The Rhyme Curse -Weekly Blog # 838

 

         

Mike Lipper’s Monday Morning Musings

 

The Rhyme Curse

 

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018

   

       

   

^{Analysts, lawyers, and accountants spend much of their careers relying on history to protect themselves and their organizations. I have often said, cut an investment analyst and a historian will bleed. Mark Twain is incorrectly identified with the following quote “History does not repeat itself, but it rhymes.”  To select the most useful rhymes, you should select from all past observations as an “AI” search would do, rather than just using the most useful observations. For example, in reviewing the number of years between the S&P 500 “all-time highs”, including 1929. There were 15 such occurrences, but they were of different durations: 25, 6, 5, 3, and 1-year durations). The most common period was one year, with 6 out of 15 periods being 1-year durations. In attempting to pick a relevant number of years, you should look at other factors. I would pick periods of rising government deficits. The center of this array is 5-6 years, suggesting a cyclical recession and possible periods of stagflation. A longer duration would imply a structural recession.}

 

^{Historical Inputs of Relevance Today}

^{In the 1890s US Admiral Alfred Thayer Mahon wrote on geopolitics and pointed out that Great Britain, a geographically small nation, was the real leader of the world due to its naval and commercial fleets. Both Germany and Japan got the message, which was fundamental in their preparation for WWI and WWII. China once had the largest fleet in the world, before they destroyed it themselves.}

 

^{The result of this seminal work was that once Germany was able to send its battleships through the Baltic to destroy British warships, WWI became a certainty. Prior to that the German General Staff, thru visits and other studies, had focused on the campaigns of General Stonewall Jackson in the Shenandoah Valley of Virginia, demonstrating the power of using mobility against fixed forces. After it’s treatment as an “ally” during the signing of the Peace treaty and the US curtailing its oil supply, Japan recognized the need for sea power, an issue which led to Pearl Harbor. Bringing the lesson and its probable impact on our future up to date. China has the largest naval fleet in the world today, and it is still growing while the US’s fleet declines.  China has almost half of the world’s shipbuilding capacity.}

 

^{Preparing for the Future}

^{The Capital Group, one of the great mutual fund and institutional investment managers, has entered into a joint venture with KKR to produce and sell hybrid funds. JP Morgan Chase, an organization that internally studies many possible futures, is prepared for interest rates between 2% and 8%. Their CFO is prepared for the tailwinds currently helping them to switch to headwinds.}

 

^{Many Different US Markets}

^{The only US Diversified Equity mutual fund sector to rise during the week through Thursday was large-cap growth funds, which was echoed by tech sector funds. While the NASDAQ advances volume rose for 4 days in the week, the NYSE Composite Index only advanced for one day. Low volume has led to less volatility.}

 

^{What Many are Not Prepared for}

^{The average age of world government leaders is 62, with 19% in their 70s and 5% in their 80s. The median age for US senators is 65, with the House member median age being 52. The average CEO is 56. While I hope all of our leaders are in good health and remain so, I suspect the emotional strain and lifestyle choices are incidental hurdles. As they age, they often become more conservative and prefer the old way of doing things.}

 

^{Investors are not prepared for change. I am currently noticing an increase in the rate of top spot replacements. Investors should therefore be prepared for leadership changes, which almost always result in younger and more vibrant leaders. There are other changes few are ready for, like a change in the Fed and other regulatory bodies, or a change in policies. I suspect there will be changes in private investments and how they deal with the public. As usual, low-risk equity and debt not designed to survive either stagflation or a major recession will come in late the.}

 

^{Let me know what investors need to be prepared for.}

 

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