Does One Market Day Matter? OR Does Market Unbalance Matter More? - Weekly Blog # 965

 

 

 

Mike Lipper’s Monday Morning Musings

 

Does One Market Day Matter?

OR

Does Market Unbalance Matter More?

 

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

 

 

 

The View of History Matters

Ask politicians or the media about the most important date in the US economy and almost all will say October 24, 1929, when the Dow jones Industrial Average (DJIA) fell -13.5%. This was the world-famous Market Crash. By December of that year the market had fully recovered.

 

The media generated the largest possible headlines for the global tragedy. Never mind that the US was in a slow-down for at least a year and the farm community for more. We were in a recession, but that wasn’t big news. Politicians saw the “crash” as a siren call to change the economy through government action. While they felt they were helping, they took a recession into a depression. The depression bottomed out in 1931, but it did not end until 1942 with WWII’s impact. Politicians, economists, and market analysts focused on the DJIA, the most well-known Wall Street indicator consisting of under 30 industrial stocks.

 

We could be repeating the same type of mistake today as an outgrowth of what happened in the market on Friday!! Look at the parallels, remembering that history doesn’t repeat but rhymes. Starting in 2025 there was an acceleration in the number of corporations moving their primary stock listings out of the New York Stock Exchange (NYSE) and into either the NASDAQ or the Texas Stock Exchange. Hilton Hotels, Walmart, and recently announced General Motors have moved or are moving from the NYSE to the NASDAQ where over 3000 companies are listed. The NASDAQ Composite outperformed both the DJIA and the NYSE Composite. (Due largely to many companies on the NASDAQ being involved with “AI” and having a relatively short history of popularity.)

 

We have been very conscious of this movement in part because NASDAQ is a stock owned in the retirement accounts we manage. Its recent performance makes it the best performance of sixteen stocks in the portfolio. The NASDAQ Composite has more stocks in it than both the Dow Jones Industrial Average and the S&P 500 and has produced more exciting performance than the older indices. I believe it could and maybe should become the major market indicator.

 

This view is now gaining credence, particularly since it dropped 2% on Friday while the DJIA and Russell 2000 showed gains. There are some politicians who want to change the rules of the game in favor of the “AI” complexes with their rich managements.

 

Two weeks ago, I was warned that the NASDAQ Composite had a chart showing a recent stock price bottom barrier of 29000. (Demonstrating I can be wrong it immediately gained close to 1000 points before retreating on Thursday and Friday. On Friday, the index broke materially below its former down price barrier. It must still drop a couple of hundred points to generate a confirmation signal indicating a major decline. If the market declines and earnings are sustained in the following periods, we will probably hold onto our positions. If prices drop 50% or more, we will probably buy more.)

 

I am aware of JP Morgan’s finding that 80% of expected funding is for “AI” data centers, leaving only 20% for other users of “AI”. There is a risk that a future group of politicians will follow FDR’s depression tactics of a deficit fix, which would be meaningfully over the current $41 trillion and rising.

 

As usual I plea for help from subscribers if you feel I am wrong. Your comments are most welcome.

 

 

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Mike Lipper's Blog: Turning Point? - Weekly Blog # 964

Mike Lipper's Blog: Penalty for Using the Wrong Indicators - Weekly Blog # 963

Mike Lipper's Blog: Headlines Are for Those Who Don’t Use Their Heads - Weekly Blog # 962

 

 

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Turning Point? - Weekly Blog # 964

 

 

Mike Lipper’s Monday Morning Musings

 

Turning Point?

 

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

            

 

 

The Way We Think

Our musings are essentially focused on the development of our thinking regarding the future direction of equity investing. Hopefully, this gives an early glimpse of the future, with the end-product being advice on whether to buy or sell stocks. To accomplish this result as an equity analyst I look for clues in the uncertain worlds of commodities, economies and global politics, particularly when they appear to be out of balance.

Too Much Good and Bad

One age-old characteristic is the excess of one force pushing other elements out of normal balance. Shortages and excess productive overcapacity create imbalances that cause market prices to dramatically move over time. Usually, one looks for shortages that drive market prices. Today, I believe we should look at the impact of a factor that is distorting normal balances too much.

 

Debt is the most out of balance concern in the world, particularly in the US. There is a record peace-time deficit and increased public investment in private debt, which has historically been borrowed by governments, universities, charities, businesses, and families.

 

With so much debt, debtors are being forced to raise interest rates to compete for sources of funding, increasing the size of their debt service payments. While this is bad for society, it is not the worst problem. What is much worse is the quality of debt being offered to those who are increasingly less schooled in debt management. A factor likely to lead to sudden default and/or late payments. When these problems come home to roost lenders will be short of the cash needed to meet their own needs.

 

The Crux of the Debt Problem

The critical issue is the borrower’s words proving to be inaccurate, either through dishonesty or naiveite. The borrower’s naiveite is often accompanied by the lender’s naiveite. Shouldn’t the lender be more careful with a borrower who does not have a long history of repayment, or a borrower counting on cyclical cash flow patterns being higher than expected tax payments or debt repayments.

