Mike Lipper’s Monday Morning Musings
Can’t Find Totally Risk-less
Conditions
Editors: Frank
Harrison 1997-2018, Hylton Phillips-Page 2018
A Real-World Problem for Investors
Investors turn to advisors to get
assurances that they are not taking risks with their money and their future. We
can discuss the numerous risks of losing some or all of their money and should
do so. But the news of Silicon Valley Bank (SVB) being forced to close and then
taken over by the FDIC shows that these types of discussions were not had.
This weekend I spent considerable time
thinking about “risklessness” and concluded that it does not absolutely exist, nor
can there be such an asset in an absolute sense. There are known and unknown
opportunities to lose all or some value of an asset.
The reason is that we do not live in a
one-dimensional world where all is known, or unknown conditions exist. We and
our assets exist in multiple dimensions. Few if any of the investors who sold securities
in an IPO and deposited the cash proceeds in SVB were waiting for an
opportunity to buy appropriate assets. I suspect most investors felt their cash
was being held at one or more underwriters for a short period, not at a
corporate depository.
If they considered it at all, they
were pleased that their assets in the company were unencumbered by loans. My
guess is that they never considered they were at risk of a “run on the bank” by
unrelated depositors. But such a run happened, putting the bank in an insolvent
condition, which led to bankruptcy.
Ecology
While it may come as a surprise, some
investors were concerned about changing climate conditions many years ago. They
felt it was not being appropriately considered by institutional investors in making
investment decisions. The “buzz” word at the time was ecology. Which meant that
if something changed, more things could change.
Today’s investors should dust off the
old studies on ecology. A current example
might be a military battle in the Ukraine causing the price of flour to rise in
Egypt, which in turn factors in the price of Mideast oil rising, which in turn impacts
gasoline prices in middle America and consequently the prices of local homes in
the Midwest.
The World View
Today, every consumer and investor is
a globalist, whether he or she likes it or not. This impacts transaction prices for everything he
or she does, including wages and taxes. Funds that invest in Europe are increasing
in price as they attract flows from America, where prices of US dominated funds
are going down, leading to a decline in purchasing power for the US dollar.
US Investors vs Washington Politicians
The current administration in
Washington has proposed raising taxes while
continuing to curtail domestic production of goods and services. This will add
to inflation as the world continues to fund a major war. Similar to society turning
its back on climate and ecology years ago, which resulted in today’s
conditions. Our government is pro inflation through restraint of trade and
raising prices.
Last Week: Another Warning ex SVB
While most of the financial headlines on
Thursday and Friday were focused on the implications of SVB, there was worse long
run news for American investors, consumers, and citizens. The Standard &
Poor’s 500 declined -1.58% for the week ended Thursday, similar to its performance
for many prior weeks. However, the depressing news was that China Regional Funds,
the largest contributor to world growth, had declined -6.31%. While China
exports more than its imports, the major exporter to China is the US. If the US
is going to get out of its near recessionary condition, it will need to export a
lot of US products and services.
What Are We Looking For?
Last week there was significant weakening of market conditions. While paying close attention to present conditions, we are nevertheless searching for the stocks and managers that will participate and, in some cases, lead the next significant “bull” market. We are in the early stages of our search and it’s still conceivable we may go through a longer period of stagnation. We are searching for the kind of corporate leadership and product/services that demonstrate superiority. Some may be overseas, but many will come from the US. Please help us.
Did you miss my blog
last week? Click here to read.
Mike
Lipper's Blog: Data Performance/Easy.Interpretation/Not - Weekly Blog # 774
Mike Lipper's Blog: “This was the
Worst Week of the Year” - Weekly Blog # 773
Mike Lipper's Blog: A Terrible Week -
Weekly Blog # 772
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