• Bridget Sullivan Mermel CFP(R) CPA

The M2 kettle is boiling with stimulus dollars. Should you act? What is M2 anyway?


John: There's a lot of news out there about the coming boom in the economy. What to do about that? Find out on this episode of Friends Talk Financial Planning.

Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel. And I've got a fee-only financial planning practice in Chicago, Illinois.

John, a lot of people are talking about this. It seems like maybe people that got stimulus checks or PPP haven't spent them. And there's a lot of money lying around somewhere. So what are you hearing about what that means?

John: No, it's interesting to have this conversation. Glad to know that you're hearing that from some of the people that you hang out with. I hear it from clients and friends. Like, I heard one person the other day. He says, “We're all walking the dog.” And I said, “Yeah, boy, once we get back and get out into the world, it's going to be like the Roaring ‘20’s again.”

What do we do about that? How do we change our patterns or our investing or our financial planning? And I have two quick things I wanted to show on this. This is Wall Street Journal. This is kind of becoming mainstream. Wall Street journal said pent-up savings are expected to boost recovery. That sounds like pretty good stuff.

And then this was interesting. We were talking about this before the show. I said, “There's an astounding surge in M2,” and I said, “I don't know what M2 is.”

Bridget: M2! Yeah.

John: Right. And before you were explaining to me what it was, I was like, “Yeah, I didn't realize that.” I don't remember economics class that well, as well as you do. But M2 is excess cash in checking and savings accounts, right? That's what that relates to?

Bridget: Yeah. People have a lot of cash. Right.

John: And look at this going back to 2003. And it goes through the roof. So there's all this extra cash on the sidelines. And so this idea, “Boy, once we can go move about the country again, this is going to be awesome.” But what do you do about that? How do we change our behavior?

And I'll tell you, for me, this relates to… It's a signal. But it's sort of like we were talking before about when you put water on to make tea. And when that teapot boils, that's a pretty reliable indicator that the water is ready to make tea. I know what to do next. And like, 99.5% of the time, it's ready to make tea.

With something like this, it's an indicator, but I'll tell you, the fact of the matter is what happens going forward is really unreliable. It's unknown. And on the flip side of this, when you think about if you look at the value of the market right now, based on historical averages -- price-earnings ratio, or some of the other factors -- stocks look really high right now. Stocks are expensive on historical norms. And unemployment's high, and the debt’s going up, and inflation. And, man, there's a lot of evidence that the market and the economy is in for a rough ride in the next several years.

And then we just looked at, there's also a lot of evidence that, geez, the economy is going to boom the next several years. And I will tell you, it's hard to predict, but what's definitely going to happen is one of those two things, right?

Bridget: Right.

John: It’s going to be great. It's going to be bad. We probably are going to be surprised whenever it happens.

Bridget: Or somewhere in the middle, right.

John: Right. And so it's interesting, as I think about it anyway, that it's not actionable, right? We have to have a plan that provides for whatever happens, because the future is unpredictable. And if you're pessimistic, you think, “Golly the market’s overpriced, and unemployment, and all these things.” Well, take a look at… Zip back a little bit, take a look at that. There's a record cash on the sidelines of people's bank accounts.

And if you're of the nature that you say, “Hey, this is going to be the Roaring ‘20’s again,” take a look at the other side. Stocks are expensive, right? And unemployment, and those things. And have some balance. So that's what I tell people. I kind of get excited about thinking about these two sides. And at the end of the day, I think you can't do anything. But what do you talk about? Or what's your thoughts on this stuff?

Bridget: Well, as you were talking, I was thinking about what I would do if it's the Roaring ‘20’s. And I actually have a flapper outfit.

John: I was hoping that was going to be part of it. I was hoping flapper was going to fit into that.

Bridget: Maybe I should invest in more flapper outfits. So maybe I should change my wardrobe to flapper outfits. The headband, and the armband.

John: I like it. I like it. On our next episode, tune in to see Bridget…

Bridget: A lot of twirling, fringy things. Yeah.

I think we just do what we normally do. We look at your income, we look at your investments once a year. If you want to invest some more, that's fine. We'll just put it in the whole… We're not going to do generally something special with it. We just put it in the big pot and stir it up with everything else. Yeah.

I also think that we can… The news is designed to help us to trigger our emotions and make us want to do something. And in these situations, that's what we're trying to do is help people sort it out. And so I don't think that the… maybe my flapper outfit needs to incorporate M2 somehow.

John: Yeah, right.

Bridget: I don't know. An M2 flapper outfit. Yeah, I don't see it. I see it as noise, not as signaling “let's make tea.” It’s like my cell phone is making a tea kettle sound, not “it's time to do something.”

John: Right, right. This stuff is interesting to me. I mean, I watch, we look at these things, and as you were describing, the news is designed to get us to take action, right? And the best thing to do most of the time is not to take action, or not take a reaction.

Bridget: Right.

John: And it reminds me of Alice in Wonderland and the rabbit down there, and he gets all flustered and he says, “Well, don't just do something. Stand there!” And listen, calm in the storm is what is successful.

And I think that the tea example, when the teapot boils, it's time to make tea. This is noise. As you just said, this is noise. It's something. It's worth looking. It's worth considering, but it's not actionable. Having a plan and sticking to it. That’s still is the thing to do here.

And so if we were to wrap things up, that would be my one big takeaway is: think about this as the anti-teakettle boiling. And it's interesting. Pay attention. If you find yourself swinging from one side to the other, being overly pessimistic, being overly optimistic, think about the other side, because there is another side to it.

But then stick to your plan. And if you're having a problem with your plan, think about creating or changing it so that it will be able to handle both sides, right? You don't know what's going to be a good year, bad year, good five years, bad five years. Have a plan that can weather all those things.

Bridget: Absolutely. So at the end, we like to talk about the ACP or the Alliance of Comprehensive Planners, which is an organization that both John and I belong to that has planners all over the country. It's a not-for-profit organization, and people are really joined by a philosophy of how they work with clients.

And the other thing is subscribe. Hit the Subscribe button. It helps us get some credibility with YouTube, and you will get first dibs on knowing about our upcoming episodes. So with that, it's a good time to cut it out. Thanks, John.

John: Thanks, Bridget.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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