Mike
Lipper’s Monday Morning Musings
On
The Way To
Casualties
& Eventually Riches
Editors: Frank Harrison 1997-2018,
Hylton Phillips-Page 2018
Current Situation
In the fog of the latest week there were a few possible
clues of changes and pronouncements.
- In November, US manufacturing activity contracted for the 9th month.
- After Friday’s close, an emerging market fund rose +4.99%.
- The value of the US dollar has fallen -6.16% year-to-date.
- Financial Times headline: “Wall Street expects double digit gains next year”.
- Apollo provided a glossy wrapper to the weekend Wall Street Journal, titled “What if the old financial playbook is costing you?”
- The Trump boom is comparable to past expansions, but not yet as big a percentage gain of GDP as the railroad boom of the 1880s.
Each of these bullets point to possible clues for the future, which should be examined by long-term oriented investors and their managers, as this blog will attempt to do.
The search for Investment clues
- While we have become a service-oriented economy with high dependence on the skills and attitudes of workers, politicians focus more on the manufacturing sector which has more unions and workers paying real estate taxes and buying lots of local supplies. Thus, manufacturing jobs are more important in Washington than in NYC. I suspect the re-shoring of manufacturing will probably be more automated and will have less employees. Consequently, office holders need to worry about ’26 and ’28.
- The real purpose of announcing tariffs was to force meetings with economic leaders to reduce non-tariff trade barriers. This has led to numerous currencies dropping more than the US dollar. (In my view, this is the wrong way to create more prosperity. We should be raising interest rates, so we are able to absorb the likely increase in bad debts, particularly those held by private capital. Higher interest rates will also raise foreign exchange rates, encouraging foreign lands to utilize more of our exports. A richer world is safer and better for us than a poorer one.)
- The “street” is predicting at least a 10% gain next year. This year the median US Diversified Mutual fund produced a year-to-date gain of +12.55% and an annualized gain of +10.12% for the five-year period, this is at least 2-3% better than the expected net income gain. The difference is the result of other income and stock buybacks. Currently, public polls suggest investors are not happy with the results.
- Bankruptcies are increasing, particularly in non-listed companies. Private capital raises money to invest in the equity of these companies or to buy parts of public companies. Some of the private-capital is sold to investors as an income producing asset, which often requires a periodic sale of some of their assets. In some cases, this has proven to be difficult because some of their holdings experience difficulties. (While there is some trading of assets between privates, the remaining assets need to be sold to listed companies. This may resemble the old game of musical chairs, where one or more of the ‘safe’ chairs are removed after each round. The remaining chairs will be purchased by the public market, so the private market is dependent on the public market in the end. My concern with regulators encouraging retail investors to put some of their retirement money in private vehicles is that they will be buying into troubled situations.)
- The comparison of the “Trump Expansion” with the railroad expansion of the 1880s could be accurate. It was a period of speculative, and in some cases fraudulent activities. Many new issues came to market competing with existing firms, which led to price wars and consequent bankruptcies. The era ended when JP Morgan and others recognized that too much competition was ruinous, resulting in rigorous rounds of mergers. Much money was lost and many communities lost rail service.
Conclusion
We have entered a globally different world. Investors need
to study carefully and invest for the long term, periodically choosing not to
invest.
Thoughts?
Did you miss my blog last week? Click here to read.
Mike
Lipper's Blog: Was it the week that wasn’t? - Weekly Blog # 917
Mike
Lipper's Blog: Recession/Depression Risk Assumptions - Weekly Blog # 916
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Lipper's Blog: Risks Are Rising Thru the Clouds - Weekly Blog # 915
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