Sunday, August 10, 2025

DIFFERENT IMPLICATIONS: DATA VS. TEXT - Weekly Blog # 901

 

 

 

Mike Lipper’s Monday Morning Musings

 

DIFFERENT IMPLICATIONS:

DATA VS. TEXT

 

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

 

 

School Solutions

As taught academically, the critical pivots in teaching both economics and security analysis are the numerical changes of a data series. However, as a long-term investor I am much more interested in the mood changes hinted at in textual renditions. While data precisely represents the past, text allows the reader/student to think about one or more different futures. This is why I believe philosophy or similar courses should include both economics and security analysis in their teachings.

 

Below is a brief listing of several data points describing last week (Implications italicized and discussed in parenthesis).

  • Year-to-date Stock Transaction Volume: NYSE 7.11% vs NASDAQ 37.30%

(Five times greater in the younger, more speculative market, even if some of the NASDAQ is inventory swapping among dealers. Speculation normally leads to extreme up and down prices)

  • Inflation Signals: The ECRI Index tracks industrial prices weekly and it normally moves gradually. Last week it rose +1.70%.

(I believe this was in response to the tariff news at the end of the week. Some market participants believe there will be industrial price increases soon).

  • Participants in the AAII sample survey are increasingly worried about a down market in stocks, but others are not.

(Comparing the bullish and bearish projections of last week with those 3 weeks earlier. Bearish projections rose to 43.7% from 34.8% 3 weeks earlier. Bullish bets only rose to 34.9% from 33.6% for the same period, suggesting bears see reasons to be worried while bulls do not. Only one will be right over the next six months.)

  • Equity mutual fund peer group averages +10%. Only one US Diversified Fund (USDE) peer group average has generated returns exceeding 10% year-to-date, multi-cap growth funds. Forty other peer groups have generated returns exceeding +10%, although they were less diversified.

(USDE Funds hold more assets than the other peer groups, which suggests being a holder of US equities was not a winning hand for most.)

  • Investors need to be careful that the earnings reported are not accounting constructions. The London Stock Exchange Group (LSEG) and I.B.E.S. estimate that the S&P 500 Index will report a +8.3% gain for the 3rd quarter. However, they further estimate that corporate net income will rise only +6.3% for the quarter. Thus, 24% of reported earnings will be attributable to buybacks and other accounting techniques.

(Investors need to understand what they are paying 20x-earnings or more for. Hopefully, operating earnings can be repeated while earnings created through accounting cannot.)

 

Conclusions:

There are lots of reasons to be cautious. Some reserves should be considered a hedge for future down markets. However, this hedge should be viewed as a temporary buying reserve until prices more appropriately reflect the long-term value of accepting normal risk.

To aid future generations of investors as well those today, security analysis and economics need to be taught with a fuller understanding that it rests on the strength of ever-changing language.   

 

 

 

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Mike Lipper's Blog: Rising Risk Focus - Weekly Blog # 900

Mike Lipper's Blog: Melt Up Not Convincing - Weekly Blog # 899

Mike Lipper's Blog: It May Be Early - Weekly Blog # 898



 

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Saturday, August 2, 2025

Rising Risk Focus - Weekly Blog # 900

 

 

 

Mike Lipper’s Monday Morning Musings

 

Rising Risk Focus

 

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

 

 

 

                 

Friday’s Four-Letter Word

In polite society we are encouraged to limit the use of four-letter words. This could be the reason we try to not use them in the financial world, which is a disservice to our performance analysis and investment achievements. Thus, I am dedicating our 900th blog to articulating the key to our investment survival, risk.

 

Risk is the penalty for being wrong, although it is also critical to winning. Without risk there would probably be no rewards for winning. As Lenin said, “There are decades where nothing happens; and there are weeks where decades happen.” It is possible last Friday was one of those weeks. After an extended period of “melt-up” from mid-April, stock indices, driven by a minority of their stocks, fell by large single digits or more. The media attributes the decline to employment.

