What will the Future Bring? - Weekly Blog # 769

 

Mike Lipper’s Monday Morning Musings

What will the Future Bring?

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

 

 

 

The Present?

When asked about the direction of the market pontificators usually respond with their thoughts for the next market period, usually a day, month, or possibly a year. The typical answer will either be an extrapolation of the present trend or a single reversal of that trend.

 

Most dollars invested in the market are for retirement or other long-term periods. I try to address the long-term investment environment, not short-term trading decisions. That the market appears to be in a “melt-up” phase on relatively low volume, or the percent of falling stocks on the NYSE is 27% vs 34% for the NASDAQ is not particularly helpful for a ten year or longer period of future retirement. (January is the month when many retirement plans get a contribution, which is why transaction volume is above average.)

 

The Future?

A person asking questions about the future is naïve. The future will be a collection of cycles, and most importantly there will be no certainty of what the final phase of the final cycle will be. Nevertheless, my job as an investment manager is to determine the odds of the most dominant characteristics of the average cycle in the extended period occurring.

 

My bias is to rely on the analysis of past cycles, recognizing that there is no guaranty of any specific view happening. One of the various histories I think through is the history of interest rates, including their apparent impact on future prices.

 

A highly respected London money manager recently gave me a book that helped me to think about interest rates from the earliest recorded history up to the present. I finished the book on my return from a business trip to Florida. The book is “The Price of Time, The Real Story of Interest by Edward Chancellor.

 

I tend to read with an ever-present pen underlining what appears to be important. The following are some of the more useful quotes or paraphrased views:

 

Quotes and Paraphrases

1. Benjamin Franklin said that Time is Money (Implying that one can use interest payments to buy some time, other people’s time.)
2. Interest arose from some combination of need and greed.
3. Finance allows people to transact across time.
4. Interest is required to determine the value of long-lasting assets. (Stated or Implied)
5. Capital value and interest rates are inversely related.
6. Cheap credit allows households to take on too much debt.
7. Ultra-low interest rates contribute to a decline in productivity growth, asset price bubbles, rising debt levels, and inadequate savings which widen inequality.
8. As confidence in paper currency begins to evaporate, money flows out of a country. (Flows into European, Chinese, and Latin American securities is increasing.)
9. Credit is an indication of one man’s trust in another.
10. When interest rates are pushed too low credit takes off and bad investments abound. (An indebted President pushes for lower rates.)
11. Ultra-low interest rates keep Zombie companies on life support, resulting in the survival of the least fit.
12. Becoming rich is a choice between consumption today vs tomorrow. (Some of today’s rich started out poor.)
13. Elevated stock prices imply lower future prices. (Speculators invest on their belief in future prices. When those prices are reached it may usher in lower growth and prices in the future.)
14. When liquidity dries up, credit spreads widen.
15. Financial stability is destabilizing (eventually).
16. Financial repression serves as a tool of political repression.
17. When countries have relatively high levels of financial development, economic growth tends to be faster in the following 10 to 20 years.
18. Unconventional monetary policies have forested the worst kind of inequality.

 

I ask for your thoughts on these notes as to their utility or where you disagree.

 

 

 

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

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