We may think we manage time, but time manages us - Weekly Blog # 893

 

 

 

Mike Lipper’s Monday Morning Musings

 

We may think we manage time,

but time manages us

 

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

 

 

 

Recognition

When asked for investment advice the most appropriate response is, what is the expected pay-off time? That should be followed by what critical actions are expected during the “work-out” period? The answers to these questions will show both the humility and arrogance of the expectation of success.

 

The plain truth is, we collectively don’t know what the future will bring. The future course of events will be dictated by natural elements, what others do to us, and what we do to ourselves. (Today being Fathers’ Day, it is wise to include the impact of the entire heritage of our thinking and be thankful for it.)

 

The best way I have found to come up with usable answers is to rely on what I’ve learned at the racetrack, which is to assign odds to various logical outcomes. The purpose of the exercise is not the numbers, but a way to rank the various opportunities, remembering that I can be wrong.

 

The real benefit of the exercise is when I am proved wrong. What order of possibilities would have been better? This may include the theoretical Charley Munger and Warren Buffett box, labeled too hard to predict. (The other two boxes were yes and no.)

 

Applying the Approach

Starting with a deep depression, the most extreme example being the falling stock prices between 1929 and 1942. During those years there were periods of rallies and declines, but the extremes were not broken. Prior to that period there was extreme growth of corporate and farm debt. There was an increase in the belief that central governments could materially alter the course of the general economy. Also, during that period an activist political force tried to change the laws and regulations beyond their authority.

 

I have frequently reminded subscribers of the quote that history does not repeat itself but often rhymes. Using the methodology of assigning odds to a potential depression, I suggest there is at least a 40% chance current conditions are predictive of an oncoming depression.

 

Other Problems

• The World Bank has cut its prediction of global growth from 2.8% to 1.4%.
• Moody’s has warned that selling private asset funds to retail clients introduces new risks to private asset managers, including “reputation loss, heightened regulatory scrutiny and higher costs.”
• Robert Gates, former Director of the CIA, Secretary of State, and a former independent Director of Fidelity Funds, wrote “The US can rise to the Chinese challenge” and needs to.
• At least 170 large public companies expect to announce job cuts in June. These companies announcing job cuts do not include private companies, which employ much of the US work force.

 

While I perceive a more than average number of problems related to investing in US equities over the next few years, I remain bullish about investing in US equities. Our geographic position, the dollar size of our commercial and financial markets, and our eventual ability to surmount our problems, all support continued stock investments in the US for long-term retirement investment accounts.

 

What do you think?

 

 

 

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

Mike Lipper's Blog: Selective Readings of Data - Weekly Blog # 892

Mike Lipper's Blog: No One Knows: Searching for Clues - Weekly Blog # 891

Mike Lipper's Blog: “Straws in the Wind”: Predictions? - Weekly Blog # 890

 

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.

Selective Readings of Data - Weekly Blog # 892

 

 

 

Mike Lipper’s Monday Morning Musings

 

Selective Readings of Data

 

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

                             

 

 

Assumption

I assume as a careful reader of these musing one cannot avoid the “happy talk” produced by most of the media. For balance, as a public service for my blog readers, I’ll focus on data and other information supporting the other side.

 

Long-Term

Jaime Dimon, the CEO of JP Morgan Chase, was recently quoted as follows: “If we are not the pre-eminent military and pre-eminent economy in 40 years, we will not be the reserve currency…” He is pleading with you to develop four views that he considers critical to a sound investment philosophy. They are the importance of military standing, economic position, having a forty-year view (the bulk of institutional and individual money is invested for long periods), and the significance of being the sole reserve currency.) I will be happy to discuss your views on these questions.

 

Others’ Views Focused on the Short-Term

Recently, 17 well-known investment advisors made estimates of the Standard & Poor’s 500 Index 2025 closing price. Nine estimates were higher and eight lower. The lowest was JP Morgan Chase, 13% below Friday’s close. (Of all the various stock market indices, I believe the S&P 500 Index is the best to gage the level of the market. On Friday it only gained one tenth of 1%, showing the stickiness of the movement.) Morgan Stanley is expecting the US dollar to drop 9% over the next year.

 

Unfavorable Conditions

Retail investors of all sizes are being told to invest in private investment vehicles, including private equity. These investments represent some 30% of the M&A market. History suggests the public buyers come into many trends last.

 

Currently, there are 7.5 million unfilled job openings. Employers can’t find suitable workers. I believe many potential employees lack sufficient motivation, discipline, and/or integrity for these jobs. This is leading to a low growth rate in labor productivity.

 

The employees themselves are one reason for these conditions at commercial, government, and nonprofit institutions. Due to the slow growth of our society there are pressures at all levels of management to improve labor productivity. Managers strive for efficiency, defined as output divided by input. The simple way to do that is to assign generated revenue to each worker. This is relatively easy to do for line employees, by leaving out the supervisors. The next step is to reduce the number of supervisors. This creates efficiency. However, supervisors create most of the worksite culture, which leads to product and service quality.