 

I am not suggesting borrowers are totally naïve or impractical. We are in the 8 days of a bitterly fought election campaign, and politicians and media pundits don’t have pristine records forecasting payments and repayments. Market participants are somewhat aware of the problem and are demanding higher interest rates. Are they at the right level?

 

Are There Other Problems?

Investor actions are sending out warning signals. For the last two weeks, many days have seen more shares sold on down prices than up. On Friday, the NASDAQ Composite Index, home of most of the “AI” players, has pierced the 2600 support level it had been hugging. This was anticipated by the American Association of Individual Investors (AAII) with their declining outlook for the next six months.

 

These concerns are all classical market worries. However, there is a new concern that may be quite appropriate. The top economist for Apollo believes that “AI” has not deliver profits beyond the “AI” sector itself. (I wonder how reliable the forecasts of contracted customer revenue for new data centers will be. Will they produce sufficient profits to meet the cash flow needs of the centers and their customers?)

 

Now is the Time to Think About Market Gains

Market declines create opportunities, in some cases large ones. (Warning, Berkshire Hathaway is the largest stock in many of our client and personal portfolios. Consequently, you should be cautious in believing this forward-looking analysis, which could be wrong or take too long.)

 

Warren Buffett and Charley Munger assembled the largest collection of private and publicly traded companies. For the most part they picked well, but some of their investments were mediocre or worse. With new CEO Greg Able, the firm is gradually changing. He noted that some of their independent investments can profitably establish mutually beneficial links. To aid in these efforts he has installed a few executives to build alliances in anticipation of mammoth-sized payoffs in the future.

 

I see Berkshire undertaking a major housing effort that will build a series of differently priced housing communities supported by their own mortgage companies and a large real estate broker. The company will own one of the largest public utility groups, which can utilize nuclear power. Their railroad will benefit from efficient distribution of increased exports and imports. Foreign investments will grow and will be a good hedge against the value of the dollar. Finally, their stock portfolio is likely to benefit from their new investments and their companies in the financial sector, which looks like a sector that will undergo lots of change in the coming years.

 

As usual I appeal to our subscribers to teach me where I am wrong, I am willing to learn.

 

 

Did you miss my blog last week? Click here to read.

Mike Lipper's Blog: Penalty for Using the Wrong Indicators - Weekly Blog # 963

Mike Lipper's Blog: Headlines Are for Those Who Don’t Use Their Heads - Weekly Blog # 962

Mike Lipper's Blog: Are Changes Indicative? - Weekly Blog # 961

 

 

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A. Michael Lipper, CFA

 

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Contact author for limited redistribution permission.

 

Penalty for Using the Wrong Indicators - Weekly Blog # 963

 

 

Mike Lipper’s Monday Morning Musings

 

Penalty for Using the Wrong Indicators

 

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

            

 

 

Lessons from History

Louis XIV of France reigned from 1643 to 1715. Examine the “Sun King” and the dramatic changes wrought on France one hundred years after his death:

• He built the Palace of Versailles and commanded all nobles to live there. Being away from their ancestral homes and lands weakened their political strength and direct control of their lands.
• He built a very expensive Palace with monuments to himself.
• He moved the government of the country to the suburbs of Paris, which led to great difficulty in collecting taxes from Paris to pay for his frequent and expensive wars.
• The separation of the tax base from its expensive ruler was an important contributor to the French Revolution and ultimately Napoleon, who also conducted very expensive wars.

 

Hopefully; the US won’t follow a similar pattern.

 

Which May Be the Wrong Indicators?

Evidently, based on government numbers produced by understaffed personnel, few people in Washington DC believe the US economy is healthy and growing. (We have been cutting governmental research staff for several generations.) Economic expansion is only seen in “AI”, which is in part driven by government funding of wars and medical related expenditures. These expenditures are in part caused by faulty schooling. (We have deserted education in terms of health and morality for a long time)

 

The bulk of the remainder of the economy is not growing. An indigent population of workers is merely replacing those leaving jobs. Many stores and class “B” office buildings have vacancies or are completely empty.

 

The present government believes bombs alone solve problems with countries unresponsive to our desires. Historically this has not worked, except for nuclear bombs which create other problems.

 

Financial markets are increasingly responding to these issues. Last week the following data was put forth:

 

1. US retail sales grew at only 0.8% compared to an estimated 1.3%.
2. Sixty-seven percent of stocks traded on the NASDAQ market sold at lower prices last week, with only 18 of 1393 stocks rising in price on the older New York Stock Exchange (NYSE).
3. The American Association of Individual Investors (AAII) sample survey shows 41.6% anticipating a higher market in six months vs. 38.7% anticipating a lower market. Both numbers are about 1% lower than the prior week.
4. According to Barron’s, 12 European stock markets rose vs only 3 in Asia.

