It May Be Early - Weekly Blog # 898

 

 

 

Mike Lipper’s Monday Morning Musings

 

It May Be Early

 

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

 

 

 

A Usual Trap

A classic mistake in making future plans is focusing mainly on the present. In search of an investment policy for the next few years or longer, one should look at the causes of the main trends, not the size of the tariffs that have been announced.

 

The key force behind the announcements on tariffs is Donald Trump. His background is one of complex negotiations evolved from materially different views of how he sees the present and the future. I believe The President saw a critical problem of unfair trading terms facing the U.S. and saw a way to change the terms in favor of the country. He saw a way to solve the problem through meaningful discussion with the powers on the other side. The key was getting the right people around the table.

 

The core elements of unfairness are to be found in non-tariff trade barriers (NTB) erected by commercial interests with official or unofficial government support. (A number of examples were listed in last week’s blog, copy available.) While there is no published total of each country’s NTB effects, some experts believe their impact is twice the level of tariffs applied.

 

Mr. Trump’s way of dealing with foreign countries is to make the host nation an ally by using the size of US tariffs as a hammer. This is the reason behind the high announced tariffs, which is where President Trump expects the real bargaining to begin. I expect negotiations with major trading partners to take most of the summer. We may never fully understand the various changes to NTB’s, but a good clue will be changes to US tariffs.

 

Clearly there is another element to the aggregate size of the final US tariffs, the amount of cash expected to be paid to the US Treasury. This needs to be meaningful enough to keep the growth of the annual deficit acceptable to an unknown number of Republican Senators.

 

Most of these should be settled in the fall and early winter, so they do not unduly impact the mid-term elections. The economic background to the elections may be influenced by layoffs and the administration’s attempt to expand the economy. Additionally, further international actions may be the cause of how some state elections turn out.

 

The current crosswinds shown below may also impact the level of markets during this period:

1. After a period of outflows, T. Rowe Price is cutting staff.
2. Freight railroads are growing from China to Iran and Spain, for US continental trains, and other trains from Canada to Mexico.
3. Tariffs may encourage smuggling.
4. The latest weekly American Association of Individual Investors (AAII) sample survey showed a 39% positive and negative 6-month outlook.
5. A study of structural bear markets shows the average breakeven to be about 9 years.
6. The critical operating problems facing the US government is no different than those facing commercial and non-profit activities, a focus on effectiveness, not efficiency.
7. Jaimie Dimon has shared the following thoughts:

• Tariffs will be inflationary
• US reserve currency status rests on military superiority
• Markets are not low
• Lessons can be learned from the turnaround of Detroit and problems created (and elongated) during the 1929 crash
• Dollar weakness helps US multinationals 

As usual, I hope you will share your insights on the various thoughts expressed.

 

 

 

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Mike Lipper's Blog: Misperceptions: Contrarian & Other Viewpoints: Majority vs Minority - Weekly Blog # 897

Mike Lipper's Blog: Expectations: 3rd 20%+ Gain - Stagflation - Weekly Blog # 896

Mike Lipper's Blog: Analyst Calendar: Preparation for 2026 - Weekly Blog # 895

 

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Misperceptions: Contrarian & Other Viewpoints: Majority vs Minority - Weekly Blog # 897

 

 

 

Mike Lipper’s Monday Morning Musings

 

Misperceptions: Contrarian & Other

Viewpoints: Majority vs Minority

 

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

                             

 

 

Every day through the popular press, pundits in or out of political positions express views that our current information will lead to a happy conclusion. Occasionally it will happen and contrarians like me acknowledge that it can and may happen, but the odds it will happen are only 30% to 50%, like the odds a favorite horse winning at the racetrack. By definition, the reward for winning will be the lowest of all horses in the competition. Contrarians can select a different horse with potentially higher rewards by choosing to wager against the majority.

 

Currently, it appears to this contrarian that it’s a particularly good time to take a contrary view of the intermediate period of the US stock market. The primary reason for this view is the bullish feelings presented in the popular press with such shallow thinking.

 

The US Stock Market is Going Up

The weekend press is full of similar statements because the Standard & Poor’s 500 Index (S&P 500) rose a small amount on Thursday. (This gain was given back on Friday when 390 S&P 500 issues declined. More significantly for the week, 54% of the stocks declined on both the NYSE and the NASDAQ.)