 

In just about every sector of modern life we are experiencing a decline in the quality of the products or services we receive. However, as a result of employers not hiring more experienced quality supervisors, this has led to customer dissatisfaction, lower customer/client loyalty, lower sales, and fewer recommendations. Employers should be hired for effectiveness, which would reduce costly mistakes and improve relationships.

 

Two World Realties

As long as we have politicians and their advocates chanting happy talk about the economy while employers cut back on hiring, we are going to experience a dichotomy in the investment world. We can hope for the best but should be prepared for the worst.

 

The Form Does Work

As many subscribers already know, I count my former time at the New York racetracks as a critical learning experience. Consequently, the running of the Belmont Stakes, which was run early Saturday evening, is very important to me. The race is now one quarter mile shorter than the traditional 1½ miles, which means its long history of winning times is no longer relevant to racing analysts (handicappers).  From a betting/investment standpoint, the job of the analyst is to evaluate the odds of a particular horse winning vs the odds posted on the tote boards. These odds are derived from the amount of money invested on each horse, including taxes and fees paid to the track. The smaller the odds, the more popular the payoff selection on the winning horse. In many ways this is similar to the most popular investments in the marketplace. It is important to remember that the most popular bets, called favorites, win a minority of the time. But they do win more often than the less popular bets.

 

The first three horses crossing the finish line at the Belmont Stakes were the same three horses finishing in that order at the Kentucky Derby. Thus, the history of these horses proves to be a good predictor. Can stock buyers count on a similar phenomenon in picking stock investments? It is occasionally possible, but not all the time.

 

If using lessons learned at the racetrack seems a bit odd, think about Ruth and I attending a New Jersey symphony concert on Sunday afternoon. This featured two great classical performers, Xian Zhang, conductor and Conrad Tao, pianist. They impressively played Sergei Rachmaninoff’s second piano concerto. This piece was a breakthrough work marking Rachmaninoff emerging from a three-year depression. The length of the depression could be a useful guide to an investment depression, unless the government lengthens the period of the depression, as FDR did in 1937.

 

Thoughts?      

 

 

 

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

Mike Lipper's Blog: No One Knows: Searching for Clues - Weekly Blog # 891

Mike Lipper's Blog: “Straws in the Wind”: Predictions? - Weekly Blog # 890

Mike Lipper's Blog: After Relief Rally, 3rd Strike or Out? - Weekly Blog # 889

 

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.

 

No One Knows: Searching for Clues - Weekly Blog # 891

 

 

 

Mike Lipper’s Monday Morning Musings

 

No One Knows: Searching for Clues

 

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

                             

 

 

President Trump

Judging by the frequency of changes emerging from 1600 Pennsylvania Avenue, Mar Lago, and Bedminster NJ, even Mr. Trump doesn’t know what will happen. Furthermore, one gets the feeling that what he wants appears to change over time. While he can wait a bit, people with portfolio responsibilities often cannot. In addition to many of the same concerns facing the President, we must deal with the impact of the unknowns on our clients and on our own fears. In an attempt to provide some soothing ideas using our somewhat unique search for clues, I stand ready to attempt to apply these concepts to your individual concerns. Below are my brief thoughts on trying to evolve an overall investment strategy.

 

May Meeting of the Federal Reserve Board

Under Powell, members of the Board really cogitate about the long-term outlook. Part of the reason for their current cautious attitude in terms of interest rate changes is a period of potential stagflation, which would be difficult for the Board to manage. It would be difficult for investors to properly position their portfolios and still be in position at the correct time for a subsequent expansion.

 

There are at least two very current clues that such a period is now possible, with after tariff expenses paid by the supply chain and/or the retail buyer. For the week, both the Big Board and NASDAQ had more prices closing down than rising. Also, this week’s sample survey of the American Association of Individual Investors (AAII) had the six-month bullish view of 32.9% dropping below the bearish projection of 41.9%. The prior week the two readings were 37.7% and 36.7%, respectively. The Fed is very concerned about inflation expectations.

 

Historical Clues

Recorded history is replete with partial descriptions of cyclical behavior, both human and natural. Though recessions are not identical, they are similar in many cases and can be roughly divided between climate and man-made. Man-made events are largely caused by excessive debts and insufficient reserves, which can be broken down into two categories, cyclical price problems and the less frequent and more serious structural problems.

 

As with most problems, the people experiencing them don’t recognize what is really happening to them until later. Concerning what we are now experiencing, a couple of columns published this weekend in The Financial Times may be instructive.

• One article noted that US private equity has 12,000 investments in their portfolios. If they could sell 1500 of them each year, it would take eight years to totally liquidate them all. As many private equity vehicles have been sold to retail customers as income-producing investments, the periodic sale of their investments is critical in supporting sales in the portfolio. A problem suffered by many mutual funds.
• Gillian Tett, in her column discussing current tariff concerns, noted that “Trump’s bark is often worse than his bite. The courts also sometimes rein him in, as seen this week. FDR, another activist President, had similar problems with the courts’ actions.

