We are witnessing, in real time, policy makers employ a new level of financial activism. Their old toolkit was to lower interest rates to spur economic growth. That no longer works. Hence, they're resorting to radical new tools. There will be consequences -- some intended, some unintended. Now is the time for a rethink of your capital allocation, while markets are high and tax rates are low.
Year-to-date, the US money supply is up over 20%, and the Fed’s balance sheet has expanded by 67%. This has helped drive markets higher. The problem is that it makes some formerly "low-risk" investments into high-risk investments moving forward.
It is a new game. Investors need to evolve and adapt as a result. What has worked so well in the past several decades may work poorly going forward. This new game has new rules. It requires a new game plan.
This 6-minute video highlights a discussion that we had on this topic last week:
Policymakers have been less tolerant of free markets as the primary determinant of asset prices. Their intolerance intensified after COVID. Capitalism, as we've known it, has changed. Looking forward, we expect capital allocation will be driven less and less by market forces and more and more by federal decree.
Not that this will necessarily be bad for securities prices. Money printing and MMT may well propel prices higher (at least in nominal terms). Proponents of such policies claim they have the will and the means to inflate. We take them at their word. Higher market prices will likely come at the "cost" of higher price volatility.
As we enter the fall months, we expect heightened uncertainty surrounding the elections, on top of continued anxieties over COVID. Depending on the election outcome, tax laws could change substantially in 2021. This adds another layer of complexity to clients’ capital allocation decisions.
We strongly urge you to devote time and attention to your planning well ahead of year-end. Do it now, while markets are high and tax rates are low. Fielder is honored to counsel our clients through these important decisions. As always, please reach out if it makes sense to have a conversation.
Yours in the Field,
Frank Byrd, CFA, CFP® Steve Korn, CFA
Fielder is an independent, fee-only adviser that provides asset management and family office services.
Disclaimer: While the information presented herein is believed to be accurate, Fielder Capital Group LLC (Fielder) makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in the document. Fielder is under no obligation to notify you of any errors discovered later or of any subsequent changes in opinions. Nothing herein should be construed as a recommendation to buy or sell any of these securities. It should not be assumed that any of the securities, transactions, or holdings discussed will prove to be profitable in the future or that investment recommendations or decisions Fielder makes in the future will be profitable or will equal the investment performance of the securities discussed herein. Fielder or its employees may have an economic interest in securities mentioned herein.