This Was the Week That Was, But Not What Was Expected - Weekly Blog # 861

 

Mike Lipper’s Monday Morning Musings

 

This Was The Week That Was,

But Not What Was Expected

 

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

 

 

 

 “Trump Trade”, An Artifact of History

No one really knows which of the new administration’s critical rules and regulations will become law. Both presidential candidates have announced and unannounced wishes, but both are unlikely to get another term. They will have little ability to help various members of Congress win the ’26 or ’28 elections.

 

Unless there is a one-sided sweep of both Houses for the same party, the odds favor majorities in the single digits. While the rest of the world might think Congressional leaders will be able to command political discipline, both parties are split into multiple groups depending on the particular issue. Furthermore, in the Senate there are members who see themselves sitting in the White House after the ’28 elections.  Looking beyond the intramural games of the next four years, there are two elements of news that should be of importance to those of us selecting assets to meet the needs of longer-term investors.

 

The Declining Dollar

The CFA Institute Research & Policy Center conducted a global survey of 4000 CFAs concerning the future value of the US Dollar. The survey was conducted from 15 to 31 of July 2024. They published their findings in a white paper titled “The Dollar’s Exorbitant Privilege” (This is what the French President called the dollar years ago.)

 

A supermajority of respondents believe that US government spending is not sustainable. Only 59% of US Treasury investors believe the US can continue to borrow using Treasuries. (I remember there was a time when we created a special class of Treasuries for the Saudi Arabia, with an undisclosed interest rate). Neither of the two Presidential Candidates have announced any plans to reduce the deficit and both are unannounced pro-inflation. The respondents expect the dollar to be replaced by a multipolar currency system no later than fifteen years from now.

 

Some investors already recognize the risk in the dollar. Bank of America’s brokerage firm noted this week that 31% of their volume was in gold and 24% in crypto, as a way to reduce total dependence on the dollar. One long-term investor diversifying his currency risk is Warren Buffett. After doubling his money in five Japanese Trading companies, he is now borrowing money in Yen.

 

Berkshire Hathaway’s 10Q

As a young analyst I became enamored by their financial statements, long before I could afford to buy shares in Berkshire. In the 1960s I felt a smart business school could devote a whole semester to reading and understanding the financial reports of Berkshire. It would teach students about equity investments, bonds, insurance, commodities, management analysis, and how politics impacts investment decisions. (It might even help the professors learn about the real world)

 

On Saturday Berkshire published its third quarter results with a relatively concise press release, which was top-line oriented. As is required by the SEC it also published its 10Q document, which was over fifty pages long. Ten of those pages were full of brief comments on each of the larger investments. This is what hooked me, although I could not purchase most of their investments because they are not publicly traded. Their comments were in some detail, covering sales, earnings, taxes paid, expense trends, and management issues. The comments gave me an understanding of how the real economy is working. (Along the way I was able to become comfortable enough to buy some shares in Berkshire, and it is now my biggest investment.)

 

The latest “Q” showed that in nine months they had raised their cash levels to $288 billion, compared to $130 billion at year-end.  At the same time, they added $50 billion to investments. Perhaps most significant was that they did not repurchase any of their own publicly traded stock. A couple of years ago at a private dinner with the late and great Charley Munger, I asked him if I should value their private companies at twice their carrying value (purchase price + dividends received). Charley counseled me that everything they owned currently was not a good investment. As usual he was correct. In this quarter’s “Q” there were a significant number of investments that declining earnings or lost money. (I still believe they own enough large winners on average where doubling their holdings value would be reasonable.) If one looks at the operations of a number of industrial and consumer product entities, they themselves conduct substantial financial activities in terms of loans and insurance.

 

Is Warren Buffett’s Caution Warranted?

Some stocks have risen so high that they may have brought some gains forward, potentially reducing future gains. One way to evaluate this is to look at the gains achieved by the leading mutual fund sectors: Total Return Performance for the latest 52 weeks are shown below:

 

Equity Leverage       61.16%

Financial Services    46.38%

Science & Tech        44.13%

Mid-Cap Growth        41.28%

Large-Cap Growth      40.30%

 

I don’t expect all to be leaders in the next 52 weeks, as the three main indices (DJIA, SPX, and the Nasdaq Composite) have “Head & Shoulders” chart patterns, which often leads to a reversal.

 

Question: What Do You Think?

