Mike Lipper’s Monday Morning Musings
Insights From a Sleepy Week, Important?
Editors: Frank
Harrison 1997-2018, Hylton Phillips-Page 2018
Sentries
Be on Guard
Both military and investment sentries (analysts and
portfolio managers) know that the most dangerous part of their jobs is falling
asleep before a major, unexpected change. There is a good chance that on the
investment front we are being lulled into not searching for changes.
In the last six weeks the S&P 500 has moved under 1%
each week. Market analysts call such periods accumulation or distribution,
which is when securities move into from weaker into stronger hands. The results
of which will become known when the eventual breakout/breakdown occurs.
Currently, as is often the case, we are simultaneously
experiencing two different markets. For example, the week before last S&P
500 stocks continued to have more distributions than accumulations. Last week on
the NYSE there were 6.3 million shares acquired at rising prices and 10.3
million shares acquired at declining prices. This is not surprising as the year-to-date
extreme performance spread in the DJIA is quite narrow, from a gain of 4.56% to
a loss of -1.33%. The S&P 500
year-to-date gain of +6.96% could be labeled stagflation. Liz Ann Sounders of
Charles Schwab reminds us of two other stagflation periods, 1929-1942 and 2000-2009.
At the very same time the year-to-date NASDAQ extreme performance
numbers show a range of +19.23% to -0.36%. Advance and decline share volumes
are also evenly matched at 10 million shares.
Currently, the five largest companies are producing better
than average index results in most sectors. Contrast this with the week’s WSJ
weekly prices of the 72 security, commodity, and currency measures, where 75%
declined. The two worst performers were Comex Silver -6.8% and the South
African Rand -4.85%, both hedges against the US dollar.
Signs of the Future
In the current market most buyers expect an acceptable year
in 2023, and a good one in 2024. Sellers expect to have to wait, at least until
after the next presidential election. They are being paid to wait with
certificates of deposit yielding around 7%.
This week we have seen two estimates for 2024. The 2024 estimate
for Social Security COLA is 3.1% (It was 8.7% for 2023). Interestingly, the household
survey for 2024 came out with an almost identical 3.2%.
Longer-Term
In attempting to predict the longer-term I find it is more
useful to rely on recognizing symptoms rather than attempting mathematical
projections. The largest contributor to world trade is China, where most high-priced
purchases are generated by wealthy young people. Recently, they have cut back materially
on their purchases of top-line jewelry. I don’t know if any of these purchases hedge
against their own currency in favor of the US dollar. (Due to inflation and out
of control government bribes the US dollar should decline on an absolute basis.
In terms of the value of the US dollar, according to Michael Cembalest of J.P
Morgan, any major change is likely to take a long time considering the US only provides
25% of world trade while being used in 85-89% of foreign exchange or similar
transactions.
On a longer-term basis a more concerning factor is the
growth of Chinese science and technology. They appear to be the leader in the
development of fusion for utility purposes. This is happening at the very same
time US utilities have become the best performing sector, in part because of
the expected increase in load to produce transferable energy to the ballooning
“EV” market.
Portfolio Management Moves Implied
During this lull in market activity before a new phase
begins, all portfolios should be reviewed to put them in the best position for
the future. One approach is to examine all present holdings currently priced at
a loss. Unless one sees a major increase in the next 31 days, they should be
sold and selectively repurchased after the “wash sale” prohibition of 30 days.
The losses created should reduce potential capital gains
from selling some of the winners you are less than thrilled with. By all means,
please consult with your trusted investment adviser and tax consultant.
Correction to last week’s blog:
In the Berkshire Hathaway discussion, the correct spelling
of the first name of the Vice Chairman in charge of insurance was published as
Amit instead of Ajit, our apologies.
Did you miss my blog last
week? Click here to read.
Mike
Lipper's Blog: My Triple Crown - Weekly Blog # 783
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Mike Lipper's Blog: Early Stages of a
New Grand Cycle? - Weekly Blog # 781
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