniors out of $16 million by promising to generate high returns with investments in foreign currencies. In South Carolina, regulators are pressing charges against a former insurance agent who they say was able to scam 17 people out of more than $1 million by advertising certificates of deposit with returns of just 4 percent. A similar scheme in Virginia attracted more than $11 million from seniors hoping to beat bank interest rates that have fallen below 1 percent.

What we really have now is a combination of the fraudulent seller with the needy buyer,” said A. Heath Abshure, commissioner of the Arkansas Securities Department and president of the North American Securities Administrators Association. “Right now, because of interest rates, the fraudulent sellers aren’t having any issues finding a buyer who wants to believe the lie.”

Prior to the increase in older “needy buyers”, those over 60 already accounted for 30 percent of all investment fraud, about double their 15 percent share of the population, and that’s just going to get worse since we’re likely to have zero interest rates for years to come.

It never ceases to amaze me that, if you had, say, a quarter of a million dollars in the bank, you’d be doing well to generate more than $1,000 a year in income in an insured account. It used to be that you could expect that money to return $1,000 a month, a development that radically alters the finances of many seniors.

Live Coverage of Boston Manhunt

The nation is now transfixed on the manhunt for the Boston Marathon bombers, one of whom is already dead. I have no idea how the NECN stream below can keep up with the demand as this was the main Yahoo! link to live coverage, but it seems to be solid as a rock.

necn_live on livestream.com. Broadcast Live Free
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