A Rush to the 1930s - Weekly Blog # 875

 

Mike Lipper’s Monday Morning Musings

 

A Rush to the 1930s

 

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

 

 

 

Historic Background

The President comes from a Brooklyn Democrat real estate family background. Many of his actions are similar to FDR’s moves in the 1930s. Like FDR, he is running into opposition from the courts. As with FDR, he wants to lower the value of the dollar. FDR raised the price of the dollar by 60% for non-US citizens and residents, the impact of which contributed to a worldwide depression and was a cause of WWII.

 

In the US

The job market is cooling, and the investment market is changing. As noted by George Gatch of JP Morgan Chase “more than half of total flows into the asset management industry comes from the wealth management segment which is now driven by brokerage firms shifting their sales forces to fee earning investment advisers from formerly registered representatives. While some of these advisers will manage this money through the dictates of the firms, a number of the advisers will act more independently”. (Whether this may increase the likelihood that these assets become more or less “sticky”, we will see.)

 

Equity markets in the US have become less homogenous than in the past. For example, in last week’s trading 48% of NYSE stock prices declined, while 52% declined on the NASDAQ. The volume of trading on the NASDAQ is about 7 times that of the “big board”. (This is a bit misleading as there is more intra-dealer trading to maintain position sizes in the over-counter market.)

 

Historically, one of the least reliable predictions comes from the American Association of Individual Investors (AAII) weekly sample survey. Over the last 3 weeks bearish investors have risen to 43% from 29%, while the bulls have dropped to 33% from 43% and are now a minority.

 

While we do not use commodities as investments, we do follow their prices, which are traded in very professional markets. Of particular importance is the price of copper, which has risen recently. This echoes the increase in the ECRI industrial price index, which rose this week for a +4.97% year over year gain.

 

An Unexpected Turnaround

Long-term investors often examine the potential for a totally unexpected turnaround. I have no reason to expect this change and can think of many reasons for it being improbable. However, the implications are so large that it is intriguing.

 

The two largest economies in the world are the US and China. Many believe the US will continue to grow for the foreseeable future. I have not seen any “expert” who is bullish on China. Nevertheless, through ancient times China was one of the wealthiest countries in the world. Many Chinese work hard and are world class business and intellectual leaders. The Chinese capital markets appear to be in disarray and are suffering meaningful deflation. I recognize that the level of trust between the two world leaders makes cooperation difficult, but the potential value of cooperation for both participants is enormous. Perhaps, our grand or great grandchildren will solve this rich puzzle.       

 

 

 

 

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