 

 

 

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Lessons From Warren Buffett - Weekly Blog # 852

 

         

Mike Lipper’s Monday Morning Musings

 

Lessons From Warren Buffett

 

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

 

 (Many subscribers will receive this blog on the regular Monday schedule, but some distributors are taking Monday off, so you may not see this blog until Tuesday.)

 

 

As Often the Case, Media and Other Pundits Missed the Opportunity to Learn 

The August 29th New York Times headline stated, “Berkshire Hathaway Hits $1Trillion in Market Value”. However, the headline was essentially a current events piece, which missed an opportunity to plum Mr. Buffett’s actions. In so doing, they learned no lessons from his current and historic activities derived from an extremely successful professional investment career. 

 

Caution: Bias at Work 

Berkshire Hathaway is the largest position in my personal accounts. Perhaps more significantly, I share a responsibility with Mr. Buffett, I manage money for personal accounts. We are not managing money for our own benefit, but for our heirs. In my case, it begins with starting to care about the fourth generation. 

 

This orientation leads to largely investing strategically, which means positions are permanent unless conditions change materially. This desire separates Mr. Buffett and me from most professional/individual investors who are more focused on tactical approaches. Most investors react to sell signals, while we focus on disappointments as a need to re-underwrite. We hope to add to our holdings at cheaper prices while extending our holding period. 

 

Strategic Diversification 

Changes occur at different times for different opportunities, making it wise to take advantage of changes with different tools. While Buffet is always looking for lasting value, he has found a way to take advantage of these situations with different tools.

  

Berkshire was initially mostly a buyer of cheap stocks selling below book value, which worked reasonably well coming out of the depression. The focus changed to buying good companies at fair prices when Charley Munger came on the scene. As fairly priced securities became scarce and Berkshire’s assets grew, cheap assets were to be found in the private assets of whole companies. After a few mistakes they learned how to pick winners.

 

For many years the wholly owned companies were larger than the publicly owned and publicly traded companies. Within this collection of companies there were a few insurance companies, including GEICO and other casualty insurance companies. The primary attractiveness of these companies was “the float”, allowing for the use of client cash before it was needed to meet claims. The insurance assets grew, and they hired very talented people to underwrite very large risks. Most casualty insurers were risk adverse, but Berkshire looked at insurance risks as opportunities at very high rates. On balance the rates were larger than the risks, which allowed for large, long-term “floats”. The final, or perhaps the first type of asset was cash. 

 

Cash, the Intermediate Asset 

Most investors treat cash as the ultimate reserve asset, but not Warren Buffett. After segregating Berkshire’s $100 billion in US Treasuries, he devoted the remaining cash pile to acquisitions. Buffet recently sold 50% of his Apple stock and enough of his Bank of America stock to drive it below 5% of its outstanding stock value. He did not buy any of his own stock with the proceeds. (I suspect he has converted more of his assets to cash.) 

 

I have stated that these moves are the most “bullish” indicators I have seen. I don’t know whether this cash will be used for the acquisition of a private company or a publicly traded stock. I have been told he has made some offers, but he has been outbid. When the market breaks, his cash will become more valuable. 

 

Some other Buffet lessons are useful in building a picture of how his mind works: 

• Losing is part of winning 
• Cash is not king 
• It is okay to change 
• Buy businesses, not CEOs 
• Don’t buy art as an investment, buy it for pleasure 
• There is no such thing as growth or value stocks as Wall Street generally portrays as contrasting asset classes. Growth stock is part of the value equation. 

 

 

Question: Are you utilizing any of Buffett’s lessons? Which do you disagree with? 

 

 

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Reactions from a Contrarian - Weekly Blog # 814

 

Mike Lipper’s Monday Morning Musings

 

Reactions from a Contrarian

 

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

 

 

 

Surprises Pay More Than Consensus

Consensus, when right, is not highly rewarded. Contrarians are correct less than consensus suggests but they receive greater rewards. Over time, the bigger winners start out by being relative loners. With these guidelines, I review my reactions to media comments. (Remember, my absolute right to be wrong.)

 

The Indices are at yearly highs; therefore, we have entered a “bull market.”  Not necessarily! In some cases, these are not all-time highs. Additionally, the indices need to be measured in the most valuable currency in order to enter a new market cycle. Trading volumes are also not impressive. We live in a global world with the US dollar declining, so we ought to adjust the peaks and valleys accordingly.

 

Possibly the best summary of market moves comes from Bank of America, which describes it as emotionally bullish but intellectually bearish.

 

When the Fed pivots it will be a seminal event. Possibly, but odds are it will be late. For those predicting a pivot, they are like football fans calling the pivot wrong six times in a row. They could be right, but their odds are no better than 50/50.

