Before Focusing on Shorter-Term Reactions - Weekly Blog # 950

 

 

 

Mike Lipper’s Monday Morning Musings

 

Before Focusing on Shorter-Term Reactions

 

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

 

          

 

 

We should recognize that several topics that arose this week will have longer-term implications and impact results for many years, if not future decades. None of these contributions to our thinking will influence things directly, but some or all may influence our future.

 

Smoke from the Canadian wildfires has blanketed much of the US. Sports activities were delayed in Philadelphia, and the World Cup game in Miami was also influenced. The important message is that the US is not an isolated country, activities in both Canada and Mexico have measurable impacts on us.

 

The World Cup competition introduced real America to many sports fans from all over the world. Prior to traveling to the games many people looked at the US as Manhattan below 60th street, a few government buildings in D.C., and some sound stages in California. Costco, Brooklyn, and our national parks have awakened them to the country’s beauty, its friendly people, and a large population of many talents. It also showed athletes playing their game better than those representing America. I suspect by the next World Cup we will produce better results too. The biggest change is likely to be in women’s soccer.

 

Our media and our President comment on “the stock market” as if it were singular. Furthermore, the direction of the market is aligned with the economy. Increasingly, “the market” is made up of several smaller markets moving differently from each other. For most of this year, important sections of the market have been pointing down compared to a limited number of tech companies going up. The stocks of some of the nation’s leading healthcare companies are selling at 1990 or 2000 prices. These companies are rarely mentioned by pundits or politicians. In future it would be wise for investors to participate in the growth of Asia, and later Africa and the Middle East.

 

The final US input may be a collection of groups in Congress having only titular relations with the two main parties. The main battle will be in the Senate, which takes 60 votes for most legislation to pass. However, neither party will be able to count on all its members due to some issue specific deserters. This could lead to the only functioning group being a conflicted White House ruling through executive orders in all agencies except the Fed.    

 

Clues To the Future

The Three Jobs

Security Analysts essentially have three jobs. The first job is to avoid being tagged with losing money, or worse, having a negative relationship with a paying client. The second, and most common function, is to be associated with winning positions or clusters of winners. The third job is to successfully support the sales effort of the organization.

 

What is our Role?

First and foremost, our first loyalty is to our investment management clients. If we are reasonably successful, we then earn the privilege of sharing our views with others through this blog.

 

We Use this Blog to Shape our Thinking

The price action of common stocks did not give us much help last week. In general, the daily moves were equally balanced between gains and losses. However, the latest sample survey of the American Association of Individual Investors (AAII) had their six-month expectations swinging a bit positive. (The AAII survey does not cover the end of the week, and many market analysts treat it as a contrary indicator at “turning points”.)

 

Our Biases

We think we do a good job over an extended period for long-term investors. In our longest multi-generational account of sixteen positions, five holdings represent over 50% of the gains. This demonstrates that most of the time we prefer both a small list of holdings and the ability to let winners exceed the SEC’s definition of diversified. Our accounts consist of both common stocks and mutual funds, or the manager’s portfolio. We also own securities that invest overseas, which are appropriate positions for this account, but may not be for others.

 

Some Hints for Long-Term Buyers

Two very popular stocks, IBM and Space X, which we do not own, declined this week. Both have lessons we believe are important for long-term investors. The fall in IBM was caused by the company’s disclosure that their software, consulting, infrastructure, and main frame computer customers are switching to buying “chips”. While pundits focused on what they were not buying from IBM, the item that struck me as even more important was the decline of items tied to main frame computers. IBM was responsible for selling some 60% or more of these expensive devices. In future there will be some consulting and infrastructure sales, plus an ever-decreasing number of mainframes. Furthermore, they no-longer have the advantage of being the first computer company with “sales engineers”. IBM is not the company that my grandfather loved. The lesson for all of us is that even one-time great companies can have economic difficulties. There is not a single company remaining from the original Dow Jones Industrial Average (DJIA), with the majority of them no longer in business.

 

At the other extreme, Space X is a business with exciting future products and services which also declined this week, selling below its original public issue price. In our role as portfolio manager we do not invest in highly sought after IPOs.

 

Despite the problems associated with these two leaders, the number of advancing prices on the NASDAQ exchange were higher than the number of decliners this week. However, on the older New York Stock Exchange (NYSE) the reverse was true 46% vs 59%.

 

Question: What if anything I have said do you agree with? 

