Podcast #21 Money and Soft Boycotts

Welcome back friends to our 21st edition of In My Right Mind. I am Russ Andrews, and as always, I am joined by the urbane producer of In My Right Mind, Mr. PJ Jaycox. How goes it PJ?

PJ, do you rmember March 6, 2000? I believe that was the day that the stock market peaked and the .com bubble burst. I remember it really well as it was also the day the Clinton Justice Dept sued Microsoft for some anti-trust action which set-up a cascade of down days in the markets; especially the NASDAQ which dropped from a price level of greater than 5,000 all the way down to around 1,100. That was a grueling 88% decline and was really one of the 2 low points in my life; It became tough to pass open windows…if you know what I mean.

Know what else happened in March of 2000 PJ? Stockholdings among U.S. households increased to the highest level on record…dating back to 1952 when such records were first kept.

Know what just happened in April PJ? Stockholdings among U.S. households increased to 41% of their total financial assets in April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal Reserve data going back to 1952 and it that includes 401(k) retirement accounts.

From what I can tell, the peak in the year 2000 had U.S. households holding about 38% of their total financial assets in stocks, vs 41% today. You know what that is PJ? It’s a message from our universe.

Now PJ, do you know what M1 is? M1 is the money supply that is composed of physical currency and coin, demand deposits, travelers' checks, other checkable deposits, and negotiable order of withdrawal (NOW) accounts.

M2 includes M1 plus so-called “near-money”, which refers to savings deposits, money markets, mutual funds and time deposits like CD’s.

Now get this: M1 stood at a MERE $4.027 tyn in Feb of last year. What do you suppose it stands at today partner? $18,683,000,000,000. That’s a YOY increase in our currency supply of 364%.

Standard banking logic has it that investors moved money out of longer-term positions like CD’s and mutual funds…part of what we know as M2, and into cash. OK. BUT, M2 rose by 25%.

We can dive into banking law, but I would prefer to contemplate what it means when the money supply increases by 25%. I t means assets of all stripes increase in value as more and more people have more and more $$$ in their pockets. I am told my home increased in value by a WHOPPING 35%.

The DJIA is up 83% off it’s march 23, 2020 low of 18,600. Lumber and grain prices have soared.

My point is a simple one to wit, things are starting to get frothy! My strategy is to start selling losers first; sell those stocks and funds that have not outperformed the stock market, even…or especially if you are in love with them. Then start to take profits in your big winners. For my part, I have started to buy private placement preferred stocks INSTEAD of bonds for my clients. NOW, I am not pushing any panic buttons. It is just that I have seen this movie before, and in the end, it can get really, really, scary!

We never know what precise trigger will be the catalyst for a selloff. But here is one possible trigger;

Tax increases. Stock markets LOVE the free money that has boosted M1 & M2. Stock markets HATE tax increases. President Joe Dementia has proposed that congress increase the capital gains tax on purported millionaires from 23.8% up to 43.4% which would be an 83% increase. Along with that proposal he wants to eliminate the step-up in cost basis in estate assets when somebody dies.

With that in mind, I have been talking to my wealthiest clients about selling our best...