 

Employment

Employment encompasses both large and small numbers of people, including us. The impact of employment is much broader than the number of people being paid to work, it influences both production and sales. (In the modern world published data does not include people who work without pay. Furthermore, there is no published data on the quality of the work done, nor the quality of those who wish to be hired. For current employers with open job positions, it is the absence of the last unknown factors which raises serious questions concerning the likelihood those open slots will soon be filled.)

 

One problem with the employment data is that only about 60% of the organizations report their numbers to the government on time, catching up in subsequent months. Thus, adjustments are normal. The current period includes the fiscal year ends for state and local governments, end of teaching year, and the federal government shrinking its totals. Regular users of this data probably understand these issues and adjust their thinking accordingly.

 

Bond Prices

Many businesses, governments, non-profits, and individuals generate insufficient revenue to pay for their purchases each and every day. To the extent they lack sufficient reserves of idle cash, they often borrow. Depending on their size and credit worthiness they will use the bond or credit markets. Unlike equity which has an indefinite life, bonds or credits have identified maturities. Consequently, the providers of cash are very focused on the short-term outlook of the borrowers. Each week Barron’s publishes a couple of useful bond price indices, consisting of ten selected high-grade and medium-grade bonds each.

 

Barron’s found another use for this data when they discovered that medium-grade bond prices rose more than high grade bond prices within a year of the stock’s price rise. Stocks decline when bond investors favor high-grade bonds. On Friday, high-grade prices didn’t move while medium-grade bond prices fell (yields went up). This is a negative prediction on the future of the stock market.

 

The negative view is understandable, many of these credits belong to industrial companies. Another source of information is the ECRI, which publishes an industrial price index which tends to move slowly. However, by Friday that index had risen 3.6%, which will increase inflation. (I assume it was the result of the announced level of tariffs.)

 

Questions

Has the Administration in their planning adjusted their expenses for the enforcement of tariffs? I wonder if we will see increased smuggling across our borders if the tariffs stay on for long? Are we increasing the Coast Guards’ budget?  How much will Scotch sales decline and Bourbon sales rise?

 

Please share your views.

 

 

 

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Mike Lipper's Blog: Melt Up Not Convincing - Weekly Blog # 899

Mike Lipper's Blog: It May Be Early - Weekly Blog # 898

Mike Lipper's Blog: Misperceptions: Contrarian & Other Viewpoints: Majority vs Minority - Weekly Blog # 897



 

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Sunday, July 27, 2025

Melt Up Not Convincing - Weekly Blog # 899

 

Mike Lipper’s Monday Morning Musings

 

Melt Up Not Convincing

 

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

 

 

 

Contrary Evidence Also Not Convincing

 

Low Transaction Volume, High Chatter

 

Short-Term Implications

 

  1. NASDAQ is breaking up. Up volume is leading, while more prices are down than up?
  2. Industrial commodity prices rose during the week, 115.8 vs 114.98 the prior week according to ECRI.
  3. AAII weekly bullish outlook is declining, 36.8%, 39.3%, and 41.4% over the last 3 weeks.
  4. WSJ weekly down prices seem strange. The worst was Natural Gas -12.71%, but the next worst was a -2.82% negative return. This suggests there were few negative prices. Natural Gas prices remained volatile, being up +7.57% the prior week.

 

Possible Longer-Term Implications

  1. Trump used construction costs for an already constructed Federal Reserve building to raise the costs of the new headquarters. Chairman Powell spotted it. Assume for the moment this was a honest mistake, it suggests that the President’s staff is lacking something. There have been similar mistakes, some of which were part of the reason the courts ruled against various executive orders.
  2. Charley Ellis’ column on David Swensen in the Financial Times listed some of the reasons for Yale’s outstanding long-term record. A long-term focus meant less liquidity was needed and analysis went beyond financial statements to management policies, and well-placed alumni which wasn’t mentioned. I tried to follow his approach.
  3. Most US Presidents have focused on managing the government and society as it was when they came into office. President Trump is the fourth president to make fundamental changes. (The others were Jackson, Teddy Roosevelt, and FDR.) Along with the other activists Presidents, the current occupant of The White House wishes to proscribe new ways of thinking to change our behavior. This is what our founders feared, the tyranny of the majority over the minority. Our Constitution and Bill of Rights have built in checks and balances. Consequently, I believe we are going to see more court actions for the rest of this term.

