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Printing Money

Updated: Jul 20, 2023

Over the last decade, dips in the stock market have shortened as buyers have rushed in more and more quickly each time to swoop up shares. Sell-offs that used to take months went to running their course in just a few weeks in 2012 to just a few days in 2013 to the flash crashes of 2014 when they lasted just a few hours, and last year’s recession was, by far, the shortest in history.

According to McKinsey and Co., a whopping 46% of households in 2017 had at least some fee-based business with their financial advisor, up from 29% in 2014. When Morgan Stanley reported earnings a little over a week ago, we learned that the firm’s wealth management division saw record fee-based flows of $77 billion for the year, and fee-based assets there are now $1.5 trillion.

The growth of the fee-based advisory model is one of the primary reasons for the shallowness and shorter duration of corrections in recent years. It is the reason why both bad news and good news seems to be bought, almost as if the two were interchangeable, yet all the headlines we read are about which stocks to buy and which to sell and how to react to various news items. ...It’s just plain crowded out in Cyber Financial Land, and when people try to stand out in crowds, they tend to shout and often engage in hyperbole.

So, while we have recently posted here in Insights about our short-term bearishness, we should probably put that into some perspective today. It will seem obvious to most investors who work with financial advisors, but just to be clear for those who are trading their stimulus checks on Robinhood: most people should not short stocks. Yes, we’re relatively adept at deciphering short-term market moves (and that’s what we’re frequently asked about), but providing portfolio analytics and measurement tools to help clients track their progress toward their retirement goals is still our biggest job.

Even though the Fed balance sheet expanded 77% from $4.2 trillion to $7.4 trillion in 2020, and while M2 money supply, driven by fiscal stimulus, is up 25% for the year (compared to increasing 11% after the Global Financial Crisis)-- before we even get to the $900 billion of stimulus approved in December or the additional $1.9 trillion of stimulus proposed by President Biden-- we are not going to be the ones in this crowd to shout or to speak in hyperbole. Even though gold, silver, copper, nickel, orange juice, soybeans and corn commodity prices are surging to multi-year highs, we’re not going to start typing in all-caps. Rather, we might just point out that we disagree with that real estate agent who’s been telling you that interest rates aren’t going to go up this year.

However, the song remains the same; good financial advice will tell you how to succeed at something while effective advice will show you how to succeed. In other words, good advice is about tactics whereas effective advice helps you to build systems.

Still, for those readers who like to have the bejesus scared out of them by the stock market, we want you to feel whole, too, so we have provided this scene, the greatest in the history of movies, from Margin Call with Jeremy Irons, Demi Moore, Stanley Tucci and Kevin Spacey:

There is a lot more data coming this week. At&T (T), Apple (AAPL), Facebook (FB), Tesla (TSLA) and many other S&P components report earnings this week. There’s a Fed meeting, and then we get the Commerce Department’s Gross Domestic Product (GDP) report on Thursday.

I think the point of all this data will be that stimulus may continue to drive stocks higher over the short term, but we believe a reckoning for bulls is on the horizon. For those about to retire, risk management is paramount right now. Should you continue to buy stocks? Probably, but that’s because of the long-term track record for stocks and because inflation is unavoidable. Especially this year.

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