Is This the Last Hurrah? - Weekly Blog # 945

 

 

 

Mike Lipper’s Monday Morning Musings

 

Is This the Last Hurrah?

 

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

 

          

 

 Preface

Hurrah is both a shout of victory and a political world about aging politicians, warning that the following election won’t be a happy one. (BTW it is pronounced Oorah in the Marines and Hoorah by the Army.)

 

I don’t know whether the reception for the largest IPO of all time is a sign we will not see larger market enthusiasm in the future. I am talking about both the size of the SpaceX offering and the further gains generated after underwriting.  What I do know that it was a record fundraise at a time when many non “AI” stocks are dealing with mediocre sales. Consumer sentiment is at its lowest on record going back to the early 1950s

 

More importantly, I am trying to find investments for the next “bull” market. My assumption is that we will experience a substantial rise after a major correction to the present market level.

 

The Process

The first thing I don’t do is look for clues to a different future by crunching GAAP numbers found in today’s annual reports or other regulatory accounting statements. To the extent present sales data may be useful, they need to be adjusted to match reality. For example, today it looks like semiconductor companies are doing very well in Taiwan and South Korea. Truth is, only some of their product sales are produced in their home country, with increasingly more in other countries. More importantly, I am guessing their ultimate sales are to US customers. Thus, investors are concerned that many of these so-labeled international companies are extremely sensitive to what is happening in the US.

 

Forward Looking Analysis (Guessing)

The example that I discuss should not be treated as a buy recommendation and should only be rendered knowing the economic condition, resources, and personality of the buyer. The case I will discuss shortly is a long-standing large position with a large unrealized potential tax liability, although the analytical thinking may also be appropriate for the reader.

 

The stock is Berkshire Hathaway. The news item is the $8.5 billion purchase of Taylor-Morrison Homes for cash, including the assumption of some debt. The initial size is about 1/3rd of Berkshire’s annual net free cash flow, excluding their large cash reserves.

 

The decision made by the new CEO of Berkshire was completed in matter of weeks and was applauded by Warren Buffet. The announced plan is to create a housing group combining Taylor-Morrison with already owned Clayton Homes, which manufactures homes at a lower price point. Taylor-Morrison builds communities of new middle-class houses as well as rental housing. There is a national need for more housing.

 

I believe this purchase is very similar to Berkshire buying See’s Candy, which was initially misunderstood by some as Berkshire going into the Candy business. They were instead going into the franchising business, which has been an excellent business for McDonalds. In this case they would be going into the home mortgage business in a major way, with a controlled sample.  Furthermore, this is a sign that Greg Able the new CEO of Berkshire, has different talents and proclivities than Mr. Buffet without the guidance of the late Charlie Munger.

 

This is an example of how to investigate the future. 

 

Let us know what you think about our views?

                                         

 

 

Did you miss my blog last week? Click here to read.

Mike Lipper's Blog: Warnings Increasing - Weekly Blog # 943

Mike Lipper's Blog: Rhymes + Future Opportunities - Weekly Blog # 942

Mike Lipper's Blog: Many Trends Within the Same Market - Weekly Blog # 941

 

 

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A. Michael Lipper, CFA

 

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New Era? - Weekly Blog # 944

 

Mike Lipper’s Monday Morning Musings

 

New Era?

 

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

 

          

Evidence

After an extended period of daily market movements below 1% per day, the most meaningful stock market index fell -2.64%, with the technology sector falling much more. The 30-company Philadelphia Semiconductor Index which produces the critical needs for “AIs” explosive growth fell -10.3%, while the NASDAQ Composite fell -4.18%. (This is not the first decline for a new technology driven bull market, which was led by railroads, canals, and undersea cables in 1873. These stocks traded on exchanges in America, London, and Vienna. In Vienna the market dropped 45% in one day.) Despite the happy talk from Washington and various pundits, we have seen continued notices of layoffs from large, seasoned companies, including by Macy and Saks. In New Jersey, April unemployment was 4.8% vs 4.3% nationally. (It was just announced that Exxon and Chevron have changed their state of incorporation from New Jersey to Texas.) What is more significant to me is the number of bank branches that are closing. Perhaps more significant is the observable factor that attractive, wealthy women, are not wearing expensive jewelry while shopping or at performances.

