Personal Wealth Management / Expert Commentary

Ken Fisher Shares Positive Fundamentals Investors May Be Missing

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses positive fundamentals some may be missing amid this current environment of widespread investor pessimism. Multiple scary narratives abound, including fears about Fed rate hikes, a potential US recession, among others. However, Ken encourages investors to sift through the noise and shares that the economy is stronger than most appreciate.

According to Ken, from an economic standpoint, factors like robust loan growth, growing travel demand, and low unemployment should give investors some optimism. For example, historically, recessions do not typically occur amid a backdrop of growing loan growth. Furthermore, as bank reserve requirements were eliminated in 2020, banks’ deposit base costs are minimal. Therefore, as the Fed raises rates, short-term loans become more profitable for banks, increasing their motivation to lend. Ken also points out that unemployment—currently low—usually starts to rise and travel demand—currently growing—tends to decline before a recession. Together, these factors indicate a global recession is not likely, or will be less severe than most predict.

Transcript

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A man appears on the screen wearing a navy suit, sitting in an office with a view of a thick forest behind him from the window.

He begins to speak.

A banner identifies him as Ken Fisher, Executive Chairman and Co-Chief Investment Officer, Fisher Investments.

Ken Fisher doing hand gestures time to time explaining.

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Ken Fisher: In this scary period where so many people are so afraid of so many things, and you know what they all are.

You read about them all the time.

Sometimes people ask me, so are there fundamentally good things

going on that don't seem to be much noticed?

Ken Fisher: And I'd like to point out a few, because one of the great fears that we all know floats around the world and heavily concentrated in America, and the English-speaking language is that because of the concerns about inflation, at high levels, the Fed and maybe other central banks, but led by the Fed in America will keep ratcheting up interest rates until they kneecap the economy and create recession. And all the bad things that come with recession.

Ken Fisher: People losing their jobs and businesses getting in trouble and all that stuff.

And I cannot tell you that that's impossible to occur.

I can tell you there are some positives going on that are inconsistent with that.

And let me just that people don't

seem to pay attention to notice,

you never read about, you don't hear about.

And let me point out a few of them.

Ken Fisher: One of them is that we have no real history of recessions coming anytime soon when loan growth, bank loan growth has been robust in the United States during this period where the Fed has increased interest rates, as you all know.

The fact is loan growth has actually increased.

Now, in traditional theory, the way the quantity of money is increased in a fractional reserve banking system is for the net banking system

to increase its outstanding loans.

That's the actual process that's deployed.

And so traditionally what the central bank did to cut that off was to make lending less profitable by increasing the cost of bank's deposit base such

that it wasn't very profitable to make loans.

They've largely, without thinking about it, lost mechanism to do

that because what they used to do over time was implement reserve requirements on banks and they eliminated those in 2020 tied to COVID fears and they've not re-implemented them the way they used to operate.

Banks now have most of their

deposit base costing them almost nothing.

And since their deposit base cost them almost nothing, as the Fed raises rates, it actually increases the profitability of bank lending, motivating the banks to lend more.

It's a positive in this environment, offsetting the concern that I cited earlier of what the Fed doing causing recession.

Now, there's a counter problem there, which is the more that they lend, the more that actually contributes to the future risk of inflation and doesn't solve the inflation problem the way the Fed would like it to.

But if you've listened to me over the decade, you've heard me say many times, I don't think that the Fed really understands what it's doing.

I don't think it's ever really

understood much about what it's doing.

Ken Fisher: When I was a boy, years and years ago, Milton, decades ago, Milton Friedman would have said, did say that banks, a central bank should not try to deal with the economy by fiddling around with interest rates, but just grow the quantity of money at a steady state and focus on the growth of the quantity of money.

Not try to predict that this interest rate increase or decrease will do this to the economy.

And he said then that they would never learn that lesson and they never have.

But the fact is, in my opinion the

fact is, that with that robust loan growth, it makes it very hard to have recession.

There's a lot of other indicators that you can see that are not consistent with that recession concept.

Unemployment is very low, remains low.

Ken Fisher: Usually unemployment starting to rise before you get to recession.

Travel is exceptionally robust and growing.

That's inconsistent with the beginning of recession.

I'm not suggesting that the Fed might not figure out in the future how to kneecap the economy differently.

It might.

But so far what they've been doing does not contribute to the goal that they want to accomplish.

And therefore, I think while we have this persistent inflation problem, which I actually think is getting better and that's a topic for a different video, the fact is there isn't really much going on to create that recession that so many people fear is here.

Ken Fisher: And fundamentally that's good news for people because it's less decimating to people's employment, it's less decimating to business profitability, it reduces the risk of business bankruptcies.

It's just generally good all the way around.

Thank you for listening to me.

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A series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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