Momentum is Slowing under Too Many Cross-Trends - Weekly Blog # 651

 

Mike Lipper’s Monday Morning Musings

Momentum is Slowing under Too Many Cross-Trends

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

The human mind prefers simple actions leading to success in order to address present issues. As a professional investor with fiduciary responsibilities, that is what I want. However, the discipline of preparing a weekly blog does not often lead to straight-forward conclusions. This is such a week and the best I can do is to briefly outline the various cross-trends that I perceived. I ask subscribers to select the options that direct them to an investment conclusion, which hopefully they’ll share.

The following is a list of the trends in no order:

1. Seeing signs of smart professional bottom fishing buyers in Energy, particularly natural gas related and an array of financial services-banks, funds, brokers, and service providers.
2. A minority of professionals appear to be bullish and a sizable minority of the public are bearish. The rest are confused and waiting for direction, with more than normal cash reserves.
3. Myopically cheap securities can be value traps due to outmoded statistical measures and/or inappropriate timing.
4. Alibaba, Ant Group, and Tencent’s securities are being found in  institutional portfolios. These groups are becoming more global rather than focusing on Chinese holdings. (Almost all companies are influenced by trends beyond their headquarters’ locations, some more than others.)
5. In the weekend WSJ, only 42% of price aggregations rose this week.
6. “More than 40% of total US equity trading volume now takes place outside of public stock exchanges”, according to the Chicago Board Options Exchange.
7. The NASDAQ Composite gained +0.79% and the NYSE Composite declined -0.63% this week. As there is less passive trading in the NASDAQ relative to the NYSE, I believe it is a better indicator of professional investors thinking.
8. The JOC-ECRI Industrial Price Index is up +6.69% from a year ago, signaling inflation.
9. For the week, the average Large-Cap Growth Equity Fund was up +1.81%, S&P 500 index funds were up +1.07% and Value funds were down -0.29%. Not the expected change in momentum pundits were expecting.
10. According to the National Bureau of Economic Research, most stimulus payments were saved or applied to reducing debt. Hedge fund performance fees do not protect investors from paying for poor performance.
11. PwC’s view of the World in 2050 is based on the following points: 
• World GDP will double by 2037 and almost triple by 2050.
• China is already the largest based on currency purchasing power(CPP) on market exchange rates (MER) and will be number 1 in 2028. 
• India will be the 2nd largest in 2050 (CPP) and 3rd in (MER).
• Mexico and Indonesia will replace the UK and France by 2030.
• Nigeria and Vietnam will be the fastest growing by 2050.
• There will be a significant gap between the top three: China, India, and the US vs the rest.
• The US will remain the wealthiest.

Working Conclusion:

Some of these observations may prove to be useful to long-term investors, but probably not all. The timing of their value is also uncertain. I therefore suggest you have a global orientation with a reasonable amount of liquidity (cash or highly liquid stocks). Any high-quality fixed income holdings beyond a 2-year maturity could be a burden. The appropriate investment objective is to first avoid losing purchasing power, with an additional reserve for being wrong. The second objective is to build capital opportunities in a number of places and different vehicles when possible.

Questions for the week:

1. What do you think of the list?
2. Will anything mentioned cause you to make any changes?
3. What are the other trends we should be tracking?

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

https://mikelipper.blogspot.com/2020/10/mike-lippers-monday-morning-musings-are.html

https://mikelipper.blogspot.com/2020/10/what-is-nasdaq-saying-to-whom-weekly.html

https://mikelipper.blogspot.com/2020/09/there-is-incredible-shortage-weekly.html

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