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.
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