 

Taiwan

Until this week I was not overtly concerned about a successful amphibious landing of Chinese forces in Taiwan. As a former US Marine Combat Cargo Officer on an Amphibious Personnel Attack (APA) ship responsible for landing Marines on an unfriendly beach, I thought landing on a defended beach in Taiwan would be difficult.

 

To the best of my knowledge, the Chinese did not have a significant amphibious effort. This week I learned they have ships similar to what I was on over 60 years ago. In addition, the Chinese have significant troop-carrying helicopters capable of deploying Special Forces on the island to attack defending forces on the beach. Certainly by 2027 the Communists will be equipped to make a successful attack. Perhaps the only real defense of Taiwan is the threat that the US could use nuclear bombs to destroy the TSMC facilities. Let’s hope it does not come to that.

 

Current Reactions

Mutual Fund investors are concerned about the current outlook. Last week I noted that both Asian and European fund returns were recently competitively better. Year-to-date through May 29th, peer-group leadership has rotated to small-cap, mid-cap, Healthcare, and Natural Resources sector leadership.

 

Portfolio Management

Position changes should be a little at a time. Exposure to winners that have become very large should be tailored. Companies reporting disappointing results should be examined to identify if timing was a problem, or a reaction to excessive withdrawals, political issues within the organization, or bad judgement. One should be humble in making decisions.

 

Call us if we can help.  

 

 

 

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

Mike Lipper's Blog: “Straws in the Wind”: Predictions? - Weekly Blog # 890

Mike Lipper's Blog: After Relief Rally, 3rd Strike or Out? - Weekly Blog # 889

Mike Lipper's Blog: Slow Moving in a Fog - Weekly Blog # 888

Mike Lipper's Blog: Significant Messages: Warren Buffett to Step Down

 

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.

“Straws in the Wind”: Predictions? - Weekly Blog # 890

 

 

 

Mike Lipper’s Monday Morning Musings

 

“Straws in the Wind”: Predictions?

 

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

 

                   

 

Predictions

Ever since humans have thought about the future, they’ve looked for clues about what the future might hold. Since very few stocks can be purchased and converted back into cash immediately with a profit on the first transaction day, equity investors are essentially betting on one or more perceived futures. All we can do is guess what may happen.

 

Since regulators frown on future predictions, particularly those that guarantee future events, investors and analysts scan both the past and views of the future to guess what may happen. The following are brief thoughts which may help subscribers think about the future.

 

From the Past

In 1934, the US Congress passed the Reciprocal Trade Agreement Act giving the President (FDR) the ability to negotiate reciprocal trade reductions. (FDR, with the help of his “Harvard Brain Trust”, was authorized to accomplish this mission. While they proposed tactics from the left, the current President may draw his approaches from the right. Both could be labeled “activists”.)

 

Today, the History Channel showed a two-hour program devoted to The Crash, The Depression, and FDR's actions. It was well produced, simplistic, and narrow, but the key facts seem to be accurate.

1. FDR's 1932 Presidential election had surprising support from Republican leaders J.P. Morgan Jr. and DuPont, the leader of GM.
2. FDR blamed the Crash and subsequent Depression on Wall Street and Banks.
3. FDR turned on them, which changed the way the economy worked.
4. The economy was not in condition to fight WWII at the beginning of the war.

 

As we have been told "History does not repeat itself, but rhymes." In general, there are two types of recessions, cyclical and structural. The latter takes longer.

 

2025

A year ago, very few analysts and perceptive investors would have guessed which four mutual fund peer groups would now be leading the year-to-date race. They are Precious Metals Funds +42.95%, Latin American Funds +24.50%, Commoditized Precious Metals Funds +22.60%, and European Region Funds +20.61%. The first and third are clearly based on gold, but the gap between the two appears to be unusually wide. Latin American and European funds having similar performance also seems unusual.  From an overall point of view these results suggest we have entered a new phase or cycle, with the probability that last year’s leaders won’t lead again for a while.

 

There now appears to be a need to fill manufacturing jobs on an overall basis. This is distressing for two reasons. The first is that hirers can’t find the right people who want to work in their plants. The second is that the new factories this administration is counting on will have difficulty reaching the productivity and profitability levels the optimistic people in DC expect.

 

The London Stock Exchange regularly publishes I/B/E/S estimates of S&P 500 quarterly earnings. For the quarter we are in, their earnings per share prediction is that we will gain +5.8%, while growing net income +4.3%. The +5.8% is disappointing, but the +4.3% shows how much the market needs buybacks. Moving to economic analysis from securities analysis, the low gains in net income will not generate sufficient cash to pay for capital expansion and the introduction of new products and services.