 

There are at least three other reasons to question the timing of an interest rate cut.

1. The original ignition of the inflation fire was caused by the Administration pouring an excessive amount of cash into consumer’s hands and restricting domestic trade.
2. Congress pushed the responsibility for full employment to a bunch of financial economists at the Fed, which led to it becoming politicized.
3. Most importantly, the largest factor in the US economy is not the production of goods, it is services. In general, service providers don’t need to borrow money for capital expenditures and inventory.

 

Current Market Focus Does Not Address Long-Term Problems

Almost all the attention of market participants is focused on short-term events, which are expected to determine short-term results. Media performance reporting on minute by minute, day by day, week by week, and year by year results view this as the only essential reality. These short timeframes are essentially important to traders, but of little value to long-term investors.

 

Most money invested in the market is for retirement, or longer. The assumption ought to be that the average worker probably still has 25 years before retirement and a somewhat similar period in retirement. Many institutions can have indefinite lives. Thus, the things that are really important to these investors are actions impacting the long-term progress of their assets and liabilities.

 

One of the reasons good analysts and portfolio managers study history is to get an understanding of market cycles, which are caused by insufficient supply of goods and services in the minds of consumers and investors, followed by periods of too much excessive production. These trends take a long to very long time to evolve. However, their terminal stages often occur swiftly and rarely reverse.

 

Three Trends That Hurt Investors

1. Political skills are paramount over operating skills. Most large organizations are comprised of collections of people with different backgrounds and strengths. Those who rise to the top are most often chosen for their political skills, with less attention paid to their operating and investment skills. These leaders recognize that their positions have finite termination dates, so their decision process is relatively short-term, with little regard for long-term implications.
2. The costs of developing and maintaining military strength reduces the available supply for other funding. There are a relatively small number of nations with significant power. The US has historically cut military spending sharply during “peace time”, as it tends to fall behind the ambitions of autocrats. Considering the current crop of political leaders and their tendency to cut military spending after inflation. Today there is no large military power that has any respect for the current US power base. They however recognize our potential, much like Germany and Japan did prior to WWII, making the world an increasingly less safe place. The leaders of Western Europe recognize that they cannot defend themselves. One leading expert believes that Germany needs 30 years to build its own independent force to safely defend Germany.
3. By far the biggest threat to the US, both commercially and militarily, is our youth. Based on global test comparisons, US students rank below mid-point in math and not close to the top in reading and science. Remember, we probably have the most expensive educational system in the world. To protect professors the US government measures academic college success over six years. In the UK, the normal college period is three years.

 

 Other Items of Concern

1. John Authers, now at Bloomberg and formerly with the Financial Times, believes that we should expect US defaults, particularly of regional banks.  Altman Z scores are the lowest since 1987.
2. China has stopped publishing youth unemployment data. (This habit of putting out just positives raises more questions than answers.)

 

 

 

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Week Divided: Believers vs Investors - Weekly Blog # 762

 

Mike Lipper’s Monday Morning Musings

Week Divided: Believers vs Investors

 

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

            

             

 

You Are What You Read

Early last week US stock market indices rose gently. The pundits’ view inflation as having peaked globally, with “factory gate and commodity prices, shipping rates and inflation expectations have begun to subside”. The Federal Reserve is expected to reduce the acceleration of interest rates shortly.

 

Meanwhile, Washington was simultaneously trying to avoid a national rail strike by imposing additional costs on the railroads. These costs would be imposed on all using freight delivered by rail and would encourage others to raise labor demands, which if successful would lead to higher prices.

 

If there is going to be a recession, believers think it will be short-lived and shallow.

 

What causes Inflation?

Inflation is created by demand exceeding available supply. Rarely it is caused by free markets working on their own.

 

Our current inflation started with the last two Presidents who for political reasons flooded the economy with grants. These grants were beyond the immediate need of the unfortunate who required help. This approach is hardly new, it was implemented in ancient Greece and Rome and is still practiced in numerous countries today. These grants avoid the laws prohibiting bribery but encourage dependence on elected officials or parties.

 

On day one the current administration went even further by restricting supply. They first killed the pipelines then implemented regulations forcing providers to raise prices to cover government mandated expenses.

 

To avoid taking responsibility for inflation the Government turned to the Fed, utilizing it as a hammer to beat down the rate of inflation. The Fed was like a person given only a hammer to build a home, they only had the ability to use interest rates to curtail demand.

