50% Humility & Search for New Money Standard - Weekly Blog # 686

 

Mike Lipper’s Monday Morning Musings

50% Humility & Search for New Money Standard

(Caution: Few may totally agree, but all should view as possible)

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

Top- Down Week:

Two messages from Washington this week; humility and arrogance. This week, the Chair of the Federal Reserve Board in effect recognized the need to show humility. Faced with the COVID-19 Pandemic and excessive lockdowns, the Fed recognized its all-important research/prediction process was significantly inaccurate in judging the economy and inflation. To me, this recognition is much more important than the “Dot Plots” prediction of two rate increases in 2023. As an investor/portfolio manager/analyst and handicapper, I believe “two in ’23 is a bad bet, partially due to the actions and attitudes emanating from The White House. 

There is the just doing the opposite attitude by the current repeat tenants of The White House. In terms of improving relations with China, the stated purpose of the meeting in Alaska, US Foreign Policy was a failure. The same game plan was used in the meetings with the G-7, NATO, and President Putin. The goal of all was to influence the domestic consumption of post meeting press conferences, not to conduct any substantive negotiations. Since the beginning of meetings between adversaries, successful meetings were generally held in private. At these meetings, disagreements between parties were often worked out and largely settled, with the participants being critical contributors in the negotiations, not props for press releases. 

Connected to the discussion with Russian President was a set of clues that would perhaps benefit the Russian economy. By further increasing the price of oil the occupants of The White House are, or are planning to, reduce the production of US energy. This may be why they turned down a critical way to pay for part of the proposed infrastructure bill by indexing the federal gasoline tax. Seems a strange way to address the exploding inflation issue.

Reactions: 

As few if any buyers or sellers offer affidavits as to why they have bought or sold a security, we don’t really know the real cause of transactions. The best we can do is use circumstantial evidence and we have learned how wrong conclusions from such evidence can be. The following is a list of reactions, from the simplest and most current to historical and future generational extrapolations.

1. The traditional slowdown in trading, particularly on Fridays, with summer apparently starting earlier this year.
2. Individual investors and inexperienced wealth managers have focused on the Dow Jones Industrial Average fall of -3.45%, compared to the smaller decline of -1.91% for the more institutionally oriented investment focused S&P 500. The savviest traders who predominate the NASDAQ only experienced a fall of -0.28%, suggesting the DJIA decline was driven by disappointing reactions to media pundits press conferences. This was particularly true on Friday as traders unloaded their positions they did not want to carry over the weekend. Friday's downside relative to upside volume on the NYSE was six times greater than the 2.5 times on the NASDAQ.
3. There were relatively few price gainers for the week, most being tech-oriented growth stocks, with particular focus on internet related firms. These gains were generated in spite of largely Democratic members of Congress calling for the breakup of the large tech companies. Based on history, many smaller companies and users of tech would suffer, potentially causing a switch to growth from value/industrial companies where valuations are one half or less. Value stocks have been performing better than growth for a while. Is it possible that the aggregate market demand switch is saying that growth will produce higher returns than value over the long-term? One could take that point of view based on the expected future actions of politicians and the "Fed". The weekend roster of weekly prices across many sectors showed 86% going down.
4. Some may be seeing the probability of more expensive energy retarding global growth.
5. The rising interest in actual and synthetic gold reflects concerns related to the value of currency. The "gold standard" worked for thousands of years, although that was in a world where physical assets were the primary measure of wealth. The private sector holds gold as a hedge against the historic tendency of governments to reduce the amount of gold backing money. Today, most currencies are not significantly backed by gold or hard tradeable assets. These fiat currencies are increasingly issued by autocratic governments with substantial debts who benefit from inflation. Governments with substantial debts benefit from inflation increasing taxes and reducing the "real costs" of repayment. We have experienced governments attempting to deny ownership of gold in the private sector. Those who own actual or synthetic gold expect the prices of their assets to go up and become the real backing for the currency. I question that we have entered a world where we pay considerably more for services than hard assets. At some point I suspect bundles of service contracts will be the backing for our currencies. These include medical contracts, protection contracts, travel contracts, use of location contracts (homes and facilities) and others including military contacts. (Remember, the American Revolution had European mercenaries. The current administration is removing ours in the Middle East and wants higher compensation for our forces in Europe and Korea.) We are closer than we realize to a service-contract oriented wealth system.

We congratulate all the fathers for their good choices who spent time with their children, grandchildren, great grandchildren, and other relatives on Sunday.

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

https://mikelipper.blogspot.com/2021/06/to-benefit-long-term-investors-invert.html

https://mikelipper.blogspot.com/2021/06/history-good-lessons-not-great.html

https://mikelipper.blogspot.com/2021/05/mike-lippers-monday-morning-musings_30.html

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