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
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Lipper's Blog: Short Term Rally Expected + Long Term Odds - Weekly Blog # 883
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Lipper's Blog: Increase in Bearish News is Long-Term Bullish - Weekly Blog #
882
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