 

 

 

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Investors’ Interlude - Weekly Blog # 937

 

 

 

Mike Lipper’s Monday Morning Musings

 

Investors’ Interlude

 

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

 

 

 

Take Some Gains Before Taxes Do

The common denominator for most big investment gains are changes. Usually changes in investor perceptions and economic structural changes. The Standard & Poor’s 500 (S&P 500) and NASDAQ Composite are at record highs, due largely to enthusiasm for announcements related to the suspension of fighting in the Middle East. (This is not true for the Dow Jones Industrial Average (DJIA) and the average stock.  Unfortunately, since WWII the US has had a history of winning wars but losing the peace.)

 

We do not know the total cost of the war and other spending, including election-oriented payments. I suspect the President’s desire for a lower valued dollar will be achieved. There is also a strong push from urban legislators for “fair taxes”, also known as “tax the rich”. Thus, I believe capital gains rates and estate tax rates will rise.

 

Due to these expected changes long-term investors should review their portfolios to see how much of their wealth should be realized before their estates are taxed. If this generates significant amounts of cash, I suggest maintaining the cash or short-term treasury holdings for reinvestment.

 

I believe there will be positive changes in the foreseeable future. These changes may be driven by technology, demographics, immigration, and global factors. These changes are likely to be net larger than politically motivated changes and you want to be in position to take advantage of them.

 

Investment Impacts of Past Changes

The Founding Fathers were afraid of the powers of government, so they placed our Capitol in the humid swamp of Washington DC, thinking our legislators would desert the “swamp” during the humid months. That worked reasonably well until the development of air conditioning. The end of the government’s year is now September 30th, after the summer political conventions, which reduces the time for debating many of the critical issues of the day. DC is now a year-round city for government workers and legislators. Many work or live in large buildings constructed and possibly owned by real estate families who are probably wealthier than the US Senate members. Thus, the advent of air conditioning changed how our government works.

 

Another unexpected change was the railroad growth of the late nineteenth century. The highly regulated railroads only made profits on freight travel and lost so much money on human passengers that the federal government became the principal owner of passenger travel. The freight lines are governed by both the Department of the Interior and Anti-Trust laws. This has led to other countries having better and cheaper train service than we do, paid for by charges on the goods we consume. It is interesting to note that the Dow Jones Transportation Index, which covers the rails, was the best performing market index this past week. The rails are still important.

 

Future Changes

We live in an environment of an increasing rate of change. I leave to others to identify the changes which most investors would not be surprised by.

 

Geographic Changes

1. Western Hemisphere countries have become more partners than adversaries in terms of trade, health practice, external and internal defense, probably led by Canada.
2. Russia, after Putin, will experience major political and economic changes.
3. Asian countries that border both Russia and China will come into their own in terms of trade and be more open to development.
4. African countries will welcome joint development from Western countries.
5. Indonesia and India will become less autocratic, with foreign companies able to generate substantial sales and earnings.
6. Each country will make their own rules.

 

Retirement Issues

1. Over time, US Social Security will be allowed to exclude US government paper and possibly approach being a foreign wealth fund.
2. It is reasonable to expect that those born recently will live to at least one hundred, so we will need to provide for longer periods of investment and spending.
3. For the same reason, private retirement vehicles will need to change.

 

Market Regulation

1. Using the last trade may no longer be appropriate if it is too small and unrepresentative of the size of the seller.
2. As more stocks and possibly bonds trade in size in after-hours, having a closing price on the exchange market may be unrealistic.
3. From a technology perspective, there should be a body that can approve of their use for retirement accounts.
4. Should issuers of a certain size be required to have assets or insurance on the life of the CEO that can be used in retirement accounts.

 

As usual, I would love our subscribers to share their views with me. 

                                        

 

 

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Mike Lipper's Blog: Not Yet Ready for a long-term Solution - Weekly Blog # 936

Mike Lipper's Blog: We Have a Management Problem - Weekly Blog # 935

Mike Lipper's Blog: Is History Rhyming Again? - Weekly Blog # 934

 

 

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Is History Rhyming Again? - Weekly Blog # 934

 

 

 

Mike Lipper’s Monday Morning Musings

 

Is History Rhyming Again?

 

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

 

 

 

Preface

Before the New Jersey Symphony’s inspirational playing of Beethoven’s Pastoral Symphony there was a brief concert by the New Jersey Symphony Youth Orchestra’s Academy Orchestra, who are gifted and wonderful. However, what was more wonderful was thinking that these talented young people not only learned their musical skills very well but also learned a bit of the history and discipline of classical music. Hopefully, it will give them the skills to manage the messed-up world we are passing on to them.

