Goldman Sachs’s Advice to Clients Has Long Rejected ‘Easy’ Fed Notion

Goldman Sachs’s wealth management arm has long catered to the very rich, and richest. Though its client roster is private, it’s a known quantity that much more than a few members of the Forbes 400 have accounts at Goldman.

What’s important is the message that members of GS’s wealth team routinely convey to clients: it’s dangerous to be in cash. The points of this message are many, but with brevity in mind, think the power of compounding. Second, it’s exceedingly difficult, if not impossible, to time the markets. Third, the 10 best market days over any reasonable timeframe powerfully inform long-term investor returns. Translated, stay invested.

It’s something to consider with the Fed’s “easy money” narrative top of mind. Here one guesses that the investment bankers at GS would scoff disdainfully at the very notion. As evidenced by how very lucrative and competitive investment banking can be for the few talented enough earn a living in the space, “easy money” is plainly the stuff of academics and economists who’ve never worked in any sector remotely resembling the real world.

Some will say that the Fed’s so-called “printing of money” (a theoretical notion that has little to do with reality) results in excess funds searching for a home, the home usually the stock market. Nice try. Such a juvenile theory presumes there are markets populated by buyers only. More realistically, the most naively stimulated-by-the-Fed buyer of equities can only express such unsophisticated views about the Fed’s power over equity prices insofar as a sober bear expresses an equal amount of pessimism.

What about the 10 best days in the market concept promoted by GS and other wealth managers? Can those with title to money really be so easily duped by vain central bank attempts at price controls such that they would blithely give up the much better returns that can only be had by remaining invested? All, so that they can lend money for free? To say that it’s a waste of words to ask the previous questions or to answer them is itself a waste of words. Yet the thumbsuckers who claim that the Fed plans the cost of and amount of credit believe just that. To say that economists and their media/academic enablers live in the Dark Ages is to insult the Dark Ages.

All of which brings us to the power of compound returns. To believe that the Fed can make credit costless merely by decreeing it so is to believe that the charitably average minds who populate the central bank can somehow overwhelm the most powerful force in investing. Forget the genius of compound interest that so captivated a young Warren Buffett, the Fed has gone to zero! Since it has, those with available cash will forfeit compound returns, the time value of money, and everything else associated with basic finance.

Except that they don’t. The happy news is that markets always and everywhere have their say. While economists and the lickspittle reporters who hang on their every word continue to respectively embrace and project the laughable notion that the Fed is the proverbial capital allocator in possession of the power to turn the “economy” on or off, in actual finance market forces powerfully, sometimes brutally, and never cheaply direct capital to its highest use.

The asset gatherers, capital allocators and investment bankers at Goldman Sachs know the above, and know it well. They do because markets, like GS, are relentlessly quantitative. And what’s quantitative haughtily rejects a Fed narrative that powerfully vandalizes reason precisely because it has nothing to do with reality.