 

Business leaders eventually recognized that curtailed demand would likely lead to lower revenues and consequently started to cut back on their current and future labor force.

 

One example of this is the broker/dealer community. While an index of publicly traded broker/dealers is close to its all-time high, leading firms are laying people off. Evidenced of this can be seen in a recent statement by the CEO of Morgan Stanley. (Stock is held in our financial services fund)

 

This message is being read and acted upon. ADP in their latest survey indicated that private sector employment is at the lowest it has seen in two years. (Also held in our financial services private fund)

 

What Does the Data Say?

While both concurrent and lagging indicators are slowly rising, the leading indicator is dropping.

 

IBES, via Refinitiv, is predicting S&P 500 net income will show a -3.6% decline in the fourth quarter. The first three quarters in 2023 will be +0.7%, -0.9%, and +3.5%, respectively.

 

Bank of America’s reminds us that December will most likely be an up month. Nevertheless, they predict a global recession, the reopening of China, and re-shoring in Europe and the US in 2023.

 

Two Other Views

Market indices are being influenced by their leading components. The Dow Jones Industrial Average (DJIA) is the best performing index. It is both closest to its former high and has the biggest gain from its most recent low. The DJIA performance has been driven by its goods producing and selling companies, which are not normally its best investments.

 

The Standard & Poor’s composite index is market capitalization weighted. Something that is most useful to investment institutions managing large single portfolios, deemed to be high quality companies.

 

The NASDAQ Composite is now made up of companies that for one reason or another don’t list on the “big board”. In terms of the number of shares traded it is the largest stock exchange in the world, followed by the London Stock Exchange. The New York Stock Exchange (NYSE) is third on the list, but probably has more capital listed than others.

 

Nevertheless, the NASDAQ often leads the US and many other exchanges in terms of performance. Perhaps it is due to the fact that it has younger and faster growing companies. (We also own its shares in our financial services fund.)

 

I pay particular attention to NASDAQ performance compared to the NYSE. I noted with some concern that the NYSE had 89 stocks achieving a new high and 44 a new low on Friday. The NASDAQ had 97 new highs and 128 new lows. Since the NASDAQ has more listed companies, I am not disturbed by the number of new highs. Unless this is an aberration, the sharp difference in the number of new lows relative to the number of new highs could be a warning. I will follow carefully

 

One of the most thoughtful large mutual fund management companies is the Capital Group in Los Angeles. It has been investing beyond US borders for many years and summed up why in the five points listed below:

1. International investing is about companies not countries.
2. A strong US dollar won’t last forever. (Dropping recently)
3. Dividend opportunities are greater outside the US
4. New economy depends on old industries
5. Not all of the best stocks are in the US

 

This is why I believe it is prudent to have some money invested beyond US borders.  

 

 

 

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Mike Lipper's Blog: This Was The Week That Wasn’t - Weekly Blog # 761

Mike Lipper's Blog: Trends: Deflation, Stagflation, or Asian? - Weekly Blog # 760

Mike Lipper's Blog: An Informative Week with Many Questions - Weekly Blog # 759

 

 

 

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Weather, Market, Economic, and Political Forecasts have Similar Records - Weekly Blog # 744

 

 

 

Mike Lipper’s Monday Morning Musings

 

Weather, Market, Economic, and

Political Forecasts have Similar Records

 

 

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

    

 

 

Caution:

“Bears are the worst people to listen to at the lows, and bulls are the worst to listen to at the highs.” Bank of America Merrill.

 

Are you Optimistic?

For a number crunching experienced analyst it is much easier to be excessively skeptical than believing things will work out well. Please suggest ways I can be more optimistic in the future, as it has been too easy to be pessimistic for more than a year.

 

Two Big Stories of the Week

Far too much has been said or written about the Federal Reserve raising interest rates by 75 basis points and the Senate’s compromise tax bill. Analytically, all I wish to add are thoughts not discussed elsewhere.

 

In all the discussion of interest rates related to both inflation and recessions, two long-term critically important areas are not explored.

 

Most of the discussion has been focused on the size of the increase and its timing. More important is the historical need for recessions (Some of which were turned into depressions due to policy mistakes.)

 

Throughout recorded economic history there have been severe economic/market disruptions caused by known and unidentified imbalances not properly addressed in normal circumstances.

 

The present imbalances I perceive as not being addressed can be characterized by the lack of sufficient efficiency to produce satisfactory results, some of which are briefly shown below:

 

·    In the US there are roughly twice as many openings as there are unemployed, with 5% fewer participants in the work force. Among other factors this is the combined result of poor schooling and home training, plus unaffordable child-care.