 

Implications?

I believe it’s going to be increasingly difficult to develop a long-term investment policy as we go through a period of attempted structural change.

 

What do you think?

 

 

 

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Mike Lipper's Blog: It May Be Early - Weekly Blog # 898

Mike Lipper's Blog: Misperceptions: Contrarian & Other Viewpoints: Majority vs Minority - Weekly Blog # 897

Mike Lipper's Blog: Expectations: 3rd 20%+ Gain - Stagflation - Weekly Blog # 896



 

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Sunday, July 20, 2025

It May Be Early - Weekly Blog # 898

 

 

 

Mike Lipper’s Monday Morning Musings

 

It May Be Early

 

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

 

 

 

A Usual Trap

A classic mistake in making future plans is focusing mainly on the present. In search of an investment policy for the next few years or longer, one should look at the causes of the main trends, not the size of the tariffs that have been announced.

 

The key force behind the announcements on tariffs is Donald Trump. His background is one of complex negotiations evolved from materially different views of how he sees the present and the future. I believe The President saw a critical problem of unfair trading terms facing the U.S. and saw a way to change the terms in favor of the country. He saw a way to solve the problem through meaningful discussion with the powers on the other side. The key was getting the right people around the table.

 

The core elements of unfairness are to be found in non-tariff trade barriers (NTB) erected by commercial interests with official or unofficial government support. (A number of examples were listed in last week’s blog, copy available.) While there is no published total of each country’s NTB effects, some experts believe their impact is twice the level of tariffs applied.

 

Mr. Trump’s way of dealing with foreign countries is to make the host nation an ally by using the size of US tariffs as a hammer. This is the reason behind the high announced tariffs, which is where President Trump expects the real bargaining to begin. I expect negotiations with major trading partners to take most of the summer. We may never fully understand the various changes to NTB’s, but a good clue will be changes to US tariffs.

 

Clearly there is another element to the aggregate size of the final US tariffs, the amount of cash expected to be paid to the US Treasury. This needs to be meaningful enough to keep the growth of the annual deficit acceptable to an unknown number of Republican Senators.

 

Most of these should be settled in the fall and early winter, so they do not unduly impact the mid-term elections. The economic background to the elections may be influenced by layoffs and the administration’s attempt to expand the economy. Additionally, further international actions may be the cause of how some state elections turn out.

 

The current crosswinds shown below may also impact the level of markets during this period:

  1. After a period of outflows, T. Rowe Price is cutting staff.
  2. Freight railroads are growing from China to Iran and Spain, for US continental trains, and other trains from Canada to Mexico.
  3. Tariffs may encourage smuggling.
  4. The latest weekly American Association of Individual Investors (AAII) sample survey showed a 39% positive and negative 6-month outlook.
  5. A study of structural bear markets shows the average breakeven to be about 9 years.
  6. The critical operating problems facing the US government is no different than those facing commercial and non-profit activities, a focus on effectiveness, not efficiency.
  7. Jaimie Dimon has shared the following thoughts:
    • Tariffs will be inflationary
    • US reserve currency status rests on military superiority
    • Markets are not low
    • Lessons can be learned from the turnaround of Detroit and problems created (and elongated) during the 1929 crash
    • Dollar weakness helps US multinationals 


As usual, I hope you will share your insights on the various thoughts expressed.

