Mike Lipper’s Monday Morning Musings
Three Worries: April, Near-Term Slowdown,
and Long-Term Euro/Asia
Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –
April’s Bear Market
Our last blog labeled the three most popular US stock indices with their media pundit titles, which now need to be revised based on this week’s performance. Using the size of the drop from previous high points:
DJIA -10.39% Correction
S&P 500 -13.82% Correction Continued
NASDAQ Composite -24.18% Bear Market*
*From 11/12/21 Peak
While the two more senior historic indices have not confirmed a bear market, retail sentiment for the next six month is extremely bearish. The American Association of Individual Investors (AAII) latest weekly survey summary indicates a 59.4% bearish view. This is the deepest bearish percentage I remember. (As a contrarian who is often premature, I am looking forward to a rising market in the indefinite future.) There were 989 new lows for the week on “the big board” and 1570 on the NASDAQ. Investors should be alert to sharply rising stock prices the morning after a down day, where over-leveraged short positions were liquidated by custodians.
With short-term rates rising, borrowing costs have risen sharply and apparent levels of liquidity are drying up. Toward the end of the month a number of major companies reported earnings that were disappointments. This was due to lack of demand, excess inventory, supply shortages, and an unfavorable mix of workers with questionable skills and attitudes willing to work. Returning to the office is proving to be more difficult and expensive than many thought. No wonder many viewed April as a bad month.
Berkshire Hathaway - Annual Meeting, 1st Quarter, & Best Portfolio Analysis Lab
Berkshire hosted its first physical annual meeting in three years, publishing its first quarter report and providing insightful portfolio analysis. I regularly attend the annual conference, both as a portfolio manager of accounts owning positions in the Berkshire and personally as a long-term shareholder. I left Omaha with a number of insights I would be pleased to discuss privately with subscribers. The following are briefs of those views:
- The long-expected transition is underway, from an exclusive focus on speaking roles by Warren Buffett and Charlie Munger, to speaking roles by the two Vice Chairs. Additionally, there was the election of a couple of younger directors.
- The leadership of value-oriented stocks is slowing on a relative basis. In the first quarter, insurance operations and their investments produced poorer results. However, it was expressed that results would be better in the future based on greater use of technology and better training. Furthermore, the railroad needs to improve its results through better training and the possibly of only engineers on trains. While the remainder of the operations also produced acceptable results, some operations experienced supply shortages and slower sales than expected. It would not surprise me that some activities over inventoried, which led to first quarter sales being less than planned. Perhaps as a result, there were no stock buybacks in the month of April.
- Not surprisingly, investment losses were reported in the first quarter. As a partial offset to these declines, Warren Buffett purchased 9.5% of Activision for the company in an arbitrage operation. (The significance of this is that it was a replay of a formerly regular activity.)
- In a recent fund manager’s survey, the majority of portfolio managers favored value-oriented securities or loans for the rest of this year. The very current experience at Berkshire does not vigorously support the idea.
My personal conclusion is that Warren Buffett and Charlie Munger are managing the company as if it were a Trust for their and other long-term individual shareholders’ heirs, making Berkshire Hathaway a perfectly sound holding, but not necessarily attractive as a new position.
History Suggests Ukraine’s Invasion Purposes?
For centuries the European-Asian land mass has been the prize that militant leaders and religions have sought, with a passive and submissive Ukraine an important safeguard. Historically, Russians have believed that control of the continent was providence, first with the “Popes” in Rome, then Constantinople and finally Moscow.
Aggressive leaders - Genus Kahn, Napoleon, Hitler, and Putin believed it, as did students of geo-politics. Where does Ukraine fit in? To control commerce in the Black Sea there must be friendly powers on all its coasts controlling the wealth in the ground in Central Asia, which includes Kazakhstan, the former Soviet provinces, and Iran. The Russians already have a naval port in Syria to protect access to the Black Sea and trans-Asian pipelines. Turkey recognized this threat and recently prohibited Russian flyovers to reduce the strength of Russian forces in Syria. Kazakhstan is also worried. The other big player in the region is China. China sees itself as an exporter of both manufactured goods and some raw materials to their preferred markets in Europe and Africa. There are two transport routes, one through and around Africa and the other by train across Asia and Europe. With the potential for mile-long trains crossing what used to be Russian territory, safe passage is critical. You can see that if the Black Sea is not in friendly hands, the dream of a dominant Russia is dead. I may be completely wrong, but one can see Putin’s motivations.
Questions: Do any of these thoughts suggest different investment strategies to you?
Did you miss my blog last week? Click here to read.
https://mikelipper.blogspot.com/2022/04/on-way-to-bottom-weekly-blog-730.html
https://mikelipper.blogspot.com/2022/04/short-long-term-thoughts-weekly-blog-729.html
https://mikelipper.blogspot.com/2022/04/is-this-great-investment-era-ending.html
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