 

US Tariffs Announced

The President or White House Personnel announced import duty rates with a limited number of the countries, which in theory would slow the growth of the expected rising deficit. (The higher tariffs likely to be charged on exports from these countries is not known for an obvious reason.) The President is well versed on restrictions imposed on US exports by each trading partner, which are labeled as “non-tariff trade barriers”. These include the following list:

Administrative & bureaucratic border delays

Censorship

Foreign exchange & controls

Import deposits

Capital movement regulations

Licenses

Localization requirements

Standards

Quotas

“Voluntary” export restraints

 

I don’t know of any summing up of the cost of the above barriers, or others not identified. I have seen knowledgeable estimates that are roughly twice the size of the tariffs. President Trump started the whole discussion about tariffs to get high-level meetings with some of the “right” people around the negotiating table in order to deal with the “NTB” issues imposed by various individual countries. As this has not yet happened, I wonder if we have seen a final answer to both the tariff and non-tariff trade barrier issues.

 

Markets Are Not Waiting

Businesses and investors must execute global trades and make investment decisions every day in the absence of firm conclusions to these and other questions. The US dollar relative to other principal currencies has fallen about 12% in 2025, with more expected. This week, Barron’s quoted a participant saying, “The days of the world letting America live beyond its means are rapidly coming to an end.”

 

The Wall Street Journal (WSJ) publishes the price movements of various securities indices and commodity prices each Saturday. This current week 61% of the prices declined. It appears many purchasers of goods and services are not demonstrating an inability to act but are instead unwilling to transact under today’s conditions and outlook.

 

Please let me know what you are thinking.   

 

PS

Some of our subscribers may have known my brother Arthur, who passed away peacefully Sunday afternoon. He led a long productive life helping many people on both coasts and two oceans.

 

 

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Mike Lipper's Blog: Expectations: 3rd 20%+ Gain - Stagflation - Weekly Blog # 896

Mike Lipper's Blog: Analyst Calendar: Preparation for 2026 - Weekly Blog # 895

Mike Lipper's Blog: Inconclusive Week Hiding a Big Problem - Weekly Blog # 894

 

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Expectations: 3rd 20%+ Gain - Stagflation - Weekly Blog # 896

 

 

 

Mike Lipper’s Monday Morning Musings

 

Expectations: 3rd 20%+ Gain - Stagflation

 

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

                             

 

 

 

 

3 ½ Day Trading Week

Normally, in a three and a half-day trading week we expect low volume and muted news of any significance to investors with less intense trading instincts and reduced staff levels. This was not the case this past week. Despite initial unruly Republican Party members in both Congressional houses, the so-called Big Beautiful Bill (BBB) tax and tariff bill passed with few amendments. Significant progress was made on reciprocal tariffs and possible trade barriers. Cease fire agreements in Gaza moved toward peace agreements. One suspects a Russian economic crunch, continued causalities sustained in the homeland, and the US threatening reduced US military aid to Ukraine, could hopefully lead to a reduction in deaths and soon become less of a distraction.

 

Trading Reactions

Led by favorable reactions to the passing of the BBB that were cheered on by The White House, many saw things getting better. These reactions stirred up bullish sentiments resulting in the S&P 500 Index reaching its first high for the year since February. Some even suggested 2025 could be the third +20% gain year in a row, a rare event.

 

Professional analysts and experienced economists are two-handed thinkers who don’t receive the same air or face time that advocates of simple tales do. First, the S&P 500 is a capitalization weighted index with a small number of highly valued stocks recording bigger gains than the average stock. An equally weighted index gained 5% less than the S&P 500. More importantly, at least to me, 9 of the 11 industry sectors in the index underperformed the overall index, with Info Tech and Communications doing better.

 

Economists often turn to the actions of corporate leaders for clues as they feel the stock market is too volatile and occasionally wrong in direction or magnitude. Currently, slightly less than half of publicly traded companies have announced employee layoffs going forward. Considering the cost and time spent getting qualified employees, cutbacks are an expensive strategy companies would like to avoid. Part of their problem is that they can’t find qualified new employees today, which means it is particularly painful to let good ones go. This is particularly true for companies with an aging workforce.

 

The lack of success in finding good new employees while keeping the better aging ones is in my mind not a cyclical problem cured by higher sales levels. It is a secular problem caused by the system we have built, which has failed us by confusing education with schooling. The problem starts in the home, often due to a single adult household, and continues on through early childhood education. The impact is felt all the way through PhD studies, with a system awarding promotions through test taking rather than productivity and intellectual integrity.