 

 

 

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Mike Lipper's Blog: Misperceptions: Contrarian & Other Viewpoints: Majority vs Minority - Weekly Blog # 897

Mike Lipper's Blog: Expectations: 3rd 20%+ Gain - Stagflation - Weekly Blog # 896

Mike Lipper's Blog: Analyst Calendar: Preparation for 2026 - Weekly Blog # 895



 

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Sunday, July 13, 2025

Misperceptions: Contrarian & Other Viewpoints: Majority vs Minority - Weekly Blog # 897

 

 

 

Mike Lipper’s Monday Morning Musings

 

Misperceptions: Contrarian & Other

Viewpoints: Majority vs Minority

 

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

                             

 

 

Every day through the popular press, pundits in or out of political positions express views that our current information will lead to a happy conclusion. Occasionally it will happen and contrarians like me acknowledge that it can and may happen, but the odds it will happen are only 30% to 50%, like the odds a favorite horse winning at the racetrack. By definition, the reward for winning will be the lowest of all horses in the competition. Contrarians can select a different horse with potentially higher rewards by choosing to wager against the majority.

 

Currently, it appears to this contrarian that it’s a particularly good time to take a contrary view of the intermediate period of the US stock market. The primary reason for this view is the bullish feelings presented in the popular press with such shallow thinking.

 

The US Stock Market is Going Up

The weekend press is full of similar statements because the Standard & Poor’s 500 Index (S&P 500) rose a small amount on Thursday. (This gain was given back on Friday when 390 S&P 500 issues declined. More significantly for the week, 54% of the stocks declined on both the NYSE and the NASDAQ.)

 

US Tariffs Announced

The President or White House Personnel announced import duty rates with a limited number of the countries, which in theory would slow the growth of the expected rising deficit. (The higher tariffs likely to be charged on exports from these countries is not known for an obvious reason.) The President is well versed on restrictions imposed on US exports by each trading partner, which are labeled as “non-tariff trade barriers”. These include the following list:

Administrative & bureaucratic border delays

Censorship

Foreign exchange & controls

Import deposits

Capital movement regulations

Licenses

Localization requirements

Standards

Quotas

“Voluntary” export restraints

 

I don’t know of any summing up of the cost of the above barriers, or others not identified. I have seen knowledgeable estimates that are roughly twice the size of the tariffs. President Trump started the whole discussion about tariffs to get high-level meetings with some of the “right” people around the negotiating table in order to deal with the “NTB” issues imposed by various individual countries. As this has not yet happened, I wonder if we have seen a final answer to both the tariff and non-tariff trade barrier issues.

 

Markets Are Not Waiting

Businesses and investors must execute global trades and make investment decisions every day in the absence of firm conclusions to these and other questions. The US dollar relative to other principal currencies has fallen about 12% in 2025, with more expected. This week, Barron’s quoted a participant saying, “The days of the world letting America live beyond its means are rapidly coming to an end.”

 

The Wall Street Journal (WSJ) publishes the price movements of various securities indices and commodity prices each Saturday. This current week 61% of the prices declined. It appears many purchasers of goods and services are not demonstrating an inability to act but are instead unwilling to transact under today’s conditions and outlook.

 

Please let me know what you are thinking.   

 

PS

Some of our subscribers may have known my brother Arthur, who passed away peacefully Sunday afternoon. He led a long productive life helping many people on both coasts and two oceans.

 

 

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Mike Lipper's Blog: Expectations: 3rd 20%+ Gain - Stagflation - Weekly Blog # 896

Mike Lipper's Blog: Analyst Calendar: Preparation for 2026 - Weekly Blog # 895

Mike Lipper's Blog: Inconclusive Week Hiding a Big Problem - Weekly Blog # 894



 

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Sunday, July 6, 2025

Expectations: 3rd 20%+ Gain - Stagflation - Weekly Blog # 896

 

 

 

Mike Lipper’s Monday Morning Musings

 

Expectations: 3rd 20%+ Gain - Stagflation

 

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

                             

 

 

 

 

3 ½ Day Trading Week

Normally, in a three and a half-day trading week we expect low volume and muted news of any significance to investors with less intense trading instincts and reduced staff levels. This was not the case this past week. Despite initial unruly Republican Party members in both Congressional houses, the so-called Big Beautiful Bill (BBB) tax and tariff bill passed with few amendments. Significant progress was made on reciprocal tariffs and possible trade barriers. Cease fire agreements in Gaza moved toward peace agreements. One suspects a Russian economic crunch, continued causalities sustained in the homeland, and the US threatening reduced US military aid to Ukraine, could hopefully lead to a reduction in deaths and soon become less of a distraction.