 

The weekly American Association of Individual Investors (AAII) sample survey has recently turned slightly bullish, quite a jump in three weeks. The latest week bullish/bearish readings are 37.7% and 36.7%, compared to 29.4% and 51.5% three weeks ago. Two comments are appropriate. First, this time-series has a good long-term record, although it has been wrong at turning points. Second, individual investors should not be traders who get caught up in short-term volatility.

 

2026

Venture Capital funds are having difficulty raising capital from investors and lenders. I suspect this is also true for the broader universe of private capital funds. Investors in small and mid-cap equity funds have become used to private capital funds buying their maturing holdings.

 

One commentator wrote that Warren Buffett’s Berkshire (*) sold bank stocks and has not sold any of its positions in Apple (*), Coke, and American Express (*) in its latest report. These stocks are price leaders and should therefore do relatively well in periods of stagflation.

(*) Positions held in client and personal accounts.

 

Question: What will make you transact this year?

 

 

 

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

Mike Lipper's Blog: After Relief Rally, 3rd Strike or Out? - Weekly Blog # 889

Mike Lipper's Blog: Slow Moving in a Fog - Weekly Blog # 888

Mike Lipper's Blog: Significant Messages: Warren Buffett to Step Down by End of Year, Other Berkshire Insights, and Tariffs won't deliver - Weekly Blog # 887

 

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.

 

After Relief Rally, 3rd Strike or Out? - Weekly Blog # 889

 

 

 

Mike Lipper’s Monday Morning Musings

 

After Relief Rally, 3^rd Strike or Out?

 

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

 

Preparing for Rough Seas Ahead

We had a “Relief Rally” up to the close of the US stock market on Friday. Although most stocks rose, there was a change in leadership. Many of the best performers were the kind of stocks an institutional equity player adds to a portfolio to soften declining performance in a down-market phase. The leaders did not have the characteristics of stocks leading a brand-new Bull market. Everything changed late Friday, with Moody’s* announcing the lowering of its credit rating on US Treasuries from AAA to AA1.

* Moody’s stock is held in client and personal accounts.

 

Not a total Surprise

In a May 8-13 Reuters survey, 54% of bond strategists were concerned about the “safe haven” status of US Treasuries, a critical benchmark for pricing global capital markets. In April the same survey had 47% concerned. This was not the first group of worriers.

 

Consumer confidence in May fell to the second lowest reading on record. Regarding Moody’s US Treasuries downgrade, S&P downgraded the US Treasury credit rating in 2011, as did Fitch in 2023. Thus, the move by Moody’s is the third downgrade or strike. The next critical question is the nature and length of the expected decline.

 

Moody’s Answer

According to Moody’s statement, US credit “retains exceptional credit strengths such as size, resilience and dynamism of its economy and role of US dollar as global reserve currency.” Not surprisingly, the US government’s view is that Moody’s is looking backwards.

 

Expecting this retort, Moody’s focused on expectations for the future. They expect the Federal Deficit to reach 9% of the US economy in 2035, up from 6.4% in 2025. Furthermore, they expect government revenues to remain broadly flat, adjusted globally from negative. (To me this sounds like stagflation, with both tax rates and inflation rising.)

 

My Call

Odds are, we’ve struck out and ended the inning, but not the game. The absence of a structural recession/depression may keep an expansion in the low to middle gains. Portfolios with over 10% in longer than 10-year Treasuries should cut them in half.

 

How do you call it?

 

 

 

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

Mike Lipper's Blog: Slow Moving in a Fog - Weekly Blog # 888

Mike Lipper's Blog: Significant Messages: Warren Buffett to Step Down by End of Year, Other Berkshire Insights, and Tariffs won't deliver - Weekly Blog # 887

Mike Lipper's Blog: A Contrarian Starting to Worry - Weekly Blog # 886

 

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.

  

 

Slow Moving in a Fog - Weekly Blog # 888

 

Mike Lipper’s Monday Morning Musings

 

Slow Moving in a Fog

 

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

 

                             

 

Weather Predictor’s Real Function

One should pity the role of weather predictors who must often predict changes in the weather, either by hour, day, week, month, or year. One or more of their outputs are frequently wrong because something changes. As a professional chartered financial analyst (CFA) I am both grateful and sympathetic to their plight.

 

The only thing they can be confident of is making securities analysts look good, having a somewhat worse prediction record than the analysts. The primary reason they are wrong is that something changes. As both surviving analysts and politicians are prone to say, when the facts change, my views change.

 

To safeguard my self-confidence, I rely on a weather condition. A fog has descended on the economic and securities playing fields. We will be in such a situation this week and looking forward to the future. Since managing and owning a portfolio, “facts/sentiments” change every minute, hour, day, week, month, or year. It is more like navigating a vessel than a piece of statutory. Dangerous risks in a fog are unidentified shoals or obstacles, as well as warning elements which occur randomly.

 

Friendly Signals

• Many Chinese believe that 888 is a lucky sign of the future.
• The American Association of Individual Investors (AAII) latest weekly sample survey showed a decline in bearish readings and an increase in bullish readings.
• 54% of the weekly readings of the prices of indices, currencies, commodities, and ETFs in the WSJ were higher.
• Unusual trading volume on Friday was the highest of the week.