 

At least some people see a less rosy picture of the US market than those in Washington.

 

How do you see it?

 

 

Did you miss my blog last week? Click here to read

Mike Lipper's Blog: Headlines Are for Those Who Don’t Use Their Heads - Weekly Blog # 962

Mike Lipper's Blog: Are Changes Indicative? - Weekly Blog # 961

Mike Lipper's Blog: For Better Performance: Pick the Right Data - Weekly Blog # 960

 

 

Did someone forward you this blog?

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A. Michael Lipper, CFA

 

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Contact author for limited redistribution permission.

 

 

Headlines Are for Those Who Don’t Use Their Heads - Weekly Blog # 962

 

 

Mike Lipper’s Monday Morning Musings

Headlines Are for Those

Who Don’t Use Their Heads

  

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

            

 

 

Headlines on your screen or paper are sales pitches for a conclusion, not a review of the data. As we lose the largest asset we have - time, we often accept the pitcher’s conclusion and fail to review the facts, either because we are too busy or the pitcher’s conclusion coincides with our beliefs. Allow me to give you an example using the current state of the economy.

 

The biggest megaphone on the economy is the government, supported by those who have something to sell. These “bulls” either don’t know about the other side or choose to ignore the other facts. It is easy to do, especially when they control the media and sources of data. The government publishes most of the information that most believe. However, let me point out something Apollo said in a large newspaper wrapper, “the overwhelming majority of companies with $100 million in revenues are private”. This statement suggests that these companies have less than robust sales and are barely replacing well-trained employees that leave. My conclusion is supported by this week’s University of Michigan’s Consumer Sentiment Survey, which dropped to 46.3 from 48.1 last month. In New Jersey, layoffs of 50 people or more must be reported. Lately, I have noticed that major Pharma companies, which appear to be financially sound, are laying people off!

 

Publicly traded companies publish financial results quarterly and have financial relations and press support people to get the message out. Executives of public companies get bonuses on the performance of their stock, whereas executives of private companies do not.

 

Another example of an unbalanced series of headlines is the US winning the war in the Middle East. According to some reports we are running out of ammunition, our allies are being bombed, and another aircraft carrier is being placed in position for battle.

 

Debt and its Repayment

Very few people have any direct knowledge of the Great Depression, which was driven by an enormous increase in debt during the 1920s. Toward the end of the period the farm community and the fam banks were overloaded with debt, forcing a Republican President to pass the Smoot-Hawley tariff bill, which was later repealed. Today, US farm debt is at record levels and experts believe it may be undercounted. (Republican strength in the Senate resides within its midwestern senators, who are likely concerned about next month’s elections.)

 

Many governments rely on short-term bonds, the US government more than most others. With the deficit continuing to rise there is also some concern about the two biggest foreign countries holding our debt, Japan and China. We may find it increasingly expensive to sell our debt, an issue that appears to be an unpublished concern of our Treasury.

 

Conclusion

Read economic reports carefully and look for what is missing. Recognize events that parallel our history, they might lead you to conclude that our high rates are not high enough.

 

Share your thoughts so I can learn.

 

 

 

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Mike Lipper's Blog: Are Changes Indicative? - Weekly Blog # 961

Mike Lipper's Blog: For Better Performance: Pick the Right Data - Weekly Blog # 960

Mike Lipper's Blog: Are We Refighting the American Revolution? - Weekly Blog # 959

 

 

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Are Changes Indicative? - Weekly Blog # 961

 

 

 

Mike Lipper’s Monday Morning Musings

 

Are Changes Indicative?

 

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

            

 

 

Changes of Note

One rule of recon is to note any changes indicative of major transformation in the battle of survival. There are changes that I noted this week. These are not earthshattering, but could be indicative of either major changes, minor interest, or just possibly major importance. I ask my subscribers to reach their own judgement and hopefully share their conclusions with me.

 

The following list is in the order in which I found the changes, not the order of importance or the order of importance reflecting what the future might hold for us as investors.

 

Clues of the Future

1. Apple* is beginning its pay service in India. (Owned by clients and personally)
2. The Wall Street Journal publishes two sets of prices that it tracks.  The first is 118 items for the third quarter, with 53% going down. The second covers 72 prices for the week, with 74% falling. (Its significance serves to reinforce the Chairman of the Fed’s comments regarding the importance of shorter periods.) The ECRI reported a 1.6% decline in industrial prices for the week.
3. Both Nvidia and Tencent suggested that the price of certain long-term chips be used as an index to determine collateral for loans to data centers. (This suggests that debt levels have reached the point where lenders are running out of sufficient capital for loans.)
4. The yield of ten medium grade bonds tracked by Barron’s has reached 6%.
5. The costs to rebuild the Mid-East will be large, assuming the war in Iran is over.
6. Volvo reduced its estimate of car sales in both China and the US. (I have been increasingly thinking that the combination of the USA and China is going to drive the global economy.)
7. As of now there are only two of five SEC commissioners left. (The US government is missing lots of key people.)
8. For the week ended Thursday, only five of over 100 mutual fund sectors were positive, led by Japanese funds +1.74% and Dedicated shorts +1.60%.
9. The Kopernik fund finds value in Chinese pharmaceuticals, agricultural land, and Potash, among others.
10. Prudential is closing two of its office buildings by consolidating into its HQ and reducing staff. (They are not the only insurance company doing this, which suggests individual life insurance might be unprofitable for others.)
11. The Financial Times noted that “Mature market governments spend more on interest payments than the world is investing in “AI”, defense, and energy.