 

I couldn’t help my own burdened brain sitting there Friday night after what may have been the most important stock market week in some time. The Standard & Poor’s 500 pierced the low set in September. Classically trained market analysts will likely suggest how difficult it will be for this most important of all indicators to quickly recover the 10% loss from its high point. Pundits will likely blame the current military and diplomatic failures to end the war.

 

Those in leadership positions are not paying attention to ancient history. Iran is the modern name of what was called Persia for centuries. The rulers of Persia controlled much of what passed through the “silk road”, which not only passed new foods to the western world but also mathematics, science, paper money, and gun powder. Persia had a large and powerful army that kept would be conquerors away, although it was not particularly successful at adding to its piece of the Asian land mass.

 

I believe the main threat to the US and other countries is not their incipient nuclear warfare, but their successful sponsorship of proxies who damage other established governments and societies through the destruction of people and property. Recently, the US experienced a couple of wanton killings carried out by US citizens who received local training and support. We have seen the Iranians do this not only here, but in the UK, Europe, Middle East, and Africa. Because their sleeper cells easily entered the US through an open border, we don’t exactly know the size and capability of the problem.

 

The US has a history of winning wars and losing the peace because we are not very good as occupiers. Also, it is worth pointing out that Iran has never successfully been occupied by foreigners. In my opinion, the dream of a fully formed new government structure for the country appears naïve.

 

In exposing the problems which led to the market drop, we need to address an approximately 100-year period of excessive debt creation and the confusion between a top-down education and a bottom-up learning process.

 

This Week & Beyond

We got one violent rally this past week and could get one or more this coming week because a gap opened between the S&P 500 and NASDAQ on Friday. The gap must normally be filled before a sustained move can occur. Friday can perhaps be summed up in three numbers:

• S&P 500 -1.67%
• Price of oil +7.07%
• ECRI industrial prices rallied again to the 130 level, putting the year-over-year gain at +9.25%

In the first three days of the week there was a positive tone to US stock prices, but they were swamped with declines in the last two days, putting the SWX down for five straight weeks and on Friday it fell below its September returns.

 

The declines appeared to be coming from retail-oriented accounts, many of which were housed at large retail brokerage firms years ago. Coincidentally, both the number of listed stocks and the number of primary retail brokerage firms significantly declined during this period. They were replaced by larger more diversified firms whose brokers switched from commissions to fees, making them look more like “wealth managers”. However, many of them are still short-term oriented and prefer stock exchange listed securities for their accounts. Most of these new recruits to the business have not experienced a full economic recession and very few investors or investment committee members have any direct experience with depressions.

 

The latter point, in my opinion, is causing great risk to the market, not that I can estimate the starting date of a new depression. However, as someone who has studied old races and other ancient track conditions, I am conscious that bad things do happen. Thus, I feel a need when examining investment possibilities to include an alternative negative future in reviewing future strategies. There are not many investors or advisers who do.

 

Most down markets, but not all, are caused by a forced repayment of debt at an inappropriate time, like in William Shakespeare’s “The Merchant of Venice”, or in margin calls. We may be due for such a period!! Coming out of the expansion of most global economies after WWI in the nineteen twenties, there was a ballooning of debt creation. Borrowing against securities became popular with retail investors in the US and other countries, particularly by those of the farm community in the US. By the late 1920s, many US farmers, merchants, suppliers, and local small banks were heavily in debt, with their crops and land used as collateral. When the price for domestic crops was impacted by lower-priced foreign competition, it led to dire conditions. They appealed to their congressmen for help in putting tariffs on incoming food items and they convinced a reluctant President to enact The Smoot-Hawley tariffs, causing foreign governments to respond in kind. This led to the disruption of global trade, which was one of the initial causes of the recession. The recession was turned into a depression by a new government which needed a ten-year long depression and a new World War to pull us out of this self-administered trouble. I AM NOT PREDICTING THIS, BUT I AM SAYING WE SHOULD CONSIDER IT A REAL POSSIBILITY.      

 

Caution: As these worries are disturbing, they should not be discarded, even though none of us wish they come to be. However, prudence requires that they should be examined regularly to see ensure their chance of occurring stays small and doesn’t creep up to a higher probability. The odds still favor expansion.

 

Please share your views which can help us.      

