YWR: How to thrive in the 'J-Shaped Economy'

Alert: This is not financial advice.

I’m sick of hearing about the ‘K-shaped economy’.

It’s so depressing and defeatist.

But then I realise it’s an opportunity.

Let everyone think it’s a ‘K’, when actually it’s a ‘J’.

The thinking behind the ‘K’ shaped economy is that a few rich people are doing well (the upward leg of the K), while 80% of the population are getting dragged down by inflation and can’t get ahead (downward leg of the K).

Those with large stock portfolios long the S&P 500 are doing well, while those dependent on wages can’t get ahead. They are miserable, while the rich are happy.

Source: FT

I have 2 3 problems with this representation of the state of affairs.

Misrepresentation #1: There is an implication that something broken, and the K-shaped economy isn’t growing. Sure goods and services tied to the very rich are growing, but this is offset by the other 80% of the economy which is in decline. Overall, it’s a bad state of affairs and the economy isn’t doing well. A time of struggle and difficulty.

It makes it sound like the economy isn’t doing well when actually the economy is booming. In 2026 the US economy will likely grow 2.5% ‘real’ which after you add on 3% of inflation is 5.5%. Not bad. It’s why a chart of nominal GDP is going vertical.

Misrepresentation #2: There is nothing new about ‘K-shaped economies’. In fact it’s the normal state of affairs around the world and throughout history. Get used to it. Rich families with large portfolios of risk assets do well, especially in higher inflation environments. Sadly, it’s been this way since medieval times. Maybe they call it the ‘K-Shaped Economy’, we call it Project Zimbabwe.

Misrepresentation #3: This misrepresentation is that the economy is more K-shaped than normal. The Federal Reserve analysed asset distribution of financial accounts and found, yes the top 10% own 30% of the assets, but that share has actually been stable since the mid 1990’s. It’s not new, and not really changing.

Source: Federal Reserve

What’s the Opportunity?

How do we benefit from all this talk of the ‘K-shaped economy’?

YWR is a broad church so I have two different messages.

Some of you are CIO’s, fund managers and family offices. Some are students, or people building their investment portfolios for the first time.

Message #1: Keep it simple, keep it liquid, keep your foot firmly on the accelerator.

If you’re already wealthy and feel like you are on the upward sloping leg of the K just keep doing the same thing. Stay long and strong. This is Project Zimbabwe. Yes, there will be shakeouts, but the big picture is that risk assets go up a lot. My only advice is you don’t need to over complicate things with illiquids. The S&P and NASDAQ look great.

I was just listening to Nvidia’s keynote at CES at thinking how positive is that the biggest stock in the market is doing so well. Why would you want to own a blind pool of PE investments to be made at some time in the future at a TBD valuation, when you can own Nvidia on a P/E of 25x and know what you are getting? Plus, get the best CEO of our time.

Message #2: It’s a ‘J’ not a ‘K’

If you don’t have assets, keep your head up. There’s massive opportunity out there. The best thing about all this talk of the ‘K-economy’ is it keeps 80% of your competition out of the game. Let them walk around with their head down complaining. If they don't see it, it makes it easier for you.

Yes, it’s hard to get by on the income from a job. Wages for most jobs struggle to keep up with inflation. That’s nothing new. And companies are not in the business of making you wealthy.

Here’s your plan:

• Read Cashflow Quadrant by Robert Kiyosaki

• Build up extra cashflows (side-hustles, content creation, rental properties, whatever). There have never been more tools to build up these side hustles and cashflows.

• Invest those cashflows in risk assets (equities, real estate)

• Be patient. Invest prudently and consistently. Let the flywheel turn.

• Gradually grow your assets, slowly at first, then with increasing speed.

That’s why it’s a ‘J’ economy (for you). You start out slow at the bottom the J, but eventually go vertical.

Oh, sorry, forgot to say it again, this is not financial advice.

Have a good weekend!

Erik