 

Historical Lessons

Perhaps we can learn from the past. With that thought in mind I recommend reading this week’s Barron’s article titled “The Coming Stagflation Won’t Feel Like the 70’s” by Joseph Brusuelas. I believe there is another parallel that should be considered, the US with an activist President and an accommodating Congress. Both the current occupant of The White House and FDR came into office seeking to make fundamental changes, but both ran into opposition from the courts. FDR took a recession and turned it into a depression, not by choice but in part due to the impact of stagflation. I do not necessarily agree with Joseph Brusuelas’ statistical projections.

 

What do you Think?      

 

 

 

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Mike Lipper's Blog: Analyst Calendar: Preparation for 2026 - Weekly Blog # 895

Mike Lipper's Blog: Inconclusive Week Hiding a Big Problem - Weekly Blog # 894

Mike Lipper's Blog: We may think we manage time, but time manages us - Weekly Blog # 893

 

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Analyst Calendar: Preparation for 2026 - Weekly Blog # 895

 

 

Mike Lipper’s Monday Morning Musings

 

Analyst Calendar: Preparation for 2026

 

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

                             

 

 

Analysts should attempt to get ahead of the stock market. Starting next Tuesday, we are entering the second half of 2025. Using the performance of Large-Cap US Diversified Mutual Funds as a broad indicator of the experience of US investors, the first quarter of 2025 was relatively strong, but April’s second half was weak. Perhaps it was due to concerns about taxes, tariffs, and international turmoil. The Market slumped into June, then recovered through the final four weeks of the quarter, bringing average performance back to mid-single digit gains, with half in the last week, despite a 9% decline in the value of the dollar. Not a great foundation for the continuation of two 20% gaining years.

 

Starting next week, analysts will quietly begin gathering their thoughts on preparing forecasts for the next calendar year. For the most part they will not have the benefit of the proclaimed or quietly guided company estimates. The estimate for 2026 will be more difficult than prior years. Not only will there be comparisons of two 20% plus years, but it is also unclear what taxes, tariffs, and the value of the US dollar are likely to be. There are two other quandaries that should be addressed. We have entered a period where there is a shortage of necessary talent at companies. For tech companies there is a struggle to find AI personnel at prices approaching Wall Street levels. Industrial and service companies have approximately 400,000 open positions, despite many announcing plans to lay-off workers. To some degree, this speaks to the quality of present workers and their attitudes.

 

Another concern is the level of IPOs threatening private equity portfolios with unattractive opportunities to sell some of their holdings. These sales are necessary to raise sufficient cash to pay the dividends expected by present holders and retail buyers. Private markets could contract quickly, constricting private securities firms. An investment trend is normally near the end of its popularity when it becomes dependent on retail buyers.

 

The answers to these questions may not be determined in the third quarter. Even though the fourth quarter is the second highest selling period of the year, it may not provide quick answers for marketing forces expected to produce results.

 

It is possible the market may be saved through efforts in the unofficial “fifth quarter”, which can deliver either surprisingly good numbers or poor ones, setting up a splurge in the first quarter of 2026. These will rely on the increasingly popular “adjusted” sales and earnings per share numbers created through skilled accounting approaches. These are often approved by the firms’ accountants and are not objected to by the regulators.

 

The problem with this exercise is that it makes the following year more difficult for analysts and investors to understand the base for the real earnings power of the company next year.

 

Buyers be thoughtful.

 

 

 

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

Mike Lipper's Blog: Inconclusive Week Hiding a Big Problem - Weekly Blog # 894

Mike Lipper's Blog: We may think we manage time, but time manages us - Weekly Blog # 893

Mike Lipper's Blog: Selective Readings of Data - Weekly Blog # 892

 

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Inconclusive Week Hiding a Big Problem - Weekly Blog # 894

  

 

Mike Lipper’s Monday Morning Musings

 

Inconclusive Week Hiding a Big Problem

 

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

                             

 

 

4 Day Summer Week

Two days of limited stock price gains and losses, with more stocks falling than rising. Market chatter was focused almost exclusively on the Israel-Iran war, with no Fed interest rate change. As usual from a long-term investor’s standpoint no attention is being paid to the continued destruction of the fundamental case for long-term investing. (Not surprisingly, this week’s American Association of Individual Investors’ (AAII) sample survey showed a shrinking six-month outlook for the “bulls” and an expanding negative view of the “Bears”.)