 

 

 

 

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Mike Lipper's Blog: Bifocal Analysis: Short & Long-Term - Weekly Blog # 933

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Investors Focus on the Wrong Elements - Weekly Blog # 853

 

Mike Lipper’s Monday Morning Musings

 

Investors Focus on the Wrong Elements

 

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

 

 

 

Combing Mr. Buffett with Albert Einstein

Compound interest, the eighth wonder of the world, is wrongly attributed to Einstein according to the people at Caltech. Nevertheless, Warren Buffet stated, “He who understands it (compound interest) earns it. He who doesn’t pays it.” The better long-term investor understands it and uses it in drawing up his/her long-term strategy.

 

I have tended to use a long-term lens in my lifetime focus on mutual funds. My particular focus is the long-term, the ten-year record of the average performance of 30 equity fund indices for the last 10 years through August. Of the 30 only 7 had double digit returns, the highest being Health/Biotech which rose 15.67%. I also looked at the 25 largest stock mutual funds for 5 years, 17 of which produced double digit returns, with only one reaching the twenty percent level. It was Invesco QQQ Trust, which gained 21.30%.

 

This research reminds me of one pension plan a number of years ago which sold all its equities when the portfolio was up 20%. It was one of the best performing pension funds. Strange for me considering my background to suggest that superior performance could well be a signal to reduce investment. I say this knowing that every few years there is a period when one or more funds gain 100%. Strangely, none of these wonders makes the best performing list for the five or ten-year period.

The Media and Frequent Statements by Pundits

Traditionally, media outlets get more attention when the news is bad.   However, in covering the market and economy there is much space devoted to “happy news”. What seems particularly true is headline editors, correspondents, and allocators of space/minutes seem to share a single political view. It is occasionally worth reading to the end of an article where the other point of view gets some exposure. Operating margins for news distributors are under pressure, which has led to surveys where the number of people polled is only between 1,000 and 1,500. This might be okay, except that many people on the right don’t trust polls and media related agencies and thus do not participate in polls, often causing the prediction of incorrect election results.

 

What Should We Be Following

• Unlike the current situation in the US, many nations are seeing younger people move up. This is particularly true in the Middle East, Africa, and Asia.
• China is exporting surplus steel, which amounts to half of what they produce
• Our Presidential election on both sides exaggerates
• their commitment to integrity
• The pouring of money into small company start-ups will curtail the future of small business capital formation. The odds of repaying these loans and other bribes will probably be similar to the repayment of student debts. The unstated purpose of these programs is to hurt the families and friends of the would-be entrepreneur.

 

What elements are you watching to help make decisions about the two apparently unrelated games, equity markets and economy? How will global problems impact them?

 

 

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Preparing for the Future - Weekly Blog # 831

          

Mike Lipper’s Monday Morning Musings

 

Preparing for the Future

 

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

   

       

 

The fundamental job of an equity investor and manager is to grow current assets to fulfill future needs. Since we don’t know what the future will be or when it will be, we should consider a range of possibilities. My training at the racetrack and the US Marine Corps supports viewing the various futures through the various lenses of security analysis. I cannot think of a more difficult set of conditions than those facing us today.  

 

The possibilities range from the outmoded thinking of present world autocratic senior leaders (Biden, Trump, Xi, Putin, and similar) to unknown people with more scientific knowledge, but little management experience. To use an expression from the track, the odds-on-bet for the foreseeable future is that our present leaders will leave the scene relatively soon. They will probably be largely replaced by leaders two generations younger, who think differently and whose mental languages are different than what we have learned. 

 

Allow me to show you a mathematical approach from my world of mutual fund analysis. My old firm continues to report the weekly performance of mutual funds broken into seven investment objectives based on the securities in their portfolios. Most of the assets are in US Diversified Equity Fund investment objectives, which are divided into 18 peer groups. In the first quarter of 2024 there were 5 peer groups where the average performance was double digits. Interestingly, for the ten-year period there were 6 peer groups with double-digit winners. Four out of the six were repeaters. While all 18 performance peer groups generated double digit returns for the most recent 1-year period, only one generated double digit returns for two years two for 3 years, and 13 for five years. This suggests that immediately prior to the pandemic was a good time to invest in the average US Diversified Equity Fund. Accepting below average returns in the short term produced good results in the long term. This further suggests that picking the right year to sell an investment is more important than the right year to buy. However, as with almost every betting rule, the opposite can work. 

