Mike Lipper’s Monday Morning Musings
What is Coming?
Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018
Inputs
Our investment decisions, whether we know it or not, are the
factors that result from other decisions. Even when surprised, we must still
make investment decisions. We should therefore review how decisions are made,
whether we consciously know it or not.
Considering how many “learned” people were surprised by the
size and nature of the victory in the mid-term elections; we should consider using
some of the following elements:
- Are people voting for or against? My read is that swing voters voted against. My read of what they didn’t like was the personality of the President. Voters felt squeezed by rising prices and declining values. New-hire employment prospects were poor. Salaries have not kept pace with expenses, in part due to tariffs. With many businesses not expanding, entry level hiring has been difficult. There has been great expenditure of wealth by those having political advantage.
- It’s an oversimplification to state that except for “AI” related businesses and healthcare there has been very little growth.
- Many college graduates who are first time voters have not found jobs. They were either unprepared for the needs of employers or did not exhibit the appropriate attitude toward working for others.
The financial community is flashing warnings signals, as
shown below:
- Goldman Sachs estimates that there is a 90% chance of a recession.
- The US national (Federal) debt is now equal to GNP.
- Stephen Roach, who now teaches at Yale after making lots of money for Morgan Stanley in the US and Asia, points out that the business cycle is aging. We have not had a business recession since 2007-2009 and have not had a depression since the 1930s.
- Hyperscalers are now having to borrow money to pay expenditures.
- 48% of the AAII sample survey respondents are now bearish, with only 34% being bullish for the next six months.
- Profit margins are contracting
- 90% of leveraged loans are now offered at a discount.
There is One Short-Term Advocate
George Calhoun sits on a committee with me at the Stevens
Institute of Technology and regularly writes for Forbes and Fortune. He has evaluated
the stock and bond market for each quarter of the Presidential term and is expecting
the stock market to rise in the fourth quarter of 2026 and the first quarter of
2027. This makes sense considering new members, particularly in the House, have
grandiose plans to introduce new legislation on higher taxes for the wealthy and
healthcare for all. (Long-term Capital Group, the largest active equity
investor, is worried about this.) My view is that by the beginning of the
second quarter the reality of the committee structure of the House will bring
the “newbies” inline.
For our longer-term accounts, we expect a recession to happen
soon and a depression to happen in our younger children’s lifetimes. However,
we may only sell modestly to build a buying reserve, as history has shown us that
the greatest losers in the depression were those who sold out and did not
return.
After the Parisian tax riots caused by Louis XIV spending,
the French Revolution was all but inevitable. It and the Russian Revolution
went through various stages, with different leaders for each stage, eventually
accepting dictatorship.
As usual we appeal to our subscribers to share their
thoughts with us.
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Mike
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