 

We have probably measured human productivity in business and non-profit organizations, including in academia and health care, since the beginning of human activity. Top-down, it has been declining for some time. To find the wasteful culprit accountants assigned organizational revenues and profits to various individuals. This was easy to do for front-line workers and senior management, but the middle of every organization was left out.

 

Left out were the human supervisors, often labeled foremen or middle management. In a period where top-line growth has slowed toward population growth, there is increased concern about human productivity levels. Since the swollen middle was not directly considered revenue or profit makers, their percentage of the workforce shrunk. As a society we are now paying the price for this lack of understanding of this value creation.

 

In far too many cases the supervisory class were the main purveyors of organizational culture, responsible for producing customer-oriented quality. There are hardly any organizations which have not experienced a decline in quality from the users’ point of view.

 

We are about to pay a higher price for this hollowing-out process as new activist management, particularly from the Washington quality culture, becomes a reality. This is especially true as thruput per person becomes the mantra and “AI” and other statistical measures are being implemented. With new activist leaders in Washington, I am worried many government and academic services will decline and to some not add value.

 

As fellow consumers, please share with me any services you receive from organizations that have improved recently.

 

 

Note: At this point we doubt the bombing of the nuclear sites in Iran will change much long term.

 

 

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Mike Lipper's Blog: We may think we manage time, but time manages us - Weekly Blog # 893

Mike Lipper's Blog: Selective Readings of Data - Weekly Blog # 892

Mike Lipper's Blog: No One Knows: Searching for Clues - Weekly Blog # 891

 

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We may think we manage time, but time manages us - Weekly Blog # 893

 

 

 

Mike Lipper’s Monday Morning Musings

 

We may think we manage time,

but time manages us

 

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

 

 

 

Recognition

When asked for investment advice the most appropriate response is, what is the expected pay-off time? That should be followed by what critical actions are expected during the “work-out” period? The answers to these questions will show both the humility and arrogance of the expectation of success.

 

The plain truth is, we collectively don’t know what the future will bring. The future course of events will be dictated by natural elements, what others do to us, and what we do to ourselves. (Today being Fathers’ Day, it is wise to include the impact of the entire heritage of our thinking and be thankful for it.)

 

The best way I have found to come up with usable answers is to rely on what I’ve learned at the racetrack, which is to assign odds to various logical outcomes. The purpose of the exercise is not the numbers, but a way to rank the various opportunities, remembering that I can be wrong.

 

The real benefit of the exercise is when I am proved wrong. What order of possibilities would have been better? This may include the theoretical Charley Munger and Warren Buffett box, labeled too hard to predict. (The other two boxes were yes and no.)

 

Applying the Approach

Starting with a deep depression, the most extreme example being the falling stock prices between 1929 and 1942. During those years there were periods of rallies and declines, but the extremes were not broken. Prior to that period there was extreme growth of corporate and farm debt. There was an increase in the belief that central governments could materially alter the course of the general economy. Also, during that period an activist political force tried to change the laws and regulations beyond their authority.

 

I have frequently reminded subscribers of the quote that history does not repeat itself but often rhymes. Using the methodology of assigning odds to a potential depression, I suggest there is at least a 40% chance current conditions are predictive of an oncoming depression.

 

Other Problems

• The World Bank has cut its prediction of global growth from 2.8% to 1.4%.
• Moody’s has warned that selling private asset funds to retail clients introduces new risks to private asset managers, including “reputation loss, heightened regulatory scrutiny and higher costs.”
• Robert Gates, former Director of the CIA, Secretary of State, and a former independent Director of Fidelity Funds, wrote “The US can rise to the Chinese challenge” and needs to.
• At least 170 large public companies expect to announce job cuts in June. These companies announcing job cuts do not include private companies, which employ much of the US work force.

 

While I perceive a more than average number of problems related to investing in US equities over the next few years, I remain bullish about investing in US equities. Our geographic position, the dollar size of our commercial and financial markets, and our eventual ability to surmount our problems, all support continued stock investments in the US for long-term retirement investment accounts.

 

What do you think?

 

 

 

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Mike Lipper's Blog: Selective Readings of Data - Weekly Blog # 892

Mike Lipper's Blog: No One Knows: Searching for Clues - Weekly Blog # 891

Mike Lipper's Blog: “Straws in the Wind”: Predictions? - Weekly Blog # 890

 

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Selective Readings of Data - Weekly Blog # 892

 

 

 

Mike Lipper’s Monday Morning Musings

 

Selective Readings of Data

 

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

                             

 

 

Assumption

I assume as a careful reader of these musing one cannot avoid the “happy talk” produced by most of the media. For balance, as a public service for my blog readers, I’ll focus on data and other information supporting the other side.