 

I believe you need to pay attention to the nature of the period when buying or selling. Investors in the US market should probably recognize that the average performance year is generally single digits, which should be evaluated relative to the performance of peers. Broader considerations should be left to double digit years, like now. Bet against the crowd if you intend to sell in a holding period shorter than five years.

 

Management Structure is Not Optimal 

The President’s cabinet is non-voting and is at best an advisory group. Large meeting tables of decision makers should be avoided, be they for political organizations, business, or non-profits (including educational and medical groups). The groups needing large meeting tables are not likely to produce dynamic results. President George Washington had a cabinet of 4 people, the secretaries of State, Treasury, and War, plus the Attorney General. Our present Cabinet has 26 members, 15 Department heads and 11 Cabinet level officers. 

 

Another Focus Should Be Updated 

 I don’t have the underlying data on our government leaders, but I suspect the majority have not spent operational and/or educational time in Asia or Africa. As a global investor I believe it is essential to correct this to effectively deal with the fundamental problems coming down the road. 

 

PS 

This week there have been a number of articles about the death of Daniel Kahneman, a Nobel prize winning psychiatrist and developer of behavioral investing. His basic premise was that investors are not rational and invest more for psychological reasons than sound investment reasons. This discussion may bring us back to rational decision making with your help.

 

Like most analysts and others commenting on investments, I have done the easy half of the job by supplying my thoughts on the buying function of investing. The much more difficult function is the disposal of investments, which is normal for the investment related committees of the two tech-oriented universities on which I serve. The reason for this one-sided effort is that making a buy decision is relatively easy.

 

By far the more difficult task is deciding to sell all or a part of an investment, which is a much more a personal decision and much more complex. The decision process should deal with some or all of the following topics:

• Likely reaction when other critical investors find out.
• Tax implications.
• Impact of the decision on the rest of portfolio.
• Dealing with beneficiaries.
• Legal aspects.
• Performance results.
• A least 10 other factors

I intend to share my impressions over time, with the thought that my audience of bright, experienced people will share their reactions. The reason I mentioned the groups of bright people I am connected with is that I learn how they approach various investment problems and use this information to address issues we all need to manage.

 

Next week, most of the blog will be devoted to an article produced by a brilliant well-rounded Professor from the Stevens Institute of Technology. The article explores how government actions had an unintended inflationary impact.

 

I am very interested to hear your reactions to this experience.

 

     

 

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Mike Lipper's Blog: American Voters Win & Lose - Weekly Blog # 830

Mike Lipper's Blog: Fragments Prior to Fragmentation - Blog 829

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3 PROBLEM TOPICS: Current Market, Portfolios, and Ukraine- Weekly Blog # 779

 

Mike Lipper’s Monday Morning Musings

3 PROBLEM TOPICS:

Current Market, Portfolios, and Ukraine

 

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

 

 

 

Current US Stock Market

The views and focus of pundits can be very misleading. Below is a list of some of them and my contrary thoughts for you to consider and react to. In no particular order:

1. The narrow performance premium of stocks over bonds is “ugly”. (To the contrary, it may be a good entry point. Over any reasonable investment period one could envisage a 100% - 1000% gain for equities and/or equity funds. I doubt one could see that in bonds.)
2. The recent announcement of the number of people hired was “bullish”. (Within the release there was the note stating that the number of hours worked declined. When business is bad it is normal for a company to announce cuts in costs before a large layoff. This announcement was for a given middle week in April. At about the same time the NFIB Small Business Hiring Plans Index announced a 15% decline for March (small businesses employ over half of working Americans). The NFIB also showed a widening gap in the number of hours worked between the rank-and-file employees and all others. This may show that businesses can’t find entry level workers wanting to work. Another factor could be the better weather in March and April relative to the first two months. This suggests the rise reported for April was more weather related than from improving business conditions.
3. Almost 90% of the first quarter’s gain came from just 20 stocks. UBS noted that if mega cap growth stocks were deducted from the index, the remaining stocks would only have gained 1.4%. (New “bull markets” are not normally led by the leaders of the last up market. Currently, Large-Cap Growth funds are leading, and small-cap value funds lagging - Tech vs Financial Services.)
4. While the interest spread between two and ten-year Treasuries has narrowed very rapidly to 530 basis points, from 1400 recently. It raises the question of whether the inversion is going to precede a significant recession. The weekly survey of the American Association of Individual Investors (AAII) is often considered a contrary measure by market analysts. In three weeks, the bearish prediction fell 13% points to 35%, with the bullish reading gaining 12% points to 33%. These numbers show how volatile the individual investor is, but it also shows that the bulls have not built a base for a higher market at this moment. (I disagree with the opinion of many professionals that the public is always wrong. I believe that they are mostly wrong at turning points, but generally right over the long-term.)
5. In a period like we are in now, the twin absence of trading capital in the hands of the former floor Specialists and “upstairs” traders is having a significant impact on the security selection of investors. (Look at the declining average performance of mutual funds in the first quarter: Large-Cap Funds +6.71%, Multi-Cap Funds +5.11%, Mid- Cap Funds +1.78%, and Small-Cap Funds +0.50%. This rank order is the reverse leadership position of many past bull markets.
6. The term “book value” should only be used by accountants, never in front of unsuspecting investors. Book value has nothing to do with either useful books or value. It is an accounting term to spread the remaining non written off purchase price recorded on the balance sheet. It has nothing to do with the liquidating value of an asset, or what a knowledgeable unrelated person would pay for the asset. The present or future value of an asset might be of interest to a potential buyer if it is sufficiently discounted for the trouble and bother of actually receiving the assets and liquidating it. 

