Mike Lipper’s Monday Morning Musings
Fear of Instability Can Cause Trouble
Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018
Instability Changes the Players
Historically, the perceived strength of allies provides
comfort to all fearing future conflicts. Changes can lead to instability,
including a change in leadership, an unexpected industrial and military
technology change, and demographic change. Some of these changes may happen
almost overnight, while others may take generations.
In studying what caused World War I, all too many focus
exclusively on the assignation of the Archduke of the Austro-Hungarian Empire.
I suggest the following causes which arose at least 50 years before the
assassination on June 28, 1914.
- The declining economic power of Austria, due to excessive spending by the government and the wealthy.
- A population still loyal to their old national governments.
- The unification of Germany, which came much later than the other European and Middle Eastern countries. Germany was also late establishing colonies in Africa when compared to Britain, France, Italy, Spain, Portugal, Belgium, and the Netherlands.
- The evolution of shipping from wind to steam power, and the development of the land-based maneuver practiced by Stonewall Jackson.
- The rise of the US as a global sea power during the Spanish-American War (Great White Fleet).
Applying the same type of geo-politics/economics to the US after the meaningful stock market drop that followed the decline in jobs. The following elements should be noted:
- The pundit led consensus was wrong on the President’s capabilities and many factors concerning the economy.
- The rapid fall in the quit rate points to a further decline in the employment cost indicator.
- Commodity funds are cutting copper positions.
- Fundamental changes in the structure of the US stock market: In the latest week, NASDAQ trading was 6.6x more than the NYSE.
- In July, the performance of the equal weighted S&P 500 was 3% better than the cap-weighted version. Among the stocks with positive performance for the week were: Apple*#, Coke#, and a number of insurance stocks. (* owned by personal accounts, # owned by Berkshire Hathaway)
- 77% of NASDAQ stocks declined last week, versus 66% for the “Big Board”.
As both a contrarian and someone who reads history, I believe that Mr. Buffett building his cash & equivalent pile is the most bullish view I have seen in a long time. Mr. Buffett is getting ready to make positive investments in the future, he is not building reserves. I hope all of our subscribers are preparing to be bullish, which does not mean buying right now.
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