Professor Jeremy Siegel says the Fed is too tight given current conditions and we should already be on our way back toward 3.5% Fed Funds rate. He makes a big important point about why they got inflation wrong in the first place and how they’re already on their way toward making the opposite mistake.

Lowering overnight borrowing rates will not lead to a re-acceleration of inflation because there’s been no growth in the money supply for years now and we’re already seeing the labor market beginning to roll over. He’s watching initial jobless claims ticking up toward 250,000 per week and will be monitoring commodity markets for confirmation that the bigger risk is now to the downside.

Stocks For The Long Run

Professor Siegel is a living legend and a national treasure. For thirty years, since “Stocks For The Long Run” was first published, he’s been explaining to investors why the equity market is the best bet around to beat the real enemy, inflation. The people on your television screen or in your Twitter feed who’ve been telling you that volatility is your enemy owe you an apology. Volatility is the condition you must live through. Inflation and the inevitable fall of your current dollars’ purchasing power is the main bad guy at the end of the game. It’s Bowser. Sell-offs and corrections are just mini-bosses you must beat along the way. It’s hard to comprehend this in your first few years investing. It’s apparent and obvious by the time you get into your second decade. You look back at all those market squalls you’ve endured and you realize that enduring them has been worth the emotional rollercoaster. Because you have more money now as a result and everything you need to pay for has become more expensive.

If you’ve been out of the market over the last ten years, you’re out of luck - using yesterday’s cash balances to pay today’s prices. If you’ve been invested, your stock portfolio has done its job. Simple, but not easy.

Prices in the real economy have risen since 2014 but they haven’t doubled or tripled. Stocks have. Not in a straight line but ultimately.

As financial planners and asset managers, our job has been to keep investors invested for precisely this reason, even during moments like 2022 where inflation was rising and asset prices were falling - it was like being punched in the face and kicked in the crotch at the same time (you can take my word for it - I was in a college bar fight in Fells Point where this literally happened, the only thing that saved me was the Baltimore Police pepper spraying the crowd to break up the melee). The horror show that was 2022 was precisely the time where staying in the fight really mattered. The easy thing then would have been to throw in the towel and swing to the perceived safety of cash. Then what? It’s not like anyone was waving the checkered flag to tell us when to buy back in. You had to be there to catch the recovery. It began out of nowhere in October of that year and just kept on going.

We have now erased the trauma of that horrific year and then some. We did our jobs and our clients did theirs. The Professor’s work has been highly influential in terms of how we see our role as advisors to our clients. One of his key insights is that stocks are a real asset, not a paper one - the ability of corporate earnings to outpace inflation is what makes it so essential to prioritize equities over bonds and cash over long stretches of time. It was a dream come true to have him on the show - along with his right hand man Jeremy Schwartz (Siegel’s co-author and the CIO of WisdomTree).

You can listen to it here or watch the whole episode below:

Golf

I hope you’re having a great summer so far. My little guy just left for summer camp for the next seven weeks but my oldest is getting ready to head off for college this August so we’re plenty busy getting her packed and ready. I’m still jetskiing my face off every chance I get and this summer I added golf back to the repertoire.

I stopped playing during the years where I was building my business and the kids were little. There was soccer and baseball and softball and tennis and basketball - I never missed a game or a practice or a tournament or a carpool to do anything for myself and looking back I’m proud of that. The idea of being on a golf course for four hours during those years was ridiculous, so my clubs sat in a closet collecting dust.

Things have changed. I have some time. I’m going to try to finish the summer with a decent golf game. Wish me luck, I’ll need it 🙂 

That’s all from me today, have an awesome weekend. Talk soon! - JB