Mike
Lipper’s Monday Morning Musings
Investors, Politicians, & Other
Children
Editors: Frank
Harrison 1997-2018, Hylton Phillips-Page 2018 –
Most investors, politicians, and other children act as if they are the only people that have had to deal with behavioral challenges. However, there is very little in life that is totally new, only the packaging has changed.
For example, how should one measure progress, and should it
cause action? Most of us have some level of confidence in reported numbers, although
numbers are an abstraction of a reality, not reality itself.
We are all counters from an early age, and since tradeable
money was created have tended to count many of our successes and occasional
failures in monetary terms.
The problem is the value of money is in the eyes of the
beholder. One hundred million Confederate dollars has very little, if any value
today.
Those dollar bills were on the losing side of a painful war,
but we have been on the losing side of an age-old battle since birth. That
depreciating value is called inflation.
The crux of the problem is the creator of this vehicle of
exchange is also one of its largest users. Furthermore, the ruler of the mint
or printing press is in a position of strength due to support from the right
people. The easiest way to keep their loyalty is to pay them. In imperial Rome
it was called “bread and circuses”.
In many Roman cities and towns, the amphitheater was larger
than the nearby fortress. These were the entertainment centers for the populace
who had enough food to eat due to an efficient agricultural system with
well-engineered aqueducts.
I find it revealing that today’s name for giving money indirectly
to the population is derived from a Latin word for stimulus. In earlier days it
was called a bribe.
When a long-distant trader, Marco Polo, worked along the
long Silk Road (1271-1295), the most advanced society was the Chinese empire.
It developed gun powder and later developed paper money. Not surprisingly the
empire had a large government, with examinations for jobs.
From my standpoint, smuggling silkworms back to Europe
created a market-based exchange with a sounder form of money, especially when compared
to their traditionally weakened currency. This is the way he delt with
inflation.
In the thirteenth century the Europeans were somewhat
protected against inflation due to small indigenous silver mines whose content
went into their currency. This lasted into the next century and was replaced by
gold and silver produced at low wages in Latin America, starting about 200
years of inflation.
When the steady stream of gold dried up the overseas
colonies of England and other European countries became too expensive to
maintain without substantial taxes. This is the reason a political group in
England was not disappointed with the result of The American Revolution.
Confidence in the Future is Low
There are a plethora of signs showing this lack of a defined future:
- What are yields on US Treasuries saying? 2-year Treasuries are yielding 3.25%, 10-year Treasuries 2.84%, and 30-year Treasuries 3.07%. The 2-year is inverted relative to the 10 and 30-years!!
- While 53% of the DJIA companies were winners for the week, the DJIA lost value in aggregate points. By comparison, only 40% of the companies in the Transportation index were winners.
- The JOC-ECRI industrial price index dropped 5.15% year over year.
- Exchange traded equity funds continued to suffer redemptions, led by growth and value funds.
- Liz Ann Sonders, the highly respected chief strategist from Charles Schwab is not bullish because she has not seen the market capitulate, as would normally be the case near the end of a bear market.
My Views
I have been searching for reasons to be optimistic for our
long-term investment accounts, as after every bear market there is a bull
market.
I agree with Richard Bernstein that bull markets don’t start
with narrow leadership.
I believe economic and market cycles are not just number
exercises, which you might be led to believe after reading columns from the
various pundits.
I believe cycles are critically needed to address severe
imbalances, not just trading opportunities. In previous blogs I have listed troubling
demographics quality of schooling, healthcare, military strength, and
leadership.
As I do not see these imbalances being addressed, I am afraid
we will experience one or more recessions. There is a popular hope we will
avoid a recognized recession, or only suffer a mild one.
If that were to happen, it would not likely sufficiently
address our problems. I have no doubt our politicians can continue to produce a
smoke screen to hide the issues. The current proposed legislation is an example
of this, almost guaranteeing a major recession in a couple of years.
If that were to happen, much like during Paul Volcker’s tenure
where he had two recessions, there would be substantial risk of a needed
recession with very high interest rates.
I look forward to a new bull market with some answers to our
problems, even after that experience. Our families will need one.
Please comment.
Did you miss my blog last week? Click here to read.
https://mikelipper.blogspot.com/2022/07/weather-market-economic-and-political.html
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
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