Warning Signals

• The Financial Times noted that “Institutional Money Managers are trimming US exposure...”
• The US Federal Government is expected to cut-back “Watchdogs at the Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency and the Securities and Exchange Commission.” (Beneath the surface, there appears to be concerns about the soundness of small banks and private debt instruments.)

 

Mixed Messages

When a stock price drops about 1% following a corporate announcement after it was expected to rise, either the expectation was wrong, or some didn’t understand the message. This is particularly true when the stock and announcer are both among the best practical educators in the investment world. I am referring to the drop in the price of Berkshire Hathaway* after Warren Buffett announced his intention to ask the Board to approve his resignation as CEO, effective year-end.

*Berkshire Hathaway is held in both client and personal accounts and is the largest holding in some of the later accounts.

 

Warren Buffett has said for years that the stock price would likely rise after he retired, and I shared his views for a couple of reasons. First, his retirement would eventually happen and second that he was running the company for the heirs of the shareholders. With that in mind, he ran the company in a low-risk fashion. In many, but not all ways, Berkshire was a trust account for the shareholders’ heirs.

 

His long-term friend and vice-chair, the late Charlie Munger, taught him not to buy cheap stocks on a price basis, but good companies at fair prices. Charlie called Warren a learning machine because he learned every day, particularly from losses. This reinforced the teaching of Professor David Dodd at Columbia, who taught the Securities Analysis course based on his experience in the Depression. This was perfectly appropriate for the times, and he was still focused that way in the mid-1950s when I took his course.

 

The course was essentially an accounting course using financial statements. It took me a number of years to learn the other key lesson, the business analysis of the issuer. This knowledge was one of Charlie Munger’s contributions to Warren. After Charlie passed a few days before his hundredth birthday, the likelihood of Warren’s own retirement became more likely.

 

His retirement became possible with the appointment of Greg Able, who is much more of an operating manager than a securities manager, which Berkshire neglected in my opinion. Recent sellers of the stock were likely worshipers of “Mr. Buffett” or possibly the heirs of long-term holders who now felt free to capture the assets for their own needs rather than wait for the passing of their relatives. They have probably never read anything about Berkshire’s investment thinking. Thus, I do not believe they are informed sellers.

 

How do you see things?

 

 

 

 

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

Mike Lipper's Blog: Significant Messages: Warren Buffett to Step Down by End of Year, Other Berkshire Insights, and Tariffs won't deliver - Weekly Blog # 887

Mike Lipper's Blog: A Contrarian Starting to Worry - Weekly Blog # 886

Mike Lipper's Blog: Generally Good Holy Week + Future Clues - Weekly Blog # 885

 

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.

 

Significant Messages: Warren Buffett to Step Down by End of Year, Other Berkshire Insights, and Tariffs won't deliver - Weekly Blog # 887

 

Mike Lipper’s Monday Morning Musings

 

Significant Messages: Warren Buffett to

Step Down by End of Year, Other Berkshire

Insights, and Tariffs won't deliver

 

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

 

                             

You have probably already heard that Warren Buffett will step down as CEO of Berkshire Hathaway by the end of the year. Warren announced this to thunderous applause at Berkshire's annual meeting on Saturday afternoon. I am not surprised. At the meeting, which is the first we have not attended in many years, his answers to many questions were more statesman like, recognizing the scope of problems facing both the country and the rest of the globe. He referred to his Father's only political defeat as a Republican Congressman and subsequent re-election. Greg Able spoke purposely, answering an increasing number of questions. He will succeed Warren as CEO.

 

The following brief comments were delivered at the meeting largely in chronological order.

1. Berkshire expects the relationship with Japanese trading companies to likely lead to more Japanese acquisitions, probably in Yen.
2. Berkshire was in discussion for a $10 billion deal recently. Buffett indicated that he thought with Abel as CEO larger deals are likely, with more communication between the units.
3. Currently, the companies are not using AI for Real Estate and they are behind in using it for GEICO.
4. There is a global push for weaker currencies, which is a negative.
5. Life Insurance is different from the Property/Casualty insurance Private Equity is using.
6. Berkshire's stock price has fallen 50% three different times.
7. In the latest quarter, the prices of 21 subsidiaries rose and 29 declined.
8. There were no repurchases of stock.
9. Warren pays more attention to balance sheets than income statements. He is particularly interested in generation of free cash flow. He also believes quality starts from the top. There was quite a discussion about utilities, coal, and fires. The various states and political interests need to decide what they will authorize.

 

Tariffs Are Not the Answer

Far too many people believe that imposing Tariffs on various items of world trade will solve the problems of individual countries. George Calhoun, a Director at the Stevens Institute of Technology and a contributor to Forbes Magazine, raises critical questions in two articles in Forbes. (George and I serve on a board committee at the Stevens Institute.) For brevity purposes I will briefly review the first part of his second article:

 

Will higher tariffs cause inflation?