 

I am still expecting the next recession, if we are not already in one. There may even be an eventual depression if governments are not very careful.

 

Please share your thoughts with me so I can learn.

 

 

 

Did you miss my blog last week? Click here to read.

Mike Lipper's Blog: For Better Performance: Pick the Right Data - Weekly Blog # 960

Mike Lipper's Blog: Are We Refighting the American Revolution? - Weekly Blog # 959

Mike Lipper's Blog: Survival First, Before Growth - Weekly Blog # 958

 

 

Did someone forward you this blog?

To receive Mike Lipper’s Blog each Monday morning, please

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A. Michael Lipper, CFA

 

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For Better Performance: Pick the Right Data - Weekly Blog # 960

 

 

 

Mike Lipper’s Monday Morning Musings

 

For Better Performance: Pick the Right Data

 

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

            

 

 

Kevin Warsh Right in the Beginning

One of the first substantive moves made by the new Chairman of the Federal Reserve Board was recognizing that the Fed has historically focused on the wrong data to predict the future movement of interest rates. Our fraternity of market followers and predictors (analysts and portfolio managers) have enshrined various indices as guideposts to the future. Unfortunately, both the Fed and “The Street” have used the same or similar indices, which largely rely on Federal Government produced data. Chairman Warsh recognized these indices were not particularly useful and feels it’s time to consider adding other data points, both for the Fed and “The Street”.

 

For probably three generations, the amount of money devoted to the gathering of economic activity has been declining on an inflation adjusted basis. The decline was accelerated by the current administration through the brief Doge period by paying a premium for retirement in various agencies. Much of the data was gathered by low-income people in various companies, which led to late filings and inaccuracies.

 

What Would Be Better

Since the beginning of time market followers have looked at what people bought in the way of goods & services and how they invested their money. Many of these approaches are still useful today to get a feel for the temperature of supply and demand and to see how investments and savings are taking place. I find this approach useful in determining the probability of future price movements.

 

These Are the Items I am Following

• What are companies currently doing that is uncharacteristic of what they did in the past. In the latest edition of Barron’s there is a brief article on three stocks we own for ourselves and clients: Berkshire Hathaway, Apple, and Walmart. (These are not recommendations, which should only be made with an understanding of the investor’s knowledge, experience, other securities held, and perceived needs.) Each of these companies is doing something new for them. Berkshire Hathaway is growing a collection of companies building housing communities at different price levels. Services provided by this collection of companies includes mortgage generation, real estate brokerage, and possibly a supplier of public utilities. (They have not announced an overall plan, but it is interesting that they are putting together this effort at a time when the housing market is depressed.)
• Apple’s new CEO is likely to produce new products & services, akin to what Steve Jobs did. While these new items may share some of the characteristics of existing products, they are likely to open new markets for Apple.
• Walmart is exploring the use of its communication relationship with grocery customers through paid advertising. Grocery customers are Walmart’s largest source of sales and this could lead to the largest and possibly its most profitable electronic advertising network.

 

Not all these new ventures will work, but the analytical key is examining the radically new ventures smart companies are undertaking.

• The bond market in terms of timing is ahead of the stock market. Most of this year the volatility of bonds has been greater than stocks. The bond market is structured around credit conditions and the central government is theoretically deemed to be the best credit. This is true most of the time as judged by those outside of its control, with its price relative to other currencies fluctuating on perceived inflation rate concerns. The US dollar has declined in purchasing power due to inflation, as have most foreign currencies. One measure of purchasing power is the price of gold, which in our lifetime has risen from its fixed price of $35 an ounce to today’s level of $4320.50. (Remember, prices can go up as well down. On January 1st, 1980 gold sold for $850 an ounce and by June 1982 it had fallen to $300.) Gold is nevertheless a good indicator of what the market believes the future price will be. For the 5 years ended last Thursday, the average gold fund gained +25.29% per annum compared to +17.52% for the average global natural resource fund and +10.37% for the average commodities’ fund. (If inflation drops to 2% or lower, the price of gold would be expected to drop materially). This could happen sooner than the market expects considering 61% of the 72 weekly prices The Wall Street Journal reports were down for the week.
• Chicken dinners are growing and beef meals are dropping at restaurants from McDonalds to high-priced dining locations.  Furthermore, the number of people in restaurants are declining, while some are closing.
• Investors sense that change is underway. In one collection of equity accounts investments have fallen by 3.5% since early September, while news from Washington remains positive. Psycho analysts tell us that people feel losses twice as much as they do gains. With me it is more like 3+%.
• We are seeing the number of people working in the financial community shrinking, and not all of it is due to “AI”.

