It Doesn’t Feel Like a Bull Market - Weekly Blog # 866

 

 

Mike Lipper’s Monday Morning Musings

 

It Doesn’t Feel Like a Bull Market

 

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

 

 

 

 

If not Convincingly Up, Maybe Down

With most US stock price indexes near their all-time peaks in the latest week, why are only 37% of stocks in the S&P 500 rising? Forty-six percent of the stocks on the NASDAQ market rose during this period. (The NASDAQ market has more speculative stocks, like technology and smaller financials.  While not strictly comparable, NASDAQ volume has risen +15% year over year, while NYSE volume contracted -19%.)

 

Warning Light

Could it be that investors are sensing a coming decline. Looking at other data series, the US dollar may have peaked. The more economically sensitive Dow Jones Transportation Index has also completed two-thirds of a typical reversal chart pattern.

 

Too Much of a Good Thing

Another flashing warning light is the enormous amount of money made over the last 10 years. (Using total return data on mutual funds and index funds, the following categories have doubled their pretax money in the 10-years through last Thursday: Large Growth, Large Value, Small Cap Growth, Small Cap Value, S&P 500, and S&P 400. The range for these averages was between 2.35X and 2.01X. I have added Financial Services funds which gained 3.57X). I believe that in addition to portfolio earnings growing, there has been multiple expansion. P/E Ratios can move up and down faster than earnings. It is this concern that leaves some of us worried.

 

Others Are Worried

The Depression, which many economists believe started in 1933, actually started at least 5 years earlier in the farmland. Agricultural prices were dropping due to imports, which eventually led to the US putting up a tariff wall. Currently, the farming community, their suppliers, and financial supporters are worried. Some in the farming community expect income to drop 25% in 2025.

 

The stock market would be wise to pay attention to high-quality US bonds, whose yields have risen +116 basis points over the last year compared to a rise of +44 basis points for middle quality bond yields.  (Yields up bond prices down.)

 

Stock market investors who know their history should likewise be concerned about farm prices. Historically, the sharpest analysts following these trends come from the 4 major agricultural trading houses. One of these is Cargill, who has just announced plans to lay off 5% of its workforce. A glance at the 2024 electoral college map reveals the red team dominating the middle of the country. A similar situation forced a Presidential change in 1932, which some believe was a contributor to WWII.

 

Have we Entered a New Market Cycle?

Do many people recognize a change underway early in the long march to a different environment? I believe a change may be underway, but I don’t know where we are going.

 

I recognize that beneath the surface the two major engines driving the world are the USA and China. Both are not as healthy as they portray, with productivity doing poorly when adjusted for inflation. One example is the US significantly leading the world in medical spending, while life expectancy trails behind Japan, France, Canada, and Germany.

 

We are not Allowed to Think Creatively

For the most part our governance and educational systems are highly regimented to reproduce exactly what was or is. This has been difficult for me to recognize. Consider the amount of mathematical thinking in this blog, which comes from being taught to learn from the text or copying from the past.

 

Our systems are designed to produce copycats, or at least controllable members. We do not try very hard to generate creativity. In college we were taught what worked in the past. I only had one critical exam in all things management accounting, where 50% of the final test was “What’s wrong with Accounting?”. This caused me to recognize that GAAP accounting is designed to avoid lawsuits, not to help make investment decisions. These lawsuits might be brought against investment bankers and various marketers. The closest I got to seeing this was during a Security Analysis course with the famed Professor David Dodd of the famed Graham and Dodd, but only during one portion of the course. The lesson was a real eye-opener when we turned to valuing a company in bankruptcy. The first thing we were instructed to do was reconstruct the GAAP accounting by valuing what was salable and at what price. Only a portion of the inventory could be sold, and it was valued after disposal cost. Buildings and land could be valued up or down, depending on use. Finally, there was the cost of shutting down, including appropriately taking care of the employees.

 

I never learned to be a DaVinci, but I came close by watching what Steve Jobs at Apple did. (Even though I currently own the stock, I do not recommend ownership, except for very narrow purposes.) What Jobs created and Tim Cook built and marketed brilliantly was creating new uses for existing technology. I suspect much of what Jobs created came from his studies of Asian religions. Today, it is interesting to see a surprising amount of creativity coming from foreign-born people working for US corporations or investment capital.

 

Question: What have you done creatively?  

 

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

Mike Lipper's Blog: Professional Worry Time vs Amateurs’ - Weekly Blog # 865

Mike Lipper's Blog: SPORTS FANS SELECT CABINET & OTHER PROBLEMS - Weekly Blog # 864

Mike Lipper's Blog: Reading the Future from History - Weekly Blog # 863

 

Did someone forward you this blog?

To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

 

Copyright © 2008 – 2024

A. Michael Lipper, CFA

 

All rights reserved.

 

Contact author for limited redistribution permission.