Prices will rise.

 

Alternative view:

Currency shifts neutralize price increases

 

Mitigating factors: Caveats, Fudges, & Assumptions'

There are at least 14 various measures of annualized inflation.

 

Is it really inflation?

"High prices are not the same as inflation"

There is confusion between the rate of change and the level of prices. (I may include the perception that there is no change in the quality of product or service and time of delivery.)

 

Tariffs affect only a small portion of the "The Consumer's Basket"

(Does substitution change the value of the product?)

 

(I am happy to send the second half of George's article to any subscriber.)

 

The Trump Angle

From the very first time the President introduced the use of tariffs to correct the imbalance of world trade, I believed he was doing it to force negotiations. It is already clear he will change the size of barriers, due to the manipulation of currencies. (See currency shifts above.)

Only the most senior officers can deal with these types of items.

 

 

Question: As usual I would like to hear your views.

 

 

 

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

Mike Lipper's Blog: A Contrarian Starting to Worry - Weekly Blog # 886

Mike Lipper's Blog: Generally Good Holy Week + Future Clues - Weekly Blog # 885

Mike Lipper's Blog: An Uneasy Week with Long Concerns - Weekly Blog # 884

 

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.

A Contrarian Starting to Worry - Weekly Blog # 886

 

 

Mike Lipper’s Monday Morning Musings

 

A Contrarian Starting to Worry

 

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

 

                             

 

Misleading Financial Statements

First quarter earnings reports, led by financials, are generally positive. Good news if maintained often leads to rising stock prices, which is not what at least one contrarian is expecting. Nevertheless, comments and actions by decision makers at various levels highlighted those worries in April.

• In the wealth management industry, one is seeing an increase in smart firms selling out at good prices. These firms are being paid by companies who believe they need to bulk up rather than do what they do best.
• Some endowments and retirement plans are shifting to less aggressive investments or passive strategies, suggesting the intermediate future appears riskier.
• Buyers of industrial goods or materials are paying less than they were a year ago. The ECRI price index is down 8.08% over the last year.
• Active individual investors, or their managers, are predicting a worsening picture in the next six months. The American Association of Individual Investors (AAII) sample survey’s latest reading shows the bulls at 21.9% compared to 25.4% a week earlier.
• In April, 48% of businesses announced reduced profit expectations, compared with 33% in March. More concerning, 41% lowered their hiring expectations, versus 29% the month before.
• Fewer Americans are planning to take vacations this year. Those planning to take one are using their credit cards less, said American Express and Capital One.

We may get some useful commentary next weekend from the new Berkshire Hathaway Saturday annual shareholders meeting format. The somewhat shorter Berkshire meeting with different speakers maybe cause a day’s delay in sending out the weekly blog.

Since the middle of the last century, we have seen a growing concentration of investment firms and banks. In the first quarter of this year, Goldman Sachs, JP Morgan, Morgan Stanley, and Citi were involved with 94% of global mergers & acquisitions (M&A). With more structural changes likely to be caused by modifications in trade, tariffs, taxes, and currencies, the odds favor continued concentration. This concentration may well lead to increased volatility and a reduced number of competent financial personnel throughout the global economy. This is unlikely to make investing easier for some of us.

 

Question: Can you show us a bullish point of view where we can invest for future generations?      

 

 

 

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

Mike Lipper's Blog: Generally Good Holy Week + Future Clues - Weekly Blog # 885

Mike Lipper's Blog: An Uneasy Week with Long Concerns - Weekly Blog # 884

Mike Lipper's Blog: Short Term Rally Expected + Long Term Odds - Weekly Blog # 883

 

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.

Generally Good Holy Week + Future Clues - Weekly Blog # 885

 

 

 

Mike Lipper’s Monday Morning Musings

 

Generally Good Holy Week + Future Clues

 

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

 

                             

 

Holy Week

The driving celebration of the week ended Sunday was the three dominant religions being able to conduct their Services peacefully. The US stock market contributed four days of generally rising prices, although there were clues related to critical concerns.

 

First, a slightly smaller percentage of NASDAQ stocks rose in price (59%), vs. 69% on the "big board". NASDAQ prices are generally more volatile and have a more professional audience than those on the followers of only New York Stock Exchange (NYSE). NASDAQ stocks have outperformed NYSE stocks for some time and one could conclude that their participants are more clued in than NYSE followers.

 

In considering our domestic markets, we should not forget our present and future are influenced by global actions. For example, last week the older western European stocks on average did better than our domestic stocks, even though they will be impacted by various tariffs and recessions. The twin concerns, tariffs and recessions, were the main worries during the four-day market week. As a contrarian thinker I believe both concerns are not properly focused.