 

Chairman Warsh Commented

Warsh awaits the reports from his five investigative committees due by year-end. He has noted that instead of the Fed paying attention to annual data, he sees change in periods as short as 3 months influencing future actions.

 

As usual I seek your comments so I can learn.    

 

 

 

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Mike Lipper's Blog: Are We Refighting the American Revolution? - Weekly Blog # 959

Mike Lipper's Blog: Survival First, Before Growth - Weekly Blog # 958

Mike Lipper's Blog: Are We in Normal or Historic Times? - Weekly Blog # 957

 

 

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Are We Refighting the American Revolution? - Weekly Blog # 959

 

 

 

Mike Lipper’s Monday Morning Musings

 

Are We Refighting the American Revolution?

 

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

            

 

 

People Unhappy with Both Major Parties

We act like very young children who protest when denied some little thing. Children, feeling denial is a retraction of parental or family love, then act out to express their hurt and confusion. These little children have matured into us, who express our hurt and confusion by communicating our perceived problems to the identified powers that be, political parties. We are no different than the brave people who came to a new land to fulfill their needs, feeling disappointed with the powerful people in the “old world” who withheld some old benefits they perceived they had.

 

The Issues Faced by American Settlers Are the Same We Face Today

Unhappy people have existed in many countries since recorded time, trying new government approaches to solve their unhappiness. Ancient Greece, Rome, and various city-states tried different approaches, but none lasted long.

 

The American Experiment

We were remarkably lucky that some of our leaders attended European Colleges or were readers of history. They knew of past failures to create governments that had hoped to produce long-term happy people. Unlike earlier attempts, leadership in the thirteen colonies were of different religions and backgrounds. Under British rule all mail had to go to England before it was delivered next door or to other colonies. Consequently, there was not a singular American thought pattern. This is why it took American leaders over twelve years from the Declaration of Independence to develop the US Constitution, and more importantly the Bill of Rights.

 

What Made the US Different is Not Totally Accepted by All Today

While we recognize the presence of the majority, our Constitution recognizes the existence of the minority, or multiple minorities who require their rights to be protected so they cannot be eliminated. The Constitution assumes and to some degree applauds a change in leadership, which increases the probability that legislation will be both a product of the majority and minority points of view. It is up to Congress to pass legislation. The Supreme Court and lower Courts determine if legislation is authorized under existing law and the Constitution. The President is elected to preside over the government, not function as an all-powerful commanding executive.

 

What Are Signs of Unhappiness?

For the last couple of weeks more stocks were sold at declining prices than bought at higher prices. (Investors only accept lower prices when they are displeased with their holdings.) In the current week, 70% of New York Stock Exchange (NYSE) listed stocks declined vs 60% of NASDAQ stocks. In the latest weekly sample survey of the American Association of Individual Investors (AAII), 53.3% were bearish for the next six months vs just 28.8% bullish. Using the average year-to-date investment performance of mutual fund sectors, Commodity funds were +26.78%, World Equity funds +13.26%, and US Diversified Equity funds +11.00%. (Clearly showing domestic inflation has investors worried.)

 

Both US Courts and many Foreign Governments are unhappy with the current administration. We will see this coming week if attendance at the United Nations meeting in New York is lower than expected. Also, this week, Chairman Xi meets with President Trump. Will that change other countries’ attitudes toward the US?

 

What are Your Thoughts?

 

 

 

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Mike Lipper's Blog: Survival First, Before Growth - Weekly Blog # 958

Mike Lipper's Blog: Are We in Normal or Historic Times? - Weekly Blog # 957

Mike Lipper's Blog: Is the Volatility of Data in Hiding? - Weekly Blog # 956

 

 

Did someone forward you this blog?

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Contact author for limited redistribution permission.

 

Survival First, Before Growth - Weekly Blog # 958

 

 

 

Mike Lipper’s Monday Morning Musings

 

Survival First, Before Growth

 

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

            

 

 

Historic Lessons

The increase in current money is mostly generated by enthusiastic people who are likely to have difficulty surveying basic lessons from the cyclical world. The trick is to know which horse you are riding. Very few investors can seamlessly at once move from one horse to another without being on uncertain ground at times. That is why I recommend a working transition plan that starts with building a buying reserve capable of fluctuating in response to your view of your own situation and the price levels of specific securities.

 

Where Are We Now?