 

Trading Reactions

Led by favorable reactions to the passing of the BBB that were cheered on by The White House, many saw things getting better. These reactions stirred up bullish sentiments resulting in the S&P 500 Index reaching its first high for the year since February. Some even suggested 2025 could be the third +20% gain year in a row, a rare event.

 

Professional analysts and experienced economists are two-handed thinkers who don’t receive the same air or face time that advocates of simple tales do. First, the S&P 500 is a capitalization weighted index with a small number of highly valued stocks recording bigger gains than the average stock. An equally weighted index gained 5% less than the S&P 500. More importantly, at least to me, 9 of the 11 industry sectors in the index underperformed the overall index, with Info Tech and Communications doing better.

 

Economists often turn to the actions of corporate leaders for clues as they feel the stock market is too volatile and occasionally wrong in direction or magnitude. Currently, slightly less than half of publicly traded companies have announced employee layoffs going forward. Considering the cost and time spent getting qualified employees, cutbacks are an expensive strategy companies would like to avoid. Part of their problem is that they can’t find qualified new employees today, which means it is particularly painful to let good ones go. This is particularly true for companies with an aging workforce.

 

The lack of success in finding good new employees while keeping the better aging ones is in my mind not a cyclical problem cured by higher sales levels. It is a secular problem caused by the system we have built, which has failed us by confusing education with schooling. The problem starts in the home, often due to a single adult household, and continues on through early childhood education. The impact is felt all the way through PhD studies, with a system awarding promotions through test taking rather than productivity and intellectual integrity.

 

Historical Lessons

Perhaps we can learn from the past. With that thought in mind I recommend reading this week’s Barron’s article titled “The Coming Stagflation Won’t Feel Like the 70’s” by Joseph Brusuelas. I believe there is another parallel that should be considered, the US with an activist President and an accommodating Congress. Both the current occupant of The White House and FDR came into office seeking to make fundamental changes, but both ran into opposition from the courts. FDR took a recession and turned it into a depression, not by choice but in part due to the impact of stagflation. I do not necessarily agree with Joseph Brusuelas’ statistical projections.

 

What do you Think?      

 

 

 

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Mike Lipper's Blog: Analyst Calendar: Preparation for 2026 - Weekly Blog # 895

Mike Lipper's Blog: Inconclusive Week Hiding a Big Problem - Weekly Blog # 894

Mike Lipper's Blog: We may think we manage time, but time manages us - Weekly Blog # 893



 

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Sunday, June 29, 2025

Analyst Calendar: Preparation for 2026 - Weekly Blog # 895

 

 

Mike Lipper’s Monday Morning Musings

 

Analyst Calendar: Preparation for 2026

 

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

                             

 

 

Analysts should attempt to get ahead of the stock market. Starting next Tuesday, we are entering the second half of 2025. Using the performance of Large-Cap US Diversified Mutual Funds as a broad indicator of the experience of US investors, the first quarter of 2025 was relatively strong, but April’s second half was weak. Perhaps it was due to concerns about taxes, tariffs, and international turmoil. The Market slumped into June, then recovered through the final four weeks of the quarter, bringing average performance back to mid-single digit gains, with half in the last week, despite a 9% decline in the value of the dollar. Not a great foundation for the continuation of two 20% gaining years.