 

I believe President Trump is using the threats of tariffs primarily as a force to begin a much larger, more powerful, and more difficult conversations. These conversations can be lumped under the label of non-tariff trade barriers. No single law or regulation will cover all these topics. They can only be addressed by the heads of the various countries, which Trump hopes will be brought to the negotiating table or private discussion by the threats of large tariffs.

 

Trump believes there are two main areas where the US is being disadvantaged, local trade restrictions and manipulated foreign exchange rates. Additionally, he believes only the most senior people can reach an effective compromise and he is willing to adjust US tariffs and other factors to reach his objectives. If I am close to being correct there is no telling what the ultimate results will be, as all negotiations will need to be reviewed in light of competition with other countries. Thus, we need to pay attention to the various twists and turns that will take place, to the extent they are revealed, and not to jump to any conclusions.

 

The second conundrum facing us as both citizens and investors is recognizing that periodic economic declines are inevitable. The world has not repealed personality traits, the impact of technology, nor climate conditions, which will all impact our financial condition.  

 

Goldman Sachs Studies

Goldman believes the odds of a US recession are getting higher. They studied the history of recessions and were able to divide the past into cyclical and structural recessions. On average, cyclical recessions end within a year and structural recessions average twenty-seven months.

 

My Most Fearsome Concern

We have all learned that history does not repeat itself, but rhymes. Thus, as an analyst my first exercise is to look at the worst decline the US has ever experienced, the Depression. As there is almost never a single individual who causes a major economic change, it is a mistake to label the cause of the Depression under a single name.

 

The 1920s was a period of rapid expansion of debt and even looser morals. By the end of the decade, both farmers and smaller banks were heavily in debt. To bail them out congress came up with the Smoot­-Hawley tariffs. (Similar to today, politicians were counting votes, while the financial side of government was concerned about the debts of dealers who had farmers as clients, as well as local small banks. The latter was such a concern that when FDR campaigned, he promised to keep the banks open then immediately close them after coming into power. To some degree, this experience may be like today's tariffs.)

 

When FDR came in with his "brain trust" of Harvard professors, they sought to change much of how the country was to be governed. (Somewhat similar to how edicts from the Supreme Court and other judges have been used to force change.)  

 

Much of what President Trump and Elon Musk are trying to accomplish is structural. Even if they can find effective people to carry it out, it will take a while to deliver the new ways of doing things to the marketplace. On the basis of the above thinking I fear the next recession will be structural, lasting a few years. I hope I am wrong.

 

Question: What do you think?

 

 

 

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

Mike Lipper's Blog: An Uneasy Week with Long Concerns - Weekly Blog # 884

Mike Lipper's Blog: Short Term Rally Expected + Long Term Odds - Weekly Blog # 883

Mike Lipper's Blog: Increase in Bearish News is Long-Term Bullish - Weekly Blog # 882

 

Did someone forward this blog to you?

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.

 

An Uneasy Week with Long Concerns - Weekly Blog # 884

 

 

 

Mike Lipper’s Monday Morning Musings

 

An Uneasy Week with Long Concerns

 

 

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

 

                             

 

The Week that Was

Harkening back to an old London-based television program focused on the week’s changes, the following items of interest and perhaps importance crossed my computer screen:

1.  Two brief bear-market type rallies.
2. The US dollar broke par on Friday, finishing at 100.102. (Marcus Ashworth of Bloomberg believes that as much as some try to find a successful substitute, it can’t be found.)
3. Price signals – The Baltic Dry Index fell to 1274 vs 1729 a year ago; The ECRI industrial price index fell to 113.27 or -4.33% from a year ago. (This index measures the prices of industrial materials needed for production e.g. metals.)
4. Only Precious Metals and Dedicated Short mutual fund averages gained for the week ended Thursday.
5. Volatility increased in the week, with InfoTech stocks leading with gains of +9.67% while the Hang Seng Index fell -8.47%. (Normally the high/low spread is closer to high single digits than 18 percentage points.)
6. Market liquidity may be a major contributor to the market indices ranking year to date; DJIA -6.94%, S&P 500 -10.43%, and NASDAQ -15.14%.
7. Both analysts at Morgan Stanley and those contributing to Seeking Alpha Quant Ratings downgraded mid-cap investment bankers and mid-sized fund manager stocks. (Compared to their larger peers they rely almost exclusively on their brains, rather than a combination of brains and capital.)

 

Longer-Term Implications

• Howard Marks believes we have seen the best economic period in history.
• Marcus Ashworth believes we have entered the beginnings of a new phase this week.
• President Trump has told associates that he can tolerate a recession, but he is afraid of a depression.

 

Question: Do any of the elements mentioned in this blog aid or lead to a change in your thinking?

 

 

 

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

Mike Lipper's Blog: Short Term Rally Expected + Long Term Odds - Weekly Blog # 883

Mike Lipper's Blog: Increase in Bearish News is Long-Term Bullish - Weekly Blog # 882

Mike Lipper's Blog: Odds Favor A Recession Followed Up by the Market - Weekly Blog # 881

 

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.