I don’t know, but we seem to be much further along in the development of the enthusiasm fueling rising markets. During the shortened Labor Day week, more stocks were sold than bought during the first three trading days. On Friday, we had a relief rally following a four-week period of small declines. Using equity mutual funds as a useful indicator, at least 85% of mutual fund sector averages fell through Thursday. There were only 15 sector averages that showed gains. Six sectors rose over 5% during the four-week period: Energy Commodities +12.80%, Agricultural Commodities +9.43%, General Commodities +8.67%, Latin American Stocks +7.82%, Precious Metals +7.54%, and Managed Futures Alternatives +5.04%. (As a group they gained from investors nervous about currencies, including the US Dollar.)

Nevertheless, there was still more enthusiasm on the NASDAQ than there was on the NYSE last week, which had 26% of its stocks rising compared to 22% on the Big Board. There was a similar patten for New Highs, with 4.1% on the NASDAQ vs 3.7% on the NYSE. (Clearly, there are a greater number of “AI” related stocks listed on the junior exchange.)

 

Building a Buying Reserve

Every investor likes the securities they hold, but unlike our children, grandchildren, and great grandchildren, we can and should rank the relative attractiveness of what we own. A position which has not recently risen should be questioned, particularly if it is selling below the price paid by a long-term corporate buyer. In terms of the rest, put what you own on a list to gradually reduce by at least 30% and up to 50%. This is particularly true if you expect to gain 10% or less over the next year from today’s price.

 

What To Do with the Reserve Cash?

Today, unless you are a skilled fixed income trader, do not own any bonds longer than 2 years in maturity. Remember, the purpose of the reserve is to give you buying power when the opportunity is right. It is probable the sale of the fixed income buying reserve will lead to a small acceptable loss when you sell to free up cash to buy future big winning opportunities.

 

Until the general market breaks, if any new name added does not rise within the first nine months of ownership it should be sold. You can use the tax loss to reduce the taxes you incur by selling some winnings to add to your reserve. (You can repurchase the name 31 days later if there is a new reason to buy it.)

 

Please let me know if you like this approach so I can learn.  

 

 

 

Did you miss my blog last week? Click here to read.

Mike Lipper's Blog: Are We in Normal or Historic Times? - Weekly Blog # 957

Mike Lipper's Blog: Is the Volatility of Data in Hiding? - Weekly Blog # 956

Mike Lipper's Blog: Fears On a Quiet Summer Weekend - Weekly Blog # 955

 

 

Did someone forward you this blog?

To receive Mike Lipper’s Blog each Monday morning, please

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Copyright © 2008 – 2026

A. Michael Lipper, CFA

 

All rights reserved.

 

Contact author for limited redistribution permission.

Are We in Normal or Historic Times? - Weekly Blog # 957

 

 

 

Mike Lipper’s Monday Morning Musings

 

Are We in Normal or Historic Times?

 

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

            

 

 

The Single Most Critical Job

In thinking about the investment future, the critical job is guessing what the near future will be like compared to the past. Is the next period going to be like the last five or ten years, or possibly the downfall of the leading country of the world?

 

In trying to ponder ways of thinking about the future, it starts with an admission that I don’t know what the investment future will be. The second admission is acknowledging that I do not know what global changes will occur that have not existed in the world. For example, the discovery of the new world, the harnessing of electricity, and developments in the medical world. However, a study of human history and some understanding of geology can be useful.

 

Everyone has their own way of thinking about relevant financial behavior, whose models often parallel most others. I have devoted an adult lifetime to the analysis of the investment performance of mutual funds, with emphasis on those offered for sale in the US. These funds were used by a large portion of the American investment public and were something of a model for investors from other countries.

 

The US Experience

The largest portion of mutual fund money is invested in 8,162 US Diversified Equity Funds, with total assets of $20.7 trillion dollars. This group excludes narrowly focused specialty equity funds, overseas funds, fixed income funds, and commodities funds. Over the last five and ten years through last Thursday, the average investment performance including reinvested capital distributions was a gain of +8.26% and +11.09% respectively. These periods included relatively mild recessions and no depressions or global wars. Looking at longer periods, these results were better than average.

 

These results repeated over long periods have met the retirement needs of individuals and institutions for capital investments. They delivered good results which hopefully will continue, although I doubt it.

 

Historical Long-Term Lessons

President Trump will soon meet with Chairman Xi again. The last time they met Xi asked, “Can China and the US overcome the Thucydides trap expressed by the ancient historian and general Thucydides?” The Thucydides trap is the point at which financial and military costs exceed the productive capacity of the domestic economy, which is what led to the fall of the richer Athens over Sparta.

 

Is the US Approaching the Trap?

The Federal debt has reached $40 Trillion, with two war efforts by the US. This weekend Russia recognized its problem by entertaining into high level negotiations with US officials to resolve some unclear proposals for peace in their war with Ukraine. Both Russia and China are supporting this expensive battle, as is the US.