 

·   Prospective employers can’t find workers. This is not just the result of insufficient formal “education”, but also work attitudes.

 

·   One example is healthcare, due to regulation resulting from tort lawyers and insurance payers. Unions also don’t help. We all pay for this.

 

·   Another example is the lack of an adequate Military force to defend our interests.

 

·   The final topic not discussed in the rate discussion, particularly when mentioning Paul Volcker’s name, is that he needed two recessions to break the back of inflation.

 

Turning to the new Tax bill, which in theory “balances” expenditures with tax collections. There is a classic problem of government paid workers versus some of the best highly paid tax accountants and lawyers in the world.

 

Dynamic forecasting is one reason weather, stock, economic, and political forecasters have difficulty on being correct in their judgements twice in a row. (Track bettors know how difficult it is to follow a winning bet with another winning bet in the next race.)

 

Luckily it did happen in World War II, when General Dwight Eisenhauer was given command of the largest amphibious landing in the history of the world. At the scheduled time of the main European landing the weather was poor. The German general’s staff of highly trained logisticians believed Ike would postpone the landing to later in the month of June. However, they did not take into consideration that Ike grew up on a farm in Kansas and spent many years as General Mac Arthur’s speechwriter in the Philippines, both of which experience sudden storms. Ike made the judgment to go ahead with the June 6^th landing. Although there were some difficulties, it established the Americans, British, and other Allies on the beaches before the Germans could reinforce their defenses. This proves that making a bet against the odds can win sometimes.

 

What Else Happened?

This week the New York Stock Exchange (NYSE) volume of up price transactions was approximately the same as those on the NASDAQ market, at 13 million shares. The big difference was the number of shares changing hands at lower prices, with the NYSE having 7.1 million and the NASDAQ 9.4 million. (As mentioned in these blogs, the NASDAQ players tend to be wiser traders, due to the absence of index players and to some extent wealth managers.) This could be viewed as a cautionary note.

 

Also, 95% of the stocks in the Dow Jones Transportation Index rose, while only 80% of the stocks in the DJIA rose this week. Typically, more professionals invest in transportation securities than the more popular industrials in the DJIA. This is perhaps a contrary positive indicator.

 

Remember:

 I want to learn why you are Optimistic.

 

 

 

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

https://mikelipper.blogspot.com/2022/07/beware-of-cheap-seek-fair-slowly-weekly.html

 

https://mikelipper.blogspot.com/2022/07/time-to-be-contrary-weekly-blog-741.html

 

https://mikelipper.blogspot.com/2022/07/mike-lippers-monday-morning-musings.html

 

 

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How Deep & How Long - Weekly Blog # 736

                                    

Mike Lipper’s Monday Morning Musings

How Deep & How Long

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

Concerns

Periods of low volume and relatively small moves are normally comforting and allow us to avoid making decisions. My biggest concern is that I may not see enough that is important and draw the wrong conclusions. 

As a contrarian and entrepreneur, I am normally at ease being lonely or a minority in my thinking. This approach has worked out reasonably well for me and my clients. I am increasingly concerned that several others, including some well-known leaders, are voicing similar concerns about the future of global markets and economies. Could we be talking ourselves into a bear market and recession?

Tea Leaves

The following are very brief comments largely from one of the most erudite market research departments in our business, Bank of America Global Research, supplemented by other insights:

1. The NASDAQ is up 11% from its May 20th lows, despite Brainard. (The Fed has flip-flopped back to hawkish), JOLTS were strong not weak, oil was up not down, there were CEOs pessimistic, Microsoft gave lower guidance, and Moody’s gave no guidance at all.
2. Oil prices are annualizing a 108% gain, surpassed only in ’99 during the TMT bubble and during the ’74 oil shock.
3. Will it be the Summer of Volcker, with the central banks just getting started and a “no fun” Fed till done?
4. Popularity of corporate high yield by issuers and investors.
5. Private clients want yield, quality, and growth defensives, in that order
6. The Bank of America Bull & Bear Indicator moved to extreme bearish, the lowest signal since June 20. (Even though brokerage commissions are currently small, transaction activity is good for brokerage firms.)
7. NASDAQ bears are ending as Quantitative Trading begins
8. Global food prices were up 30% for the past 12 months. Housing prices globally are sharply higher. For many, the increase in the “value” of their home equals their annual working income. Inflation is rising much faster than wages. We have the highest ratio of vacancies to “unemployed”. (Remember, some with “off the books income” are counted as unemployed).
9. Shadow banking’s strength through an economic decline can be questioned and may be expensive for the economy and borrowers.
10. There are some who believe the bottom has already been reached and tested. (Doesn’t seem correct)

