Indicators as Future Guides - Weekly Blog # 808

 

Mike Lipper’s Monday Morning Musings

 

Indicators as Future Guides

 

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

 

 

Since before humans began recording history, they looked to the past to predict the future, believing the Powers (God or Gods) would repeat.  This belief was fortified by the introduction of numbers which repeated. Thus, as numbers were collected to create past performance records, humans arranged them into groups of indicators to predict the future.

The problem with this approach is that we treated the collected numbers as indictive of the future. Numbers that are an incomplete historic record are an abstraction of the events. Missing from the scores are two critical elements.

1. What else was simultaneously happening was rarely recorded within the same or relevant time period.
2. There was little if any documented notation regarding motivations. So, we do not know why certain things were done.

 

Despite these drawbacks we enshrine indicators as the proximate causes of people’s actions. This is particularly true in using historical actions to settle contemporaneous actions in legal disputes, e.g. The Prudent Person rule.

 

(Commercially, I am happy with the reliance on past data, for it encouraged the desirability of past mutual fund performance, fee, and expense data. However, my stack of losing racetrack tickets demonstrates that the past is not the absolute prolog for the future.)

 

Nevertheless, in the absence of “divining rods” indicators are useful devices in looking for future guidance, or for a good crutch.  To reduce my reliance on placing too much importance on my investment thinking, I examen numerous indicators, and where possible what else was happening at the time, trying to ascertain motivation. From my handicapping experience, I am aware that popular choices pay off less than choices that are less popular.

 

The following, in no specific order, are some indicators I look at each week and my reactions to them.

 

Transaction Volume Location

This week on the NYSE, 77% of traded shares declined, with only 59% declining on the NASDAQ. (I believe there is currently more transaction volume by both the public and less experienced managers on the NYSE. Note, NASDAQ prices gained more this year and thus have more to give back if we are in a general decline.)

 

Corporate Announcements

Korn Ferry*, a major employee sourcing firm announced that it was dismissing 8% of its work force. (If their corporate clients were planning to hire soon, they wouldn’t be letting people go. ADP* also forecast a      decline in customer’s payrolls, which hurt their stock. Additionally, UPS predicted lower shipment volume coming from China, suggesting retail merchants are cutting back.

(* Owned in personal or managed accounts, not recommended.)

 

Congressional Indicators

A split Congress is expected to last at least through the next election. With very little legislation enacted, Democrat inflationary actions and Republican deficit cuts are unlikely to materialize.

 

Future Investment Performance

Double digit equity performance is not normal, and triple digit performance is even less so. The better performing ten-year university records are in the high single digits. 12% of American taxpayers had a net worth of over $1 million net, with the bulk of their assets in securities and their homes. Current private equity and debt investing is on average producing low single digit returns. Private investments are showing signs of aging, relying on raising new money from the public and newly managed accounts that were formally paid commissions. New and less experienced managers are entering the business.

 

Current Prices

The weekend WSJ publishes the price moves of securities indices, currencies, commodities, and ETFs. I track the % up vs. down to get an overall feel for the 72 investments. This past week only a 1/3^rd were up. Of interest were the top/bottom two, Nymex Natural Gas +9.14% and Lean Hogs +6.75% vs. -6.29% for the S&P 500 Communications and -6.19% for the Dow Jones Transportation. (This suggests to me that these extreme prices are the result of sudden news items. With 3 of the 4 extremes in the +/- 6% range, it suggests this is a normal move for surprises.

 

Working Conclusions

1. The general primary trend is moving down.
2. In a bear market there are sudden rallies.
3. Long-term investors should look to buy opportunities that will be different than past winners over the next ten years, or possibly five. There will be material restructuring of society, the economy, and the leadership of many political, corporate, education, and non-profit groups.

 

Share your thinking with us.

 

 

 

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

Mike Lipper's Blog: Changing Steps - Weekly Blog # 807

Mike Lipper's Blog: Change Expected - Weekly Blog # 806

Mike Lipper's Blog: Stock Markets Move on Expectations - Weekly Blog # 805

 

 

 

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