 

Midweek, the AAII sample survey showed the market outlook for the next six months being 36% bullish and 37% bearish. (I suspect that if the survey was done after Friday’s market, we would have seen a bigger total for the bears). Interestingly, some stocks that typically don’t attract tech buyers, like Coca Cola* (+3.46%), Moody’s* (0.49%), and even Apple*, fell less than the market (-1.25%).

*Owned in managed or personal accounts.

 

My View 

Most analysts and pundits compare stock price performance to past cycles to determine investment policies, much like telling time with a stopped clock. Seldom in an investment career does it pay to look for meaningful structural change. One way to do this is to recognize that old firmly held beliefs, like a flat earth, keep us from falling into the abyss. Like Columbus, we should seek to find new riches by going against the popular view, putting faith in a compass over an orderly world view. Similar to Columbus I may be wrong, but I will hopefully reward my backers with fabulous wealth by addressing society’s real problem, far too many unproductive people. Not only are the young unproductive, but there are also healthy seniors not working for money or the good of society.

 

Today’s government employment data shows that there are sufficient job openings for all the unemployed, although the hirers say they can’t find enough people to meet their needs. Only 61% of our population are employed. I translate that to mean they can’t find people with the correct attitudes and education to meet their needs. This is an indictment of both our schools and homelife. To solve this problem, they should automate wherever possible, which can mean using “AI”. 

 

 For many years I boarded a 6 AM train with papers to read, reaching the office at about 7 AM prepared for my first meeting with colleagues or committee members of the New York Society of Securities Analysts, the trade association of my profession. I was not alone, I would meet other analysts outside their offices for a bite of breakfast, where executive committee members were also having breakfast with their direct reports or others that were on the way up. (This was not the normal day that the executive committee officially met, but they were still doing business.) After a full day working numbers and writing reports, I caught the 6 PM train home. I arrived at close to 7 PM and then spent time with my children going over how they spent their day. Thus, my workday was 12 hours, with some additional time spent on the weekend. I probably spent some 70 hours a week fighting my way up the ladder.

 

The law calls for a 40-hour week, which does not include lunch. Today, according to the Department of Labor, the average American works a little more than 34 hours a week and that time probably includes lunch. If you listen to the young people of today, they believe in a work/life balance of at least 50/50. No wonder our productivity grows at around 3%, which appears to be higher than in China.

 

“Evidently, when Trump visited Xi Jinping last month, the Chinese president made a pointed reference to the concept of overstretch. A concept that was put forward over two millennia ago by the ancient historian and general, Thucydides. Can China and the US overcome this trap? There is also the risk of war expenditures becoming greater than the rest of the economy. The current administration, unlike China, is extremely focused on short-term-announcements impacting the mid-terms. Strategically however, both the President and Xi Jinping are aware of the seminal work by Rear Admiral Alfred Thayer Mahon, titled The Influence of Sea Power Upon History.

 

See what you can do to increase productivity and put more of us to work for society. Your help is needed.

                                         

 

 

Did you miss my blog last week? Click here to read.

Mike Lipper's Blog: Warnings Increasing - Weekly Blog # 943

Mike Lipper's Blog: Rhymes + Future Opportunities - Weekly Blog # 942

Mike Lipper's Blog: Many Trends Within the Same Market - Weekly Blog # 941

 

 

Did someone forward you this blog?

To receive Mike Lipper’s Blog each Monday morning, please

subscribe by emailing me directly at AML@Lipperadvising.com

 

Copyright © 2008 – 2026

A. Michael Lipper, CFA

 

All rights reserved.

 

Contact author for limited redistribution permission.