 

Long-Term

Jaime Dimon, the CEO of JP Morgan Chase, was recently quoted as follows: “If we are not the pre-eminent military and pre-eminent economy in 40 years, we will not be the reserve currency…” He is pleading with you to develop four views that he considers critical to a sound investment philosophy. They are the importance of military standing, economic position, having a forty-year view (the bulk of institutional and individual money is invested for long periods), and the significance of being the sole reserve currency.) I will be happy to discuss your views on these questions.

 

Others’ Views Focused on the Short-Term

Recently, 17 well-known investment advisors made estimates of the Standard & Poor’s 500 Index 2025 closing price. Nine estimates were higher and eight lower. The lowest was JP Morgan Chase, 13% below Friday’s close. (Of all the various stock market indices, I believe the S&P 500 Index is the best to gage the level of the market. On Friday it only gained one tenth of 1%, showing the stickiness of the movement.) Morgan Stanley is expecting the US dollar to drop 9% over the next year.

 

Unfavorable Conditions

Retail investors of all sizes are being told to invest in private investment vehicles, including private equity. These investments represent some 30% of the M&A market. History suggests the public buyers come into many trends last.

 

Currently, there are 7.5 million unfilled job openings. Employers can’t find suitable workers. I believe many potential employees lack sufficient motivation, discipline, and/or integrity for these jobs. This is leading to a low growth rate in labor productivity.

 

The employees themselves are one reason for these conditions at commercial, government, and nonprofit institutions. Due to the slow growth of our society there are pressures at all levels of management to improve labor productivity. Managers strive for efficiency, defined as output divided by input. The simple way to do that is to assign generated revenue to each worker. This is relatively easy to do for line employees, by leaving out the supervisors. The next step is to reduce the number of supervisors. This creates efficiency. However, supervisors create most of the worksite culture, which leads to product and service quality.

 

In just about every sector of modern life we are experiencing a decline in the quality of the products or services we receive. However, as a result of employers not hiring more experienced quality supervisors, this has led to customer dissatisfaction, lower customer/client loyalty, lower sales, and fewer recommendations. Employers should be hired for effectiveness, which would reduce costly mistakes and improve relationships.

 

Two World Realties

As long as we have politicians and their advocates chanting happy talk about the economy while employers cut back on hiring, we are going to experience a dichotomy in the investment world. We can hope for the best but should be prepared for the worst.

 

The Form Does Work

As many subscribers already know, I count my former time at the New York racetracks as a critical learning experience. Consequently, the running of the Belmont Stakes, which was run early Saturday evening, is very important to me. The race is now one quarter mile shorter than the traditional 1½ miles, which means its long history of winning times is no longer relevant to racing analysts (handicappers).  From a betting/investment standpoint, the job of the analyst is to evaluate the odds of a particular horse winning vs the odds posted on the tote boards. These odds are derived from the amount of money invested on each horse, including taxes and fees paid to the track. The smaller the odds, the more popular the payoff selection on the winning horse. In many ways this is similar to the most popular investments in the marketplace. It is important to remember that the most popular bets, called favorites, win a minority of the time. But they do win more often than the less popular bets.

 

The first three horses crossing the finish line at the Belmont Stakes were the same three horses finishing in that order at the Kentucky Derby. Thus, the history of these horses proves to be a good predictor. Can stock buyers count on a similar phenomenon in picking stock investments? It is occasionally possible, but not all the time.

 

If using lessons learned at the racetrack seems a bit odd, think about Ruth and I attending a New Jersey symphony concert on Sunday afternoon. This featured two great classical performers, Xian Zhang, conductor and Conrad Tao, pianist. They impressively played Sergei Rachmaninoff’s second piano concerto. This piece was a breakthrough work marking Rachmaninoff emerging from a three-year depression. The length of the depression could be a useful guide to an investment depression, unless the government lengthens the period of the depression, as FDR did in 1937.

 

Thoughts?      

 

 

 

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

Mike Lipper's Blog: No One Knows: Searching for Clues - Weekly Blog # 891

Mike Lipper's Blog: “Straws in the Wind”: Predictions? - Weekly Blog # 890

Mike Lipper's Blog: After Relief Rally, 3rd Strike or Out? - Weekly Blog # 889

 

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Contact author for limited redistribution permission.