Ajay Kapur has a message for investors who fret that low U.S. savings, the record current-account deficit and indebted U.S. households will kill consumer spending, boost interest rates, sink the dollar, slow the global economy and torpedo stock markets.

"Relax," says Kapur, Citigroup Inc.'s head of global equity strategy in New York.

He says many of the world's economic ills — what economists call global imbalances — can be explained by the habits of the rich, who account for an overwhelming share of income, wealth and spending in the U.S., Britain, Canada and Australia.

In his view, the rich are bailing out the rest of the economy. They spend, and they buy imported goods, and no one gets hurt.

"Global imbalances that worry many investors aren't as threatening as one might suspect," Kapur says. The world's wealthy "aren't headed for the poorhouse anytime soon. They are in great shape financially."

Kapur's analysis reassures investors such as Madhav Dhar, of hedge fund Traxis Partners in New York, about the stability of the global economy. It also points investors toward a way to make money that Kapur says has worked for years: buying shares of companies that cater to the folks with the cash.

He suggests luxury-goods companies such as Switzerland's Cie. Financiere Richemont AG, the maker of Cartier jewelry; clothing maker Burberry Group Plc of Britain; Swiss bank Julius Baer Holding AG; and U.S. luxury-home builder Toll Brothers Inc.

PLUTONOMIES

Citigroup strategists divide the developed world into two blocs: economies driven by the very rich — mostly the U.S., Britain and Canada — and more egalitarian cultures, such as Japan and most of continental Europe.

Kapur calls the first group plutonomies, from ploutos (the Greek word for wealth) and economies. They are characterized by capitalist-friendly governments and tax regimes, constant technological innovation, an embracing of globalization and immigration, financial innovation, the rule of law and patent protection.

Take the United States. The richest 10 percent of households account for 43 percent of the country's income and 57 percent of the national wealth, while the bottom 40 percent account for 10 percent of total income and 9 percent of the wealth, according to the Federal Reserve's latest triennial Survey of Consumer Finances, which covers 2004 and was released in February.

'RISING WEALTH'

The net wealth of the richest Americans was 8.4 times their annual income, up from 7.4 times in 2001 and six times in 1995.

To get a snapshot of plutonomy at work, consider that the top 1 percent of American households accounted for 20 percent of national income in 2000, up from less than 9 percent in 1960, according to Citigroup. In the Netherlands, by contrast, the top 1 percent accounted for just over 5 percent of income in 2000, down from about 10 percent four decades earlier.

"This rising wealth is the real reason why the rich are happy to keep consuming," Kapur wrote in a March 5 report to clients. "They simply do not need to save as much to maintain a healthy wealth balance as they did in prior decades."

The plutonomy thesis goes a long way in explaining why consumer spending has held up even amid soaring oil prices and surveys that show weakening sentiment; why the U.S. has a negative savings rate; and why the U.S. trade deficit with the 12-nation euro zone nearly doubled from November 2000 to November 2004, while the dollar fell more than 50 percent against the euro.

'Real Trouble'?

Simply put, the wealthy account for such a large part of the economy that expensive oil and a sinking greenback have minimal, if any, impact on their spending habits, contends Kapur. And as long as their wealth climbs at a faster rate than their income, they can afford to spend more than they save.

Kapur's view is not shared by his own company's Robert Rubin, chairman of Citigroup's executive committee and a former U.S. treasury secretary. In a speech in New Delhi on March 9, Rubin decried such "enormous imbalances" as projected budget deficits, current-account deficits, savings rates at "virtually zero" and high levels of personal debt. Together, they have "the potential for leading to real trouble in the American economy," he said.

THE SUPER WEALTHY

But Gerard Lane, an investment strategist at Morley Fund Management in London, says Kapur's plutonomy thesis "is credible as an explanation of what's going on in the U.S. economy and why so many of us have been wrong about the U.S. consumer over the last five years."

The firm, which manages 156.1 billion pounds ($274 billion), owns shares of Richemont, France's LVMH Moet Hennessy Louis Vuitton SA, Swiss bank UBS AG (because of its private- client business), Miami-based Carnival Corp. (which offers $25,000 round-the-world-cruises), and Japan's Sharp Corp., whose 65-inch flat-screen TV sells for $20,000 in New York.

"It's the super wealthy who are going to access these quality or well-branded goods and services," Lane says.

DUAL STRATEGY

Drawbridge Global Macro Advisors, a New York-based hedge fund with more than $4 billion under management, is going a step further. It is investing in a basket of high-end European luxury-goods makers — including Richemont, LVMH, France's Hermes International and Italy's Bulgari SpA — while periodically selling short mass-market U.S. retailers, such as Liz Claiborne Inc., TJX Cos. and Quiksilver Inc.

"We have pursued an investment strategy that has been predicated on the continued bifurcation of the consumer, where the high-income level strata should be much less vulnerable to rising rates, higher energy costs — all the things that would affect disposable income," says Drawbridge official Adam Levinson.

History shows that betting on companies that cater to the rich can be profitable. A basket of 24 luxury stocks assembled by Kapur's team rose 17.8 percent a year in the 21 years ending Feb. 27. The portfolio beat the Morgan Stanley Capital International All Country World index by 7.3 percentage points a year.