Mike
Lipper’s Monday Morning Musings
Unclear Data
Mostly Bearish, but Bullish Later
Editors: Frank Harrison 1997-2018,
Hylton Phillips-Page 2018
First Half
Marcus Ashworth is one of the best market analysts who writes daily for Bloomberg. In a recent piece he focused on volatility, with the following introduction:
The election of Donald Trump introduces an
unwelcome capriciousness to US policy making,
with everything from trade to regulation to crypto-
currencies looking decidedly less predictable. And
while the US consumer continues to defy expectation
by keeping the world’s largest economy rolling
along just fine, the rest of the world is a lot less
robust. Our key message for 2025: Buckle up, it’s
“gonna” be a roller coaster.
It is my own view that even Mr. Trump does not have a
complete view of what is going to happen. As shown in the recent election of
the House Speaker, members of both the Senate and House act differently than
the majority of their party and will be paid off in some known or unknown way.
Furthermore, going back to early American history, foreign powers will express
their will and influence on our results and actions.
Chartists’ Views
We have heard many times that history does not repeat itself
but often rhymes. One of the easiest ways to record the rhymes is through
charts, which are often right as to future price moves. They have learned that future
reversals can frequently be successfully predicted. The standard pattern for trend
reversals is a “head and shoulders silhouette”. The three or more peaks with
the center one being the highest shows each of the peaks declining to a common
neckline. Currently, the two shoulders have hit their necklines and bounced up
a bit. Most important to me, this describes the S&P 500 price action. If it
breaks the neckline that indicates the likely chance of a significant decline.
Historically, significant declines often follow substantial
increases, like those we have experienced. Declines often occur after
valuations have been stretched like a rubber band. The measure I find helpful
is the ratio of market value to book value. Currently, the S&P 500 ratio is 5.37x vs 4.58x a year ago. This seems like quite a stretch.
AAII
Many professional analysts look down on the retail market
despite a reasonably good long-term track record. Like many others, it tends to
be wrong at turning points. The AAII sample survey asks their participants if they
are bullish or bearish for the next 6 months. I find the percentage difference
between the bulls and bears of interest. The spread for last week was only 1.9%
vs. 3.7% the week before. In each case the bulls were on top. My reading is
that these investors are usually very intense in their views. The view they
share with many professionals is that they are waiting, but don’t know what they
are waiting for!
Other Straws in the Wind
Many of these relationships could change significantly:
- The bottom third of credit card holders are tapped out.
- The five best-selling car brands in the US are foreign.
- Only 44% of weekly prices tracked by the WSJ were up in the latest week.
Most Funds Don’t Perform
There are 103 peer groups that I look at to see if they on
average beat the S&P 500 Index fund. Below are the results showing the number
of Equity and Equity Related Fund Groups that beat the average S&P 500 Index
Fund for 1, 5, and 10 years.
8 4 3
Just like following Professional Golfers, the ordinary
weekend player can learn useful techniques, avoid many injuries, and enjoy
investing.
Beware of Simplistic Data
It is popular to compare mutual fund gross sales to ETF
sales, taking the difference as an indication of popularity. The problem is fund
redemptions are built-in the day a fund is purchased. Redemptions for many
holders is the completion of a planned period or condition, regardless of
performance. The average age of a mutual fund owner is senior to when they
initially purchased the fund. Many redemptions are also mandated by retirement
vehicles, such as required mandated distributions.
ETFs are like buying individual securities. The buyer is often
considerably younger and considers it a form of trading. To net these actions
is like purchasing a car for dating when you need a car to get to work or to transport
your family.
Question: Are there any topics you would like me to explore, or correct?
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