It’s almost off the radar screen….
Just about a year ago our markets were at rock bottom. Ironically, in that stretch from Thursday, March 5, 2009 to Monday, March 9, 2009, my personal situation could have been described as rock bottom from a professional perceptive. My last day of work at U.S. Trust was March 5, 2009. It had been the first time in my professional career I was literally…out on the street. Coincidence in timing? Heck no, reality of the times.
But, as the market stopped it bleeding at the end of business on March 9th, my life too would go on. And for the millions of other American’s in a similar position to me, their lives would also go on. Granted, for most of us, life isn’t quite the same; adjustments were made, jobs hopefully were secured – most not at the level of prior employment – but life went on. However, as we approach the anniversary of the abyss of the second worst financial crisis to hit this country, how many people have almost forgotten the day? As is the American custom, memories have a limited time span.
That said, we still don’t have rampant investing, hence maybe the American investing public might have deviated from its Alzheimer’s trend and taken the latest memory enhancing drug. Part of that lack of investing still gets credited to a statement I hear made by many a financial advisor of “there is still tons of cash on the sidelines…. and when it gets invested….look out.” Well, let’s have a little reality check about that theory. First off, where are these people getting their statistics? Presumably they are getting their “logic” from various sound bites, financial soothsayers, and mad financial commentators. But how much is true? Well, read on and I’ll tell you!
In analyzing 50 years of Federal Reserve monthly money supply figures (that’s 600 numbers) would you be surprised to hear that the money supply (I’m using M2 which includes savings accounts) has increased virtually every month of those 600 measurements? Well, in fact that is true; with approximately only 20 incidents where the supply retreated from the month before (but I’m talking fractional differences which are barely measureable). When I took a broader look at the numbers and clumped together periods of 29-months to each other (which also historically cover a business cycle) the numbers are a bit more revealing in terms of flows. For instance, from May 2007 to Sept 2009, M2 increased 16.5%. Okay, perhaps argument for money on the sidelines when you look at the 29-month period prior of December 2004 to April 2007, whereas M2 only increased 12.53% during this period of flat to modest growth in the Dow.
But before you start hitching the wagons to the horses for a runaway market, perhaps you might like to know about some of the other 29-month periods. In the July ’02 – Nov. ’04 period, M2 went up 14.2%. That market was terrible in the later months of 2002 but then bounced back through 2004. Analyzing a bit deeper, during this period, the supply retreated for two months in the 3rd quarter of 2003; perhaps signaling money going back into the market. But those retreats combined only accounted for one half of one percentage of the money supply. In the two 29-month periods prior covering from Sept. 97 –Jan. 00 and then Feb. 00 to Jan. 02 the INCREASES in the money supply were 17.3% and 18.7% respectfully. Therefore, I’m not seeing any concrete evidence pointing to historical cash hording and then opening the vault doors to invest in the equity markets. So, don’t hang that hat to dry – or fly – if you think globs of cash will be flooding back into the market, because your hat might get a bit wet and it sure won’t be flying off the hook.
Just to put it in perceptive, if…and that’s a big if, we had 2% go back into the market, we are looking at approximately $200 billion dollars. Big number generally, but considering the US equity markets are around $15 trillion….and that’s only the US…the cash (if it flowed into US equity markets) would only account for about 1% of total market capitalization. Double the cash in from 2% to 4% – EXTREMELY unlikely and about zero percent of happening as our cash goes up historically and never has it retreated by anything more than 1 tenth of 1% – then we are only still looking at about 2% of domestic market capitalization. Long story short, our markets will gain only from market activity and growth of balance sheets; not from mystery dollars “on the sidelines”.
So, back to short memories. As I write this column I was just offered yesterday a position back in the world of investing as a Wealth Advisor. This position came to me, as I have been happy, and very grateful to the University for their acceptance of me into their world of philanthropy. But, like many of my fellow American’s mentioned above, our roads have been long and bumpy, and along the way you meet many people. In my case (and many others I’m sure) you tend to have a long trail of interviews over that course of time. For me, this position which presented itself is the product of months of incubation and fine tuning, as many firms accessed their business models over our tough economic climate and created new ways to address their marketplace. For me, the firm knew when I interviewed with them 9 months ago that I would be a good addition to their firm; it was just a matter of time of creating the right role. Thankfully they remembered my charming personality and gave me a call a full 9 months later- in a strange way I feel I like just gave birth! In light of all the talent out there, I’m honored.
Hence, when you read this column next week, I might have a formal announcement (trust me…I’m not crazy, the University knows of the offer hence I’m not spilling any beans). However, if all the details are agreed upon, and I pass the bodily fluid tests, then this might be one of my last weekly economic reports as my potential new employer would prohibit me from gracing you with my pearls – the reason being is fine print – and financial regulation….do we have that???? LET’S HOPE SO after all that mess!
But until I take my last breath in blog heaven, comment freely and look for some cash! Have a great week. Connected to you for you. Greg
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