Constructing Portfolios

With the exception of an entrepreneur singularly focused on a business that it close in value to the total of its assets, the assembly and management of investor money in portfolios is the real art of investing, not buying and selling individual securities.

Most individual investors and some institutions mechanically add and subtract securities from a portfolio. Most others have a single portfolio with some focus or general need. (I believe one should have multiple portfolios rather than just a collection of securities.) Each portfolio should have a narrow focus, often built around the timing and execution of the beneficiary’s needs. I use singular rather than plural terms, even if the timing and cost of the same security is different between accounts. (It could generate significant impact and therefore could be managed differently.)

The biggest mistake most people make is measuring success based solely on the calendar year, because it’s what everyone else does. (I believe accounts should be measured based on the first reasonable date assets will be paid out. There are also other issues to consider, such as the number and extent of down results compared to up results. As the market moves up and down in its own periods the measurement period should likewise be adjusted. To the extent possible, after-tax returns are preferable. If you buy the same security at different prices, each tranche should be measured separately, especially if the price is quite different. Buying a great security late in its rise rather than at the beginning impacts the results of beneficiaries. While the security may be the same, its intended purpose could be different.

I sit on a number of tax-exempt investment committees and try to get my fellow trustees to pick individual measurement periods. If a stream of payments is required for building a new facility, I suggest making the end date slightly before the first payment date, changing that date based on schedule. For annual operating funds, I use the same concept, but with much smaller time periods.

Finally, where possible I like to pick selected mutual funds having similar portfolio characteristics whose management sticks to policies that can responsibly be followed.

 

Ukraine is Just the Beginning, Not the End

We are all horrified by the cruel invasion of Ukraine. We wish the war would end, with the country’s full land being restored. Unfortunately, I believe we will be involved with Ukraine for many years, possibly generations. The unhappy reason for such a fearful statement comes to us from logistics management.

Just like Political “Science” courses, Securities Analysis is taught about the past and briefly hints at the present. One of the main tenants of sound business practice is building reasonable defenses against future problems. One of the largest potential problems facing businesses and countries can be summed up by the change of “Just in Time” production and delivery to “Just in Case”. Until very recently, businesses located the production of critical supplies where it was the cheapest to produce and where rapid transportation could ship goods and services to major customers.

The rise in tensions with China and some other locations has caused the US and others to review from where they will get their critical products and services. While China should not be ignored as either a source of goods or a market for sales. If either were drastically reduced or totally stopped, we would be in serious economic trouble. Currently, there is a mad dash to find supplemental sources of both production and sales. Other Asian countries are being examined, as are Mexico, other Latin American countries, and Africa, among others.

One very rich region I fully expect to play a role is Central Asia. This region contains Kazakhstan, Kyrgyz Republic, Tajikistan, Uzbekistan, and Turkmenistan. In addition to supplying the critical rail thruway for China’s “Belt and Road”, the region provides the new Silk Road to connect China’s vast population and resources to Western Europe. The region consists of 61 million people and 1.5 million square miles. With both Russia and China as neighbors, this is an important piece of real estate. Permitting a US Air Base in the region would solve lots of problems in opening up Central Asia. It would provide access through the Caspian Sea and reinforce Ukraine’s interest in the Black Sea. While this will be an expensive addition to accommodate our needs, my guess is we will be there.                                   

 

 

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