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Robert Frank tells American Express audience that 1982 marked beginning of market's 'manic ride'


Not that long ago, being very wealthy meant a life of coupon-clipping and quiet security. Now that's changed, and today's 1 percenters might not be tomorrow's.

When wealth columnist and author Robert Frank interviewed billionaire Tim Blixseth for his book Richistan, he asked the Palm Springs, Calif., resident the most valuable lesson he had learned about having money.

It was "the freedom to never worry about money again," said Blixseth, who founded the exclusive Yellowstone Club in Montana.

But that was several years ago. Today, the Yellowstone Club and Blixseth have sustained financial loses, and the man whose name was listed in the 380th slot of the 400 richest Americans in 2007 is now found frequently in court documents rather than current lists of billionaires.

Frank's presentation Tuesday at the American Express Publishing Luxury Summit at The Breakers was titled "The Anxious Elite: Inside the Minds and Money of Today's Rich." In his new book, The High-Beta Rich, he writes about how the world of the monied has changed, and how the financial stability the ultra-wealthy once enjoyed has been replaced thanks to market volatility.

From World War II through 1980, Frank said, portfolios of the rich were "relatively stable." The wealthy didn't do as well when times were good, he said, and when times were bad, they didn't do as badly as the markets.

He points to 1982 as "the magic year for wealth" and the birth of high-beta wealth. It marked the beginning of an investing trend -- when the chances for making millions, or billions, in the stock market outweighed the risks.

To become wealthy today, Frank says, you must be a high-beta investor. And because of the huge volatility within the markets -- because of that high-beta risk -- the names of top 1 percenters are changing fast. "One-third of the 1 percent were replaced from 2007 to 2009," he said.

After 18 years with the Wall Street Journal, Frank begins a new position Monday as editor and correspondent at CNBC, focusing on the affluence and influence of the wealthy.

Before his presentation at The Breakers, he participated in a Q&A with the Palm Beach Daily News. What follows is part of that interview.

Q: Could you tell me more about 1982 and the wealthy?

A: Before 1982, the wealthy were the most stable line on America's income chart. They gained less than the rest of the population during times of expansion and lost less during recessions.

In 1982, for some reason, they broke away and started this manic ride, becoming the most unstable force in the economy. Simply put, I think that that is the year the stock market, and the financial markets, became the largest driver of wealth in America. And while that has created huge amounts of wealth, it has also made that wealth unstable.

What rules the wealth today is capital flows. I mean, if you look at Facebook and Instagram, these might be fine sustainable companies, but the reason they are worth so much so quickly is because of huge capital flows.

Q: Do you think investors today have more of a "let's trade now and take our money and run" mindset rather than being focused on long-term growth?

A: Absolutely. Right now, it's all about pump and dump, exit strategies and get mine as quick as I can. There is very little focus today on creating long-term sustainable wealth. Especially among young people.

Q: By young people do you mean up to age 40?

A: Exactly. Everybody wants to be the next insta-rich investor. And they all think they are going to be.

Q: What are a few takeaway points from the book?

A: Broadly speaking, one is (that) as wealth has become more financialized, it has become more manic.

Second, it is that those manic cycles don't just affect the wealthy, they affect our entire economy.

Most Americans depend upon their homes and their jobs for their wealth. For the wealthy, their homes and their salaries are a much smaller part of their wealth: The largest component of their wealth in is financial assets. So if you look at the facts, only one of those categories -- homes, jobs and financial assets -- has rebounded. And that has been financial assets.

So while the stock market has rebounded for the wealthy, things haven't changed like that for most Americans.

I describe this as the new de-coupling of wealth, where the wealthy, the 1 percent, is now de-coupled from the rest of the economy.

Clarification: An earlier version of this story said Yellowstone Club co-founder Tim Blixseth has "gone bust." The Daily News did not intend this to mean either that he is bankrupt or the subject of a pending bankruptcy. Rather, the reference was intended to convey that Blixseth, who was ranked among Forbes' 400 Richest Americans as recently as 2007, has sustained financial losses and, as the story said, currently is involved in litigation arising from his financial dealings.

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