My review of Barron’s weekly data I found of interest:

1.  While the number of shares traded on the NYSE and NASDAQ was similar, more shares were sold than bought for the week in each case. There was a distinct difference in the frequency of new highs and new lows on the two markets:

           # New Highs   #New Lows   # Listed

    NYSE        155         112         3611

    NASDAQ       64          38         5470

As the NASDAQ attracts a greater percentage of professional speculators, one might conclude that the week’s volume was generated more from public investors and wealth managers than public investors directly.

2.  This focus on the strength of the NYSE comes at the very time equal weighted performance indices are performing better than capital weighted. This is true for the S&P 500 and for 9 out of 11 sectors.

3.  The weekly summary of the American Association of Individual Investors (AAII) survey is a contrary indicator of market turning points. This week’s survey moved away from its extreme readings to a more neutral position, 32%/37% respectively.

Mutual Funds

The weekly performance of mutual funds often describes the forces driving the US markets. The table below shows the only 4 fund peer groups which gained 5% for the week ended Thursday, along with their performance for the latest 52-weeks and 5 years:

Peer Group        Week    52 Weeks   5 Years

Equity Leverage  +5.92%    -15.14%     +5.62%

China Region     +5.71%    -31.07%     +3.92%

Global Tech      +5.66%    -24.47%    +13.42%

Science & Tech   +5.46%    -16.01%    +15.15%

While the week’s performance leaders were close together, they were recovering from quite different depths. Additionally, the performance rank within group was a reversal of the performance for five years. This suggests short term performance is not indicative of long-term performance. I am a little surprised that the advantage of leveraged performance was not greater. The spread between the Global Tech Fund average and the more domestic Science & Tech Funds may be a function of the relative strength of the dollar, which is unlikely to continue indefinitely. 

Important 

The recent rise in the China Region reflects a recovery from Chinese lockdowns and an apparent change of attitude in Chinese political leadership. The last observation is worth following closely. We are seeing more tensions between President Xi and Premier Li Keqiang. There are several political factions within the CCP and most need to be allied with Xi for him to win an unprecedented third term. There will quite likely be some horse trading between factions, which may impact the attractiveness of investing in Chinese securities/funds, as well as in world trade.

Warnings

JP Morgan Chase and Goldman Sachs are the big leaders in global M&A facilitation and investment banking. Both the President of Goldman, John Waldron, and the Chair of JP Morgan Chase have issued warnings about difficult times ahead.

Inflation and Shortages

Evidently, we have been told there is disagreement within The White House and possibly some Cabinet members on how to address the rising level of inflation, believed to be caused by shortages. Some wish to stop price increases by lowering the demand bidding up prices. However, the way to lower prices is by increasing supply. 

At least half of current inflation could be reversed by withdrawing our restrictive energy policies and by reducing tariffs to help our lower earning population. 

Shortages beget other shortages and misplace consumer, industrial, and investment allocations. 

Election Bet

While the 2024 Presidential election is two years away, it is an appropriate time to guess its outcome and impact on investment portfolios. The general view is the 2024 election will be a re-run of 2020. If it were to be, then my guess is the election will turn on the political skills of the Vice-Presidential candidates, who will do more of the heavy lifting. The bet becomes more interesting if only one of the previous two candidates runs, as he and his party will likely lose. My best guess is congressional and big city leaders have too much to lose and will force some changes.

If there is not much progress addressing US problems, whoever wins in 2024 will win a “poisoned chalice”, as most of their time and effort will be spent attempting to rectify leftover problems. As someone who has invested in turnarounds, I believe a reasonably complete turnaround will take at least five years. 

From an investor’s viewpoint, this unhappy set of circumstances suggests the period will be marked by relatively low returns in the mid-high single digits. These results will permit many to retire carefully, but not with a cushion for emergencies or estates to pass onto children.

Please share your views. 

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

https://mikelipper.blogspot.com/2022/05/falling-confidence-beats-numbers-but-be.html

https://mikelipper.blogspot.com/2022/05/inconclusive-but-trending-lower-weekly.html

https://mikelipper.blogspot.com/2022/05/three-worries-april-near-term-slowdown.html

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