Short Term Rally Expected + Long Term Odds - Weekly Blog # 883

 

 

 

Mike Lipper’s Monday Morning Musings

 

Short Term Rally Expected + Long Term Odds

 

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

 

                             

 

Short-Term Rally

Focusing exclusively on short-term data suggests that when there is a strong broad market trend in one direction for an extended time, a countertrend is likely to surprise proponents of the longer primary trend. That is what I am expecting in the days and possibly weeks ahead, a somewhat explosive rise in the general market indices. Below are some indicators of why an explosive rise is likely:

• On Friday, 90.5% of the stocks on the New York Stock Exchange (NYSE) fell in price. Typically, when 90% of a universe goes in one direction, it is close to being exhausted.
• In looking at the daily price charts of both the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average, from their historic peaks to Friday’s close they have declined enough from their historic high points to conclude that the last rise has been fully discounted.
• A third set of indicators is the weekly sample survey from the American Association of Individual Investors (AAII). The sample survey divides the views for the market six months from the current date into bullish, bearish, and neutral. In an idealized state one would think approximately one-third of the sample would fall into each category, although that is likely not the case since it is an audience of stock owners. Thus, the “normal” vote favors a bullish view. Recently, the survey showed a contrarian result in favor of the bears and two weeks ago the split was almost 2 to1, 59.2% bearish and 27.4% bullish. This week the ratio was much closer to 3 to1, 21.8% bullish and 61.9% bearish). In theory the AAII survey’s audience is made up of retail investors who have a good long-term record of guessing right, but not at turning points. Perhaps this time the public is in-line with the professionals.

 

When discussing a possible rally with people, I urged them to use the opportunity to reposition their portfolio for a new bull market, not the old one that may already have concluded in 2024.

 

Putting Tariffs in Perspective

While not perfect as a future model, it may be useful to compare the current situation with the early 1930s. The US was in the early stages of a “normal” cyclical recession triggered by the creation of too much debt.

Coming out of WWI there were constraints on the economy, men were returning to the workforce, the farm belt was producing food for a starving world, and Russia was having extreme economic problems. Additionally, the banking community was pushing out debt to support the expansion of the 1920s, including margin loans from Wall Street.

 

As the rest of the world was getting back on its feet it was better able to feed itself, which reduced the price of food produced by US farmers. Many started to leave the farm-belt, with young men streaming into factories as small farms merged into larger ones. They were increasingly replaced by machines, which were sold to farmers on debt carried by the local small farm banks. The farmers, their dealers, and their banks, all needed to be recapitalized. They appealed to their politicians who passed the Smoot-Hawley Tariff Act, which President Herbert Hoover reluctantly signed. Unfortunately, numerous other countries followed our lead, which led to a world-wide recession.

 

Why is this important to us?

There is an uncomfortable parallel with our situation today. We have permitted or encouraged prices to rise for eggs, meat, and milk, among other commodities. In other words, we have inflated our expenses. While not often aligned, Chairman Powell and Jaime Dimon are both very concerned. Interestingly, Jaime Dimon is a corporate descendant of J.P. Morgan. In 1907, in an attempt to head off a major crash, JP Morgan locked the leading bankers in his library and refused to let them out until they individually agreed to recapitalize the failing Trust companies.

 

What is the parallel to what we may be facing today? When FDR became the President in March of 1933, with his “brain trust” he like Trump was dealing with a cyclical recession which was not his fault. Somewhat like FDR, Trump appears to be turning a cyclical recession into a structural recession, using tariffs as the tool.

 

What Happens Now?

I don’t know, and I believe President Trump himself does not know. He knows what he wants to happen, but he doesn’t know whether he has enough Republican support to make it happen. The following is a possible path to what will follow:

1. The first not fully completed step, the announcement which focused on the rate of the proposed tariffs. President Trump is aware that there are at least two other critical issues that impact world trade; the regulations that deal with the negotiation of the size and shape of trade and payments, and secondly the price level of the currencies involved.
2. The next phase is the public or private position of the various countries.
3. Is the President really after the negotiation, which he feels is his skill set?
4. Implementation of the trade agreement. How will any of the agreements really work and be enforced. (This is the topic I am most concerned about as it takes skilled players to make it work. We have not seen many of these.)
5. Cheating is to be expected. How will it be handled?
6. The new or refurbished plants will eventually produce excess capacity.
7. If the dream becomes the world we live in, will it be a less artificial world than we live in today? Can we handle it?
8. The time to complete the process, if it fails, will be short. The Smoot Hawley Tariff ended three years after its passage. If the process succeeds, it is likely to take many years and different administrations.

 

I would appreciate your thoughts    

 

 

 

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

Mike Lipper's Blog: Increase in Bearish News is Long-Term Bullish - Weekly Blog # 882

Mike Lipper's Blog: Odds Favor A Recession Followed Up by the Market - Weekly Blog # 881

Mike Lipper's Blog: “Hide & Seek” - Weekly Blog # 880

 

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.