An Informative Week with Many Questions - Weekly Blog # 759

Mike Lipper’s Monday Morning Musings

An Informative Week with Many Questions

 

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

                   

 

 

CPI Thursday Morning Pivot or Rotation? 

The readings for the Consumer Price Index and its components were announced before the market opened on Thursday. They were not as high as many expected and market participants treated the less bad news as good news. Many chose to believe the less bad news would embolden the Fed to reduce the size of expected interest rate increases. In effect, the Fed was expected to “pivot”, messaging the market that inflationary increases would be reduced. Their enthusiastic response to the gap opening of the market was not narrowed on either Thursday or Friday.  

 

Market analysts believe that price gaps must be closed before the market can move in the direction of the gap. Most of the time this is the case, but not always. It may take a while. 

 

Market pivots tend to be infrequent, and partially reversed quickly. They can have limited long-term predicative value. However, they can be an early identifier of a meaningful rotation. In this case, the odds seem to favor this pivot not being a significant rotational change. My thinking is based on two inputs. 

 

1.  The mid-term election was largely motivated by a vote against the other side’s leaders and not by a vote in favor of positive growth strategies. Both parties have leadership problems. The Democrats have no fresh leadership with a significant following. The Republicans in some cases did not field attractive candidates and did not match the opposition’s operational talents. With the House of Representatives in the hands of the Republicans, I expect little in the way of new legislation. Many of the expected Executive Orders will also wind up in court. Stagflation will likely be the result. 

2.  Transactional volume will likely be less than expected in a normal bull market. Numerous brokerage firms, investment advisers, and investment bankers, are cutting back on lower producers or those too well compensated.

 

T. Rowe Price Lessons for Investors 

(The following discussion should not be interpreted as a recommendation. T. Rowe is an old personal holding. I have known its CEOs going back to Mr. Price. The firm is investing its capital on broadening its domestic and international marketing and is also developing new distribution channels. Doing so will take time and money to reach the firm’s desired profitability levels. A topic I can address off-line.)

 

T. Rowe Numbers for the Week ended November 11th

• Opened $103.71, closed $133.34 
• Monday-Wednesday share volume in millions of shares:  1.74, 1.85, 1.86 
• Thursday and Friday share volume: 4.49, 5.55 
• Weekly Price Gains: DJ Asset Managers Average +13.92%, T. Rowe +28.57% 
• Institutional Ownership 77.12 % 
• Top 4 shareholders own 26.62 % 
• Thursday’s gap of 5.48% not closed on Friday 

 

While the company is listed on the NYSE, it is essentially an institutional stock owned in some respect by competitors. The size of the price gap and above average gain demonstrates the lack of liquidity on the upside. I don’t know what the liquidity and potential price gap will be on the downside.  

 

Another hint of the professional market dominating the NASDAQ marketplace were the weekly declines as percentage of shares traded: 21.16% for the NYSE vs. 32.85% for the NASDAQ. 

 

Other Thoughts of the Week 

• The IMF believes 1/3 of the world is in recession 
• 7 out of 10 large battery producers are in China 
• With the 2-year and 30-year US Treasury yields at 4.32% and 4.08% respectively, it suggests the minimum expected return on high grade paper will be required for a long time by investors. Could it also mean that this is the maximum safe distribution from high quality accounts in order to preserve principal? 

 

Should real estate investing be divided between current income production and the conversion profits from changing the nature of the property? 

 

Historically, roughly half of small businesses fail within five years. Isn’t it likely this will increase during a period of stagflation? Small company investing has traditionally produced higher returns when large companies are having problems during a stagnant period. However, there will also be offsetting small-cap losses during the period. 

 

What are Your Thoughts? 

 

 

 

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

Mike Lipper's Blog: Are You Getting Value from Numbers? - Weekly Blog # 758

Mike Lipper's Blog: Rarely Found Different Thoughts - Blog # 757

Mike Lipper's Blog: Current and Future Views are Confusing - Weekly blog # 756

 

 

 

Did someone forward you this blog? 

To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

 

Copyright © 2008 - 2022

 

A. Michael Lipper, CFA

All rights reserved.

 

Contact author for limited redistribution permission.