Money - It's a Gas

"Money, it's a gas.
Grab that cash with both hands and make a stash.
New car, caviar, four star daydream,
Think I'll buy me a football team.

Money, get back.
I'm all right Jack keep your hands off of my stack.
Money, it's a hit.
Don't give me that do goody good bullshit."

"Money" by Pink Floyd

Money, it's a gas...it will flow to where it is wanted and stay where it is well treated. There is an excellent editorial in today's WSJ by David Malpass. David held various economic positions in the Reagan and Bush (the 1st) administrations, and then became chief economist at Bear Sterns until their untimely demise. He now runs his own economics firm (Encima Global) as well as writing a column in Forbes. I've had the pleasure of meeting David numerous times and have always found his economic analysis refreshing. He doesn't spend an inordinate amount of time trying to forecast the future but instead focuses on money flows. Todays Journal editorial highlights a rather contrarian view that near-zero interest rates are actually hurting the economy by pushing dollars abroad. The Fed's zero-rate policy and Washington's preference for a weak dollar has created a flood of capital flowing to Asia, into gold and into oil. Wall Street makes massive profits from trading unstable currencies, the carry trade (borrowing dollars at near-zero and buying longer-term assets abroad), and helping investors transfer capital off-shore. But this weak dollar policy does very little to help the small U.S. based businessmen grow.

Some interesting stats: Since 2001 U.S. GDP has fallen to 24% of global GDP from 32%. And U.S. equity market cap has fallen to 30% from 45%. Again, U.S. capital flees the weak dollar and high tax rates. 

As an aside, while our Global Tactical Asset Allocation model is currently fully invested, our U.S. equity exposure is only 30%.

Another interesting quote from St. Louis Fed President James Bullard, "If we were a developing-world country and we tried to run the policies we're running now, we wouldn't be able to get away with it. A breakdown is possible, people think we're the U.S. and it couldn't happen to us, but it could."

We've been getting some new accounts of late, and I'm often asked if we should get them fully invested immediately or if we should average them in over the next several months. While dollar cost averaging makes some intuitive sense, it is really just a way for advisors to save face if the markets were to correct shortly after they opened a new account. People argue that with the markets having run so far so fast, wouldn't it be prudent to ease in. My argument is really quite simple, people hire me to following my model and my experience, and since my model says fully invested, and I and all my existing clients are fully invested, then why shouldn't new clients be fully invested? The fact is, we don't know what the future holds, markets could sell-off tomorrow, or they could continue to climb for the next several months and then sell-off. The best that we can do is what we tell every client, we'll manage your money just like we're managing our own and our other clients, following our models and our experience.

Chris Wiles

412-260-7917