I have been hearing the pundits on the financial networks hang their hopes for a stock market rebound on the fact that Americans are currently sitting on a pile of cash that they like to call “excess savings”. It is true that the amount of money being held in savings accounts is higher than it has been at times in the past but before we assume that it is money waiting “on the sidelines” to jump back into the stock market or even the larger economy it might pay to take off our rose-colored glasses and ask why the money is where it is.
I am a baby-boomer. I owned and operated a small business for 25 years until I retired about a year ago. I sold my shares in our tightly held corporation to a younger up-and-coming employee and put the money in savings. I also liquidated all the “growthier” parts of my portfolio and only kept the low-beta, dividend paying, dare I say boring stocks so I missed the February 2021 to February 2022 round trip to the moon and back. I booked my dividends from my low-PE, fortress-balance-sheet value stocks and wondered at the astronomical valuations and creative metrics being used to justify stock prices that I believed to be unreasonable and unsustainable and waited for the axe to fall. Preservation of capital was my watchword. As a retiree I am past the point where I can afford to gamble because if I lose big I don’t have the earning power to make it back like I did when I was working.
There has also been a lot of discussion about the low labor participation rate and what is causing it. Everyone agrees that part of it is people like me who, when confronted with the Covid crisis, low inflation, years of stock market gains and record home equity generated by the real estate boom part two felt confident and comfortable enough to get off the treadmill. They were joined by a throng of Generation X, Y and Z members who started trading stocks and cryptocurrencies influenced by the “meme” crowd or newly minted apps like Robinhood that led them to believe that on Wall Street money grows on the buttonwood tree and all they needed to do was pluck it to become rich. Retail day trading boomed, crypto dreams were coming true and the younger crowd opted out of the work force to pursue their trading dreams full time in a stock market that always went up. And for a while it worked for them, until it didn’t.
Their windfall profits from a couple of years of remarkable market largesse couldn’t be spent on travel and other experiences due to Covid shutdowns so they put them into savings for the day of liberation or let them ride in the market casino. But the sevens and elevens quit coming and the NASDAQ started rolling snake eyes. So many of them took what was left of their winnings and ran to safety in a savings account or a money market fund and are now assessing their futures. We can’t assume that they will be back, they may rejoin the work force and call it a day. Once bitten, twice shy.
At the same time the recent retirees like myself are being hit by rising inflation that shows no sign of abating. Our “burn rate” for the savings that we thought would see us through has to be revised frighteningly upward with every trip to the gas station, grocery store or pharmacy causing us to become even less adventurous. I pity the fool who panics and tries to win back their losses in the Wall Street crap shoot. Many of us are in cash because we would rather lose 9% to inflation than 50% in that growth stock we used to be enamored with. PE ratios of 50, 60, even 100 are finally being recognized for the insanity that they always were. Amazon grew into its inflated PE years ago but the odds of any of these high-flyers being the next Amazon are slim.
So for older folks like me the phrase “Don’t fight the Fed” are words to live by. As the Federal Reserve raises interest rates and shrinks its massive balance sheet we await the day when we can make a decent return on our savings via CD’s, money markets or even plain old interest on our savings accounts. We won’t be returning to the casino and if we do it will only be to play the nickel slots for some cheap entertainment. For all those analysts, financial advisers, hedge funds and brokers who are waiting for that cash on the sidelines to come flooding back into the market, don’t hold your breath.
Ditto for the newly minted crypto-millionaires who are discovering that their diamond hands might just be coal, for the options-rich tech startup employees whose stock options are underwater and unlikely to ever surface and all those analysts and financial advisors whose customers are leaving in droves after realizing that everyone at the poker table is holding the same FAANG hand.
All the smart gamblers are cashing in their chips and heading home for the night and the only people left at the table are the suckers who had one too many and are hoping to salvage enough chips to catch an UBER back to their hotel. Good luck.