Brandy Auterson:
It’s now time for 4 Your Money. We’re joined by James Nelson, financial advisor at NelsonCorp Wealth Management. Welcome back, James.
James Nelson:
Thank you.
Brandy Auterson:
Financial markets are now more than a year into the recovery from the pandemic-induced panic last spring. At what point can we consider things to be back to normal?
James Nelson:
Yeah. Certainly, things have been pretty good recently. We had a nice recovery last year, off to a solid start the first half of this year. Yeah. It does look like we’re getting back to normal. Volatility’s way down. Bonds have actually rebounded to where they were in 2019. And the economic growth and activity has rebounded back to almost 2019 levels in some cases. Yeah. I mean, if 2019’s the benchmark we’re getting close in, we’re definitely there in some cases. There are a few hurdles though, that I think we’re going to have to get through in the near term to officially say that we’ve gotten back to normal.
Brandy Auterson:
Okay. So what are some of those hurdles that we need to see cleared?
James Nelson:
Yeah. Liquidity’s the big one. So liquidity has driven this recovery. And liquidity, oftentimes it’s talked about, but we don’t really stop and think about what that actually means. Liquidity makes it easier for participants in the economy to own and transact financial assets. That’s really what it comes down to. And the Fed has done a great job as far as stimulating the economy and making liquidity available. Lower interest rates have certainly helped with that.
James Nelson:
And I think we’ve got a chart here that illustrates what I’m talking about. This is M2 Money Supply. This is essentially a measure of cash-like funds in the economy that can be used to quickly convert into other assets like buying goods, services, stocks and bonds. So we see this big spike here last March. In recent months, it’s receded a little bit, less liquidity being added. The big hurdle is to see how this plays out when the Fed eventually steps away. What does that mean for liquidity in the overall comfort as far as we’ve received in the economy so far?
Brandy Auterson:
Okay. So what clues would we have that maybe things aren’t as solid as we thought?
James Nelson:
Yeah. So we’ve got a roadmap for this. We’ve seen this play out before. Back in 2008, 2009, the great recession, the Fed came in again with all of this liquidity, the quantitative easing of buying government bonds. They tried to phase that out in 2010, 2011, and 2012 with similar results. The markets got volatile and things weren’t quite as rosy as we thought. So the big hurdle here is to see what the markets look like, what the economy looks like when that Fed intervention subsides and eventually probably goes away.
Brandy Auterson:
All right. James, some great advice. Thanks for joining us.