Mike
Lipper’s Monday Morning Musings
More Evidence of New Era
Editors: Frank Harrison 1997-2018,
Hylton Phillips-Page 2018
For some time, I have viewed US and global markets as having
entered a “New Era” phase. As with any transition, until it is complete it is
possible the trend will not finish and reverse to the old happier trend. The
self-appointed job of this analytical observer is to regularly make
observations as I see them.
The Rise of the Investment Manager
Independent custodians who are also not investment managers are
losing influence with the owners of capital. I see assets leaving bank
custodian/ investment managers and going primarily to investment managers who
custody their own assets or contract out the custodian function. One clue is
this week’s announcement that the head of JP Morgan Chase trading is joining an
independent hedge fund. Insurance companies have been reducing their direct
management of institutional equity assets and hiring independent equity
managers.
At the World Economic Forum it was recently noted that the
number of individual Trillionaires will shortly grow from one to five, if not
more. This is more a function of concentration than growth in the market. Part
of the problem is the growth of business investment being small to flat after the
impact of inflation. One of my concerns is the anticipated AI flows going into various
“sales channels” and making them more efficient, rather than increasing the
number of units sold. One disturbing factor is the size of the global R&D
budgets, excluding inflation, being relatively flat over the last five years.
US Education a Particular Problem
Global growth is often the result of a better educated
workforce. While the US has the largest and most expensive “educational” system
in the world, it is not producing a workforce that measures up on the world
stage. (The reason for the quotes around education is that in the US we have
substituted education for schooling, which uses “social promotion” or teaching
to pass the test rather than teaching students how to think logically.) Mike
Bloomberg, the former Mayor of NYC, points out that only 67% of 8th graders scored
at the basic or better reading level, the lowest level since 1962. What I find
more distressing is that only 60% of 4th graders pass a basic math test. This
is not going to help over half the US population in the “AI” world.
Investors are Worried
In the latest week of generally bullish projections 51.7% of
the stocks trading on the NYSE went down, which was surpassed by the NASDAQ
where 58.2% declined. The regularly published sample survey of the members of
the American Association of Individual Investors (AAII) showed 41% being bullish,
down from 43.4% the prior week. What may be more significant is the percentage of
those being bearish rose to 34.0% from 29.4% the week earlier.
Walking Around Analysis
I know a number currently unemployed people of all ages with
good resumes and work histories, who are having difficulty getting hiring
interviews. Fewer and fewer companies are hiring. When I walk through high-end
shopping malls, I find the better stores understaffed. When speaking to
operating people in profit and non-profit organizations, they say they are
experiencing measurable declines in operational efficiency. They point to their
organizations and/or their suppliers being hollowed out by absent workers of all
levels from senior management to first level people.
One wonders how long growth in the economy and markets can continue
with a poorly educated workforce who all too frequently are absent from work. In
the near future companies will have little alternative other than to use AI to compensate
for this decline in productivity. The tragedy will be the millions of uneducated
and unmotivated employees left on the sideline because they can’t compete. Education
in America is desperately in need of a solution, hopefully a new administration
claiming to be in search of excellence can deliver it.
As an analyst I suspect the interim results this year will
disappoint.
Please tell me if I’m wrong.
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Mike
Lipper's Blog: Roundtable Discussion - Weekly Blog # 873
Mike
Lipper's Blog: New World Rediscovered - Weekly Blog # 872
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