Mike
Lipper’s Monday Morning Musings
Weather,
Market, Economic, and
Political
Forecasts have Similar Records
Editors: Frank
Harrison 1997-2018, Hylton Phillips-Page 2018 –
Caution:
“Bears are the worst
people to listen to at the lows, and bulls are the worst to listen to at the highs.”
Bank of America Merrill.
Are you Optimistic?
For a number crunching
experienced analyst it is much easier to be excessively skeptical than believing
things will work out well. Please suggest ways I can be more optimistic in the
future, as it has been too easy to be pessimistic for more than a year.
Two Big Stories of the
Week
Far too much has been
said or written about the Federal Reserve raising interest rates by 75 basis points
and the Senate’s compromise tax bill. Analytically, all I wish to add are
thoughts not discussed elsewhere.
In all the discussion of
interest rates related to both inflation and recessions, two long-term critically
important areas are not explored.
Most of the discussion has
been focused on the size of the increase and its timing. More important is the
historical need for recessions (Some of which were turned into depressions due
to policy mistakes.)
Throughout recorded economic
history there have been severe economic/market disruptions caused by known and
unidentified imbalances not properly addressed in normal circumstances.
The
present imbalances I perceive as not being addressed can be characterized by the
lack of sufficient efficiency to produce satisfactory results, some of which
are briefly shown below:
· In
the US there are roughly twice as many openings as there are unemployed, with
5% fewer participants in the work force. Among other factors this is the
combined result of poor schooling and home training, plus unaffordable child-care.
· Prospective
employers can’t find workers. This is not just the result of insufficient
formal “education”, but also work attitudes.
· One
example is healthcare, due to regulation resulting from tort lawyers and
insurance payers. Unions also don’t help. We all pay for this.
· Another
example is the lack of an adequate Military force to defend our interests.
· The
final topic not discussed in the rate discussion, particularly when mentioning
Paul Volcker’s name, is that he needed two recessions to break the back of inflation.
Turning to the new Tax
bill, which in theory “balances” expenditures with tax collections. There is a classic
problem of government paid workers versus some of the best highly paid tax
accountants and lawyers in the world.
Dynamic forecasting is one
reason weather, stock, economic, and political forecasters have difficulty on being
correct in their judgements twice in a row. (Track bettors know how difficult it
is to follow a winning bet with another winning bet in the next race.)
Luckily it did happen in
World War II, when General Dwight Eisenhauer was given command of the largest
amphibious landing in the history of the world. At the scheduled time of the main
European landing the weather was poor. The German general’s staff of highly
trained logisticians believed Ike would postpone the landing to later in the
month of June. However, they did not take into consideration that Ike grew up on
a farm in Kansas and spent many years as General Mac Arthur’s speechwriter in
the Philippines, both of which experience sudden storms. Ike made the judgment
to go ahead with the June 6th landing. Although there were some
difficulties, it established the Americans, British, and other Allies on the
beaches before the Germans could reinforce their defenses. This proves that
making a bet against the odds can win sometimes.
What Else Happened?
This week the New York
Stock Exchange (NYSE) volume of up price transactions was approximately the
same as those on the NASDAQ market, at 13 million shares. The big difference
was the number of shares changing hands at lower prices, with the NYSE having
7.1 million and the NASDAQ 9.4 million. (As mentioned in these blogs, the
NASDAQ players tend to be wiser traders, due to the absence of index players
and to some extent wealth managers.) This could be viewed as a cautionary
note.
Also, 95% of the stocks
in the Dow Jones Transportation Index rose, while only 80% of the stocks in the
DJIA rose this week. Typically, more professionals invest in transportation
securities than the more popular industrials in the DJIA. This is perhaps a
contrary positive indicator.
Remember:
I want to learn why you are Optimistic.
Did you miss my blog last week? Click here to read.
https://mikelipper.blogspot.com/2022/07/beware-of-cheap-seek-fair-slowly-weekly.html
https://mikelipper.blogspot.com/2022/07/time-to-be-contrary-weekly-blog-741.html
https://mikelipper.blogspot.com/2022/07/mike-lippers-monday-morning-musings.html
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