 

Starting next week, analysts will quietly begin gathering their thoughts on preparing forecasts for the next calendar year. For the most part they will not have the benefit of the proclaimed or quietly guided company estimates. The estimate for 2026 will be more difficult than prior years. Not only will there be comparisons of two 20% plus years, but it is also unclear what taxes, tariffs, and the value of the US dollar are likely to be. There are two other quandaries that should be addressed. We have entered a period where there is a shortage of necessary talent at companies. For tech companies there is a struggle to find AI personnel at prices approaching Wall Street levels. Industrial and service companies have approximately 400,000 open positions, despite many announcing plans to lay-off workers. To some degree, this speaks to the quality of present workers and their attitudes.

 

Another concern is the level of IPOs threatening private equity portfolios with unattractive opportunities to sell some of their holdings. These sales are necessary to raise sufficient cash to pay the dividends expected by present holders and retail buyers. Private markets could contract quickly, constricting private securities firms. An investment trend is normally near the end of its popularity when it becomes dependent on retail buyers.

 

The answers to these questions may not be determined in the third quarter. Even though the fourth quarter is the second highest selling period of the year, it may not provide quick answers for marketing forces expected to produce results.

 

It is possible the market may be saved through efforts in the unofficial “fifth quarter”, which can deliver either surprisingly good numbers or poor ones, setting up a splurge in the first quarter of 2026. These will rely on the increasingly popular “adjusted” sales and earnings per share numbers created through skilled accounting approaches. These are often approved by the firms’ accountants and are not objected to by the regulators.

 

The problem with this exercise is that it makes the following year more difficult for analysts and investors to understand the base for the real earnings power of the company next year.

 

Buyers be thoughtful.

 

 

 

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Mike Lipper's Blog: Inconclusive Week Hiding a Big Problem - Weekly Blog # 894

Mike Lipper's Blog: We may think we manage time, but time manages us - Weekly Blog # 893

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



 

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Sunday, June 22, 2025

Inconclusive Week Hiding a Big Problem - Weekly Blog # 894

  

 

Mike Lipper’s Monday Morning Musings

 

Inconclusive Week Hiding a Big Problem

 

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

                             

 

 

4 Day Summer Week

Two days of limited stock price gains and losses, with more stocks falling than rising. Market chatter was focused almost exclusively on the Israel-Iran war, with no Fed interest rate change. As usual from a long-term investor’s standpoint no attention is being paid to the continued destruction of the fundamental case for long-term investing. (Not surprisingly, this week’s American Association of Individual Investors’ (AAII) sample survey showed a shrinking six-month outlook for the “bulls” and an expanding negative view of the “Bears”.)

 

We have probably measured human productivity in business and non-profit organizations, including in academia and health care, since the beginning of human activity. Top-down, it has been declining for some time. To find the wasteful culprit accountants assigned organizational revenues and profits to various individuals. This was easy to do for front-line workers and senior management, but the middle of every organization was left out.

 

Left out were the human supervisors, often labeled foremen or middle management. In a period where top-line growth has slowed toward population growth, there is increased concern about human productivity levels. Since the swollen middle was not directly considered revenue or profit makers, their percentage of the workforce shrunk. As a society we are now paying the price for this lack of understanding of this value creation.

 

In far too many cases the supervisory class were the main purveyors of organizational culture, responsible for producing customer-oriented quality. There are hardly any organizations which have not experienced a decline in quality from the users’ point of view.

 

We are about to pay a higher price for this hollowing-out process as new activist management, particularly from the Washington quality culture, becomes a reality. This is especially true as thruput per person becomes the mantra and “AI” and other statistical measures are being implemented. With new activist leaders in Washington, I am worried many government and academic services will decline and to some not add value.

 

As fellow consumers, please share with me any services you receive from organizations that have improved recently.

 

 

Note: At this point we doubt the bombing of the nuclear sites in Iran will change much long term.

 

 

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Mike Lipper's Blog: We may think we manage time, but time manages us - Weekly Blog # 893

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

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



 

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Sunday, June 15, 2025

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?

 

 

 

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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



 

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Sunday, June 8, 2025

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





 

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Sunday, June 1, 2025

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



 

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A. Michael Lipper, CFA

 

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Contact author for limited redistribution permission.

Sunday, May 25, 2025

“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.