Mike Lipper’s Monday Morning Musings
“SMART MONEY” Acts Selectively
Editors: Frank Harrison 1997-2018, Hylton
Phillips-Page 2018
Dull Week with Some
Clues
The stock market from
mid-December through this Friday was flat, except for an early bubble in
January. (I suspect the NASDAQ price surge resulted from the replacement of some
holdings sold for tax purposes in the fourth quarter.) Market analysts suggest a
flat price pattern might represent the smart money either accumulating or
distributing meaningful positions. This suggests prices will either move up
sharply or fall rapidly after a period of time. I will attempt to examine what
I perceive as clues to future major moves.
NYSE and NASDAQ
stocks declined for four of five days in the latest week. The DJIA rose for three
days and the more professionally
followed Dow Jones Transportation Index fell for three days. As a contrarian
measure, analysts watch the latest weekly summary survey published by the
American Association of Individual Investors (AAII). In the latest survey,
participants raised their 6-month bullish prediction to +48.6 % or double their
bearish guess of +24.2%. (Lucky for those who work in the market and those who
live off of it. Individual investors have a good long-term record. From a contrarian
viewpoint following them has value, because they are wrong at critical turning
points.)
The number of
publicly traded companies has been dropping for many years, mostly due to acquisitions,
not failures. In 2023 there were 15,766 IPOs vs 17592 the year before. More
significantly, the money raised dropped to $170 billion from $242 billion.
There are several
thoughtful columnists who occasionally focus on financial history. John Authers
of Bloomberg wrote “America is disinflating…disappointingly slowly.” He
believes a major future expansion would require more problems than are currently
visible. James Mackintosh of the WSJ warns investors that the market goes up
and usually produces satisfactory returns in most 20-year periods. There are a
few times it does not. (It’s important to remind investors that there can be
times when investors won’t be bailed out in a given 20-year period. I wonder if
that is why 30-year bonds and mortgages were created.) I believe he would have
more confidence in recoveries if interest rates were set by the market and not
by government fiat.
One problem with
many economists, both within and outside government, is that they do not have enough
appreciation for lessons learned from Asia and the Middle East. For example, we
don’t seem to appreciate the products and technology that came to the West
along the Silk Road. The following is a list of products or services that
traveled the series of trans-Asian roads:
Silk, Hemp, Cotton,
Wool, Paper (Paper Money). Fireworks (Explosives). Gunpowder, Tea, Horses, and algebra
from India.
Working Conclusions
Recognizing that I
don’t know what the future will bring, I turn to my investment/betting
framework for a relatively conservative perspective. For the time period ended early
2025, I suggest there is a 60% chance of a significant US equity decline. The decline
will perhaps be in the neighborhood of 20%, with an outside 50% chance of a
full depression with an 80% drop. There are also two other possibilities at 20%
each. First, a 5-7-year period of stagflation, and second, a 20% chance of
below 4% GDP growth.
For estate planning
purposes with a 30-year outlook, expect equity returns to be in the 5-9% range.
Your Thoughts?
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