The wealth management divisions of Wall Street banks are sales organizations, nothing more, warns Landon Whaley.
This week’s “Headline Risk” comes courtesy of the Old Institution and the belief that “more” is always better when it comes to equity exposure.
Two attributes are unequivocally Wall Street. First, that U.S. stocks are the only game (asset class) in town. Second, that whatever has just been happening — in economic or financial market terms — will continue to happen forever. Or, as we in the humanness biz like to call it, “recency bias.”
Having just wrapped up the best decade in the history of our great land without a single recession and the best equity market performance in 70 years (that’s not a typo), you can imagine how rampant bullish stock market recency bias is today!
That said, even I have been taken aback by just how bulled up investors are, and I got to tell you, it’s beginning to feel a lot like 1999.
This past week, a client sent me an interview from Can Never Be Correct (CNBC) with the head of Merrill Lynch Global Wealth Management, Andy Sieg. After watching the 3:15 minute segment, I had to pick my jaw up off the floor.
The interview kicks off with Andy declaring the “trend is your friend,” and that Merrill Lynch is still bullish on the market even after the +30% rip in 2019 because of (and I quote) “earnings, the economy, and the Fed.”
Wait; what?! Doesn’t the Thundering Turd Merrill Lynch have access to current economic data?!
Is Andy bullish because of the current earnings recession that is only going to deepen in 2020?
Are the ML cronies uber-bulled up on the S&P 500 because the U.S. economy has been slowing for 15 months and will continue to slow further in Q1 and Q2 2020?
Finally, what precisely about the Fed does Andy think is a catalyst for higher stock prices?
Unfortunately, we may never know, because no sooner had he vomited that data-independent garbage than he immediately started talking about the “sentiment” of individual investors based on the ML network of 15,000 financial advisors.
He then turns back to ML’s market perspective and opines, “we see things lining up,” leading to a “scenario where the market is up +20% from these levels.” Again, without telling us what exactly is “lining up,” he proceeds to say we are in the midst of a 30-year generational bull market of which the last 10 years are only just the beginning.
This is the kind of Shih Tzu that makes me feel like I’m taking crazy pills. People with important-sounding job titles get on television and pontificate this biased-laden Wall Street rhetoric that investors should always be in the market, and they do so without any data to support their claim and without any accountability to the outcome of their recommendations.
It’s total bat guano! But wait, the Wall Street-induced insanity doesn’t stop there.
At the two-minute mark, Andy stands on his Wall Street branded soapbox and announces for all the world to hear that the 60/40 stock-bond portfolio is “dead.” This declaration prompts the CNBC anchor to chime in that the 60/40 has been dead for a while because “you’re never going to make enough money if you have 40% of your portfolio in bonds.”
Folks, I couldn’t make this up if I tried!
Let me speak succinctly and bluntly. After the next recession, when the vast number of retired baby boomers lose -25% to 40% of their nest egg following this jackleg’s advice, I want this fool and anyone else advising people to go all-in on U.S. equities sent to jail!
Enough is enough. There needs to be a fiduciary responsibility for people in roles such as Mr. Sieg’s. Unsuspecting investors don’t know this guy is a numb nuts who clearly doesn’t understand economics or markets. They don’t understand that guys like Andy aren’t compensated on how ML clients perform, or how much risk they take in their portfolios. He’s paid based on the amount of assets his advisor network amasses, retains, and invests in equities. The wealth management divisions of Wall Street banks are sales organizations, nothing more.
For the record, the 60/40 portfolio was always a marketing ploy with no statistical teeth to advocate it’s a superior way to invest. That said, the answer isn’t to load your portfolio to the brim with stocks and throw away the key. If Andy or anyone else thinks the last 10 years represents a paradigm shift here in the United States, they’ve got another thing coming. Mr. Sieg and his CNBC sidekick are telling you to kill the bond allocation of your portfolio like Old Yeller. Yet, the fact remains that the S&P 500 cranking to new all-time highs against a growth slowing backdrop means that the risk of a severe market correction (at least a 20% drawdown) is increasing substantially in this supposed “generational” bull market. Trade accordingly.
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