“Money, money, money, money”

July 19, 2021

Money, money, money, money – This was the opening line of the hit song by the group, The O’Jays, back in 1974. Now, forty-seven years later, the U.S. market faces a sea of money, and we cannot help but wonder… what will happen with all of it? Many of our previous economic crises occurred when liquidity dried up, leaving both consumers and investors high and dry without the ability to access capital. Wow, how times have changed!

The shutdown of the economy has caused politicians to send trillions of dollars in stimulus money to consumers, enticing demand to stay stable. The Fed has added trillions to the economy as well, through buying up Government Bonds and keeping mortgage interest rates unusually low. And, as the stock market and other asset classes continue to march higher, it would seem onward and upward truly is our mantra. Is this the perfect confluence for a swelling war chest of cash? 

If you are an individual, your cash is probably waiting to be spent on your dream house, invested, or used to pay down debt. If you are a company, you may be waiting to increase dividends, buy back stock, or grow your business. Regardless of what the money is earmarked for, it seems like everyone is waiting for something to break. Everyone wants the chance of a deal to get a higher return on their money, and many think the stock market is overpriced and must correct. These investors are all waiting for that pull-back so they can do one thing – buy. 

According to Federal Reserve figures, U.S. consumers are sitting on an estimated $2.5 Trillion in cash, likely earning nothing. The wealthiest 20% of American households appear to hold 70% of this. Last reported in May of this year, the U.S. Personal Savings Rate is currently at a 40 year high of 12.4%. The banks want to lend it, but no one wants to take it, and the gap between increased deposits and a decreasing demand for loans has continued to widen. It is now the worst banks have seen in two years. As we face the second half of the year in this swelling ocean, I offer one final observation. The U.S. market is up about 15% for the first half of the year. Since 1871, the market has only gone up 15% or more during the first six months of the year 16 times. During those 16 years, the market, on average, went up an additional 8% for the second half of the year.

Money, money, money, money https://www.youtube.com/watch?v=Z5QLbnfFWg0

Carl Gambrell