The seeds of economic growth have been sown – will you reap the benefits or will your emotions, ever corrupted be the media, allow them to be squandered? Before we delve into the data - fact driven and void of persuasion – let me assure you that this article is delivered by a realist (at least I believe I am such). My views/opinions, as have been in the past, is to deliver what may go unnoticed by many of the investing public and particularly those nearing or in their retirement phase of life. Why? Simply to help guide the ship of financial independence to those who seek a goal-focused, planning driven approach as opposed to the current waterfall of 24/7 financial media sewage about what investing/retirement planning is supposed to be. Let’s begin with the seeds of the harvest.
Let’s begin with the overview; we believe the companies of America and Households that comprise them have never been (together) better off financially - than today. Now, before you begin throwing darts (metaphorically or in your “social media” world) at my last statement – let us dig into the data:
- As of the end of June 2020, corporations (non-financial, according to Moody’s investors) are holding a record $2.1 Trillion in cash. In addition, at the end of 3Q20 those companies in the S&P 500 are holding around $1.9 Trillion (non-financial, transportation and utilities). Just a side note, but this cash has not been seen in data as far back as 1980.
Your next thought may arise as to how or why is the level of cash at this now historic level – good thought. According to LCD, a unit of S&P Global Market Intelligence, American companies sold more than $2 Trillion of investment-grade and high-yield bonds last year. One may think that this was done to shore up their balance sheets and issue said debt at historically low interest rates. Just a thought – but makes financial sense, if this is the primary reason.
In addition to the issuance of debt to raise their levels of cash, last year many American companies reduced dividend payouts or cut them altogether due to the pandemic. Once again, American businesses have and continue to maneuver and adapt themselves through just about all economic climates – whether it be business driven, health events or political administrations. Moving these thoughts a step further – it bodes well for future deployment of the cash as the pandemic begins to get under control. One would only prognosticate that an increase in American corporate activity (M&A, capex, dividend increases and share buybacks) would be items on the list of these companies because too much cash on the balance sheet for too long is not in the best interest of long term returns for shareholders. The seeds have been planted.
What about American Households?
- Checking accounts were at a record of around $1.8 Trillion. In addition, according to JP Morgan Asset Management, household net worth is at an all-time high of $128 Trillion and we are at a 40-year low in household debt service ratio (debt payments as a percentage of disposable personal income).
Again, how and why is the amount of cash at this historic level? Obviously - the government checks sent from the pandemic has been a large contributor, but the most fascinating is how the average American household used those funds. You may want to sit down for this one. They didn’t spend all those dollars but rather paid down debt – in particular credit card debt in the tune of around 100 Billion. Once you couple this fact with the rise in savings, investments, and housing prices - you arrive at the historic level of net worth in the country. Now, human nature being as it is – I would suspect that the excess funds in those checking accounts will begin to be spent on many items soon. Americans enjoy their “stuff” and the marketing companies know this fact all too well. With this, additional seeds have been planted.
To address the “dart throwers” concern of the loss of jobs and inequality of the overall accumulation of wealth – I understand. This has not gone unnoticed – however as history as a guide, which is the only guide we have, the tidal wave in economic growth of businesses and household purchasing power has and can elevate all to higher ground…once the virus has been tamed.
So, again - are you (as an investor) ready to reap what has been sowed – financially speaking? Or are you paralyzed by social medias’ ever relentless pursuit to confuse and ignite your anxiety? Remembering that your willingness and ability to adhere to your long-term plan at this harvesting moment may determine if you blow up your family’s multi-generational wealth accumulation plan, which may never recover. My suggestion - be prepared to reap the harvest.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Information was Sourced from Nick Murray Interactive February Issue 2021
For additional information, please visit our website at http://www.meloneprivatewealth.com/
For current Melone Private Wealth information, please visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Melone Private Wealth’s CRD #311638.