 

The current US debt expansion is causing European and other countries to reduce their ownership of US dollars. This weekend, Norway is reducing its holding of dollars by $17 billion. The dollar is slowly losing value relative to UK Pound Sterling and the Euro. In addition, private US debt is increasing through private debt channels. (When retail investors are enticed to buy investments that are new to them, it has not led to an extended period of gains.)

 

Investment Advice

While there are some positive signs, it would be wise to be careful. An important size buying reserve could be useful.

 

 

 

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Is the Volatility of Data in Hiding? - Weekly Blog # 956

 

 

 

Mike Lipper’s Monday Morning Musings

 

Is the Volatility of Data in Hiding?

 

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

            

 

 

Looking at the Unhelpful Data?

When stock market followers looked at stock price volatility during the summer they saw relatively low volatility. Thus, they think not much is going to happen that will cause prices to gyrate. As is often the case, they are possibly looking at significant changes in several fluctuations.

 

Below is a list of potential change agents that occurred this week:

• Changing national strategic alliances
• Over half of US stocks fell this week
• AAII sample more negative
• Iran’s plans
• Savings rates in US and China
• 3 vs 12 months

 

Strategic Alliances

Countries and societies are changing alliances, impacting their level of support in the future. This weekend, Iceland will vote on whether they should re-engage with Europe and be less reliant on the US. Similar feelings are being expressed in numerous countries, which are trying to determine the price of dependence on the US. The armaments business is likely to grow.

 

Over Half of US Stocks Declined

Fifty four percent of NYSE listed stocks and 58% of NASDAQ stocks fell this week. Only 5% of NYSE stocks and 13% of NASDAQ stocks hit a new high this week, with the NASDAQ reaching its highest price for the year. From an employment viewpoint this raises some questions. The American Association of Individual Investors (AAII) survey showed only 32.9% of participants being bullish for the next six months vs 35.5% bullish the prior week.

 

Iran’s Plans

Apparently, the Iranian leadership believe that they are winning the war and are using the low level of fighting to expand domestic counter- intelligence. (I wonder if this suggests an increase in secret subversive activity in the US and other countries?)

 

Imbalance of US and Chinese Savings Plans

According to Greg Ip in Saturday’s WSJ, the US level of savings is insufficient and is causing us to rely on increased debt levels. In China however there is too much savings, which keeps the amount of debt down and creates a problem of low import prices for many western countries. These trends reversing would be good for US companies already selling into China, like Apple*. (* Held in personal and client accounts)

 

3 vs. 12 Months

Fortune Magazine’s newest contributor is George Calhoun, an entrepreneur turned professor who also serves on board committees at the Stevens Institute of Technology, where I also serve. He raised the question of the Federal Reserve relying too much on 12-month numbers (produced by the government) vs 3-month numbers, or shorter. The markets react much faster than in even the shorter period. (I believe the new Chairman of the Fed has a somewhat similar view)

 

As usual, I would like to hear from you so I can learn.

 

 

 

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Mike Lipper's Blog: Fears On a Quiet Summer Weekend - Weekly Blog # 955

Mike Lipper's Blog: What Could Go Wrong? - Weekly Blog # 954

Mike Lipper's Blog: Are History & Economics Books Closed? - Weekly Blog # 953

 

 

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Fears On a Quiet Summer Weekend - Weekly Blog # 955

 

 

 

Mike Lipper’s Monday Morning Musings

 

Fears On a Quiet Summer Weekend

 

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

             

 

 

Is Disruption Ahead?

A quick late August trip to London to attend a great Proms concert by the Academy of St. Martens in the Fields in London seemed like a good idea to us earlier in the year, as not much happens in late August. As is often the case, I was proven wrong when a few worries raised their scary head this week.

 

Potentially the Biggest Problem

The self-appointed job of this blog is not to precisely predict the future, but to consider issues that may happen which few investment professionals are focused on. My concern for the repayment of debt in a rising interest rate environment is rising. Among my concerns are the sharply increased funding of data centers, wars in Iran and Ukraine, and the budding desire for retail investors to provide funding for new private ventures, both on earth and in space.

 

I do not know the level of care and consideration the corps of young financial bankers and their associates are performing, nor the experience of the investors they are interacting with. What concerns me is that few players have experienced a significant recession, and only a tiny fraction of the buyers of this paper have any knowledge of a depression. Morgan Housel states in his book Psychology of Money, “some lessons have to be experienced before understanding”. Few people appreciate the possibility of some loans not being repaid with interest on time when due. While I don’t know the conditions of every loan made by individuals, companies and governments, I do know that higher interest rates make it more difficult. On Thursday, Guggenheim Partners’ $1.2 Billion loan traded at $0.78 vs $0.96 the week before. (Price declines happen when the market recognizes that repayment of the loan on a current basis becomes questionable. How many other loans will be similar? I remember this kind of paper eventually selling substantially below $0.50 in a brief discussion of bankrupt investments in Professor Dodd’s class in the 1950’s. Graham & Dodd are well known for writing Security Analysis in 1934, one of the most respected investment books ever published.) The ECRI Industrial Price Index rose to 142.74 this week from 141.60 a week earlier. Considering the Index has risen 25.93% on a year over year basis, one would expect to see more distressed loans.)

