What To Believe? - Weekly Blog # 778

Mike Lipper’s Monday Morning Musings

What To Believe?

 

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

 

 

Preface: Publishing with Intent 

One of the most useful screens used by investigators is guessing the primary intent of what is being offered by the supplier. The most likely intent is to get important consumers to take a specific action, or possibly to not act at all. When addressing an audience of one or more there is a presumption that the “pitch” is to reinforce already accepted consumer beliefs. This is a much more productive strategy for the publisher, as most “pitches” are designed to get the highest number to agree. 

 

As someone who learned to analyze at the racetrack, I feel the need to understand how the majority of the money is thinking about a particular horse, in a particular race, on a specific day and time. That horse is likely to have the most money bet on a projected result. The horse in each race with the biggest bet is labeled “the favorite”. The favorite has the largest percentage of the betting pool and by definition the smallest payoff odds. Favorites generally win more frequently than all other entries. However, they typically win less than half the time, in only about a third of the races. Thus, betting on the favorites does not generally produce enough dollars to make up for the losses in an eight or nine race card day.  

 

This has led me to a mindset of respecting the majority opinion, while choosing to either not bet at all, or to choose a horse favored less than the favorite. This approach has worked sufficiently well that I on occasion use it to bet on securities, choosing non-favorites or outsiders. 

 

This betting technique led me to look through the bulk of the information to understand where most of the money was being bet and if other choices made more sense. I have become a skeptic, which impacts my assessment of the media’s review of the first quarter equity results. 

 

The Favorites View of 1st Quarter Results 

 (N.B. The less than perfect technique of looking past performance for clues as to future results, or at least a better understanding of what is likely to happen.) 

 

These thoughts were before OPEC+ announced a million barrel per day cut and more later.

 

The first quarter of 2023 was viewed as victory for the stock market, with the NASDAQ Composite gaining +18.6 % from the beginning of 2023.  

 

(This view is what should separate the amateurs from the professionals. Markets move to their own rhythm, not to a stated calendar. Like many other market analysts, I measure markets from their highest to their lowest points. The record highest price for the NASDAQ Composite was achieved November 19th, 2022. If one looks at the change from the peak to the close in the quarter, the NASDAQ Composite is down -23.84%. This is significant, because some in the media are calling it a new bull market. I don’t think so, at least not yet.) 

 

There are at least two other statistical ways to see if we are on the immediate edge of a bull market.

1. The number of advances and declines in the last week. There was only one day in the week where there were more advances than declines on the NYSE, and only two on the NASDAQ.
2. Another way to look at advances vs. declines is to look at the percentage of listed stocks that were down for the week. On the “Big Board” 12.57% hit new lows, vs. 17.01% on the NASDAQ. (These are relatively high for the beginning of a new bull market.) 

Many market prognosticators believe a new market phase will be led by different stocks than in the past. For the month of March, the S&P 500 gained +3.67%, although the equally weighted S&P 500 lost -0.88%. The S&P 400 (Mid-cap) lost -3.21% and the S&P 600 (Small-cap) lost -5.16%. (Standard & Poor’s does have an S&P Asia 50 Index, which was up +6.05% in March. 

 

Big Risk: Correction Delayed 

While I doubt we will escape a recession between now and the next Presidential election, we may. However, much more concerning to long-term investors is the need to make major corrections in the economy and society. The following is a list of issues that need to be addressed: 

1. The Federal government needs to stop creating more inflation. It needs to cut expenses and lower restrictions on businesses, which hurt low-income people. For example, reshoring raises the costs to consumers. The bailout of banks through the FDIC raises bank fees, which in turn will lead to fewer low-priced services. Restrictions on energy pipelines increase the cost of almost everything that is transported, even before Sunday’s announcements.
2. Encourage IPOs – Only one of the last 20 Global IPOs was in US dollars, 12 were priced in Chinese Renminbi. 
3. Global lending is down -28% to a 7-year low. Acquisition related financing is down -71%, to 13-year low.
4. Improve management selection in government, non-profits, and business – Choose people with superior operational rather than political skills.

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