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.
Posts
No comments:
Post a Comment