 

This week, the Secretary of the Treasury more than doubled the purchase of 10-30-year US Treasury bonds on offer in reaction to the 30-year yield rising significantly above 5%. Some have already said that Bessent is putting a Band-Aid over a bullet hole. After declining following the Bessent intervention, rates have risen again. Increased rates are likely to make borrowing more difficult or expensive for the data centers, mortgages, and individuals. Prior to this announcement, the American Association of Individual Investors (AAII) sample survey raised its six-month estimate by 0.8% and its bullish projection by 2.0%. Their bearish projection is now 4.5% higher than their projected bullish guess.

 

Some Other Quotes from Morgan Housel

• Nothing is as good or bad as it seems
• Earth has on multiple occasions been covered with water. (Geology is a good history teacher)
• Snow White made up for 400 losing cartoons.
• No one makes good decisions all the time.
• Wealth is what is left after taxes and expenses you don't see.
• Wealth is accumulated after spending.

 

What do You think?

 

 

 

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Mike Lipper's Blog: What Could Go Wrong? - Weekly Blog # 954

Mike Lipper's Blog: Are History & Economics Books Closed? - Weekly Blog # 953

Mike Lipper's Blog: Dead Cat Bounce > Last Chance - Weekly Blog # 952

 

 

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What Could Go Wrong? - Weekly Blog # 954

 

 

 

Mike Lipper’s Monday Morning Musings

 

What Could Go Wrong?

 

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

 

          

 

To Predict is to Accept the Risk of Being Wrong

I read “The Psychology of Money” by Morgan House, which an investment friend suggested I read. The book suggests that the first task is to properly understand that most people view the future through the lens of their personal experiences in their early years. I try to broaden out my early experience of being born in the middle of the depression to a subsequently divorced working mother. Additionally, I’ve spent a great amount of time reading the history of many countries and cultures.

 

My view of the future is also influenced by my enjoyable time at New York racetracks, where I tried to end most days with more money than I started with. In essence, that meant comparing the posted odds versus the probabilities of winning, or at least coming in second, which has its own pool of bets that pay off separately. To accomplish that goal, I needed to guess what could go wrong for each of the horses in the race. I had to accept that the payoff was reduced by the track taking a portion of the winnings, along with various taxes and other expenses. The track-payoff was therefore less generous than the mathematical odds presented. Nevertheless, there was the occasional opportunity to leave the track with more money than when I arrived.

 

Using this approach, along with what I learned from both teachers and other students at Columbia University, I developed an understanding of the chance of specific future outcomes for various investments. The first thing I learned was to eliminate most securities, most of the time. (This was like Warren Buffett’s three sorting boxes of yes, no, and too difficult.) The formation of my investment philosophy evolved from these experiences, allowing me to earn more profits over time than losses taken.

 

Next Major Downslide

A study of financial history, and geology through the study of rocks, reminds me that we are always subject to up and down cycles, which come at irregular times. Since the earliest time humans have attempted to find a reason for the cycles, either through supernatural causes, the elements Gods, or men.

 

I begin with the view that the up and down slices of cycles are in part a reaction to past opposite extremes, as well as new elements. We are facing both today. The most frequent human reaction is the funding of expansions. Initially, expansions are paid for by the reinvestment of past profits, either by savers or revenue generators. Downslopes are often caused by the unexpected requirement to pay back loans, like the type described in William Shakespeare’s “Merchant of Venice”, which may have been a comment on Tudor spending.

 

My analysis suggests that the growth of debt is a general precursor to a depression. We may be in such a phase now, considering the combination of recognized and unrecognized government debt and the growth of private debt supplied by retail investors. This may be the reason the 30-year US Government Debt auction reached a level this week not seen since 2001. It may also suggest that foreign investors need higher rates to accept an increasingly unpopular government.

 

Typically, an event brings these types of worries forward. Perhaps something like this week’s announcement of the quick sale of the Los Angeles Lakers to cover other financial problems. Broader and more distressing to me is T. Rowe Price’s statement that it will take a couple of years to stem the net redemptions of their passive fixed income funds. The final sad note is an IBES projection that the net income of the S&P 500 will only rise by 0.3% a year from now at the end of the second quarter of 2027, before rising 17.3% the following quarter.

 

Since we are approaching 90 years since the last depression, the odds maker in me thinks the odds of another Depression is increasing.

 

What do you think?   

 

 

 

Did you miss my blog last week? Click here to read.

Mike Lipper's Blog: Are History & Economics Books Closed? - Weekly Blog # 953

Mike Lipper's Blog: Dead Cat Bounce > Last Chance - Weekly Blog # 952

Mike Lipper's Blog: Long-Term Money Via Telescope, Not Microscope - Weekly Blog # 951

 

 

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