Dear Clients and Friends:
The news gets worse and worse. Many of you are, for the first time, deciding to move to cash, and I am sure everyone is wondering what the best next steps might be.
I responded to one client’s e-mail this morning as follows: “These are legitimate concerns. We can survive this, but we must be careful on two fronts. One, we must live within our means, and two, we must move in measured, careful ways, and not react out of a) fear at this time, and/or b) greed at other times.”
The media is full of coverage about how bad the economy can get and how low the markets can go. Especially prominent is conversation about how the stimulus packages will prove to be expensive and ineffective. What does not get discussed is how or why the stimulus programs might work, and why there are reasons to be confident at this time.
These are some of the reasons to remain confident in the American economy, and by extension the global economy.
1. All previous recessions and depressions, and bear markets, have ended. They end without an announcement, and there usually are false starts along the way. There is no way to predict when is the right time to be in the stock and bond markets. Whatever strategy seems appropriate for the long-term is likely to be your best strategy now.
2. There are enormous amounts of cash on the sidelines. The last report I saw indicated there was almost $4 trillion in US money market accounts, and there are similarly significant sums in other institutions around the world. This is money which will likely be invested when there is a belief that the possibility of profit outweighs the risk.
3. Attention is on the political activity of the stimulus packages. What is not visible is how the Federal Reserve is increasing the money supply at a record-setting pace. This, more than anything else, is likely to provide the fuel so that major financial institutions can and will begin lending again. When this happens, the economy will begin functioning on a more normal basis, and from this profits will again begin to be generated.
CONCLUSION: We are all concerned, and we are all affected. We can survive this. We must be measured, and let our decision come from a thoughtful process. Please call whenever you would like to discuss your financial situation.
Thank you again for letting us be your partner is these “interesting times.”
Robert K. Haley, JD, CFP®, AIF®