Long-Term Money Via Telescope, Not Microscope - Weekly Blog # 951

 

 

 

Mike Lipper’s Monday Morning Musings

 

Long-Term Money Via Telescope,

Not Microscope

 

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

 

          

 

Historical Perspective

One lesson from studying history, including geology, is guessing the very next move in a series, which is more likely to be random than consecutive. The news business is an exception, selling a detailed description of what just happened. For example, the weekend chronicles might point out that more stock prices went down than up for the latest week and did so with higher volume. They’ll mention that only 58% of the NYSE stocks declined for the week, including 38% on Friday, compared to the NASDAQ where 64% fell for the week and 55% fell on Friday. Not one of these pundits mention that in the earlier part of this year and most of last year a greater portion of the stocks traded on the NASDAQ rose. More importantly, these stocks were bought much more recently than those on the NYSE. This suggests that both the purchase and sale of the NASDAQ stocks were speculative, not long-term oriented investments.

 

Switching to the telescope for longer time periods. Long-term investors should focus on the changing structure of the US population, where more than 1.8 million people left the workforce (169 million in June 2026 vs 171 million in September 2025). Some of these people trade stocks and participate in the weekly sample survey of the American Association of the Individual Investors (AAII). This week they turned bearish on their outlook for the next six months, with only 29.6% now being bullish, down from 44.9% the prior week. Bearish beliefs have risen to 42.3% from 32.9% the prior week.

 

Investors have generally missed gains in some global and international funds, as well as commodity and alternative funds. To understand the current performance of diversified funds you need to recognize the increased concentration in a limited number of sectors. The history of making money in the stock market often goes along with being lonely during changing long-term future trends.

 

One advantage of devoting time to investing is occasionally seeing some occurrences replay. On Thursday there was the rescheduled White House Correspondents Dinner with the President speaking, which reminded me of my time as chair of the program committee of the New York Society of Security Analysts. I suggested to the President of the Society that we invite President Gerald Ford, the only non-elected president of the US to speak to the analysts. I was given permission to invite him, with the deep belief that it wouldn’t happen. I called the White House and spoke to the lead speech writer who thought it was a great idea, agreeing to speak to the higher authorities. Surprisingly, they were looking at opportunities for the President to speak to the financial community about his “Whip Inflation Now” or “WIN”. I was invited to visit the White House to meet with the speech writer and go over the President’s thoughts on the subject. It became clear that they didn’t really care about my political views, but what jokes would be appropriate. I rejected most of the jokes. Shortly thereafter President Ford came to our meeting quarters on Williams Street. He came with Alan Greenspan and Frank Zarb, who had just joined the Cabinet after a career of turning around several brokerage firms. A topic I would have liked to hear more about. When the President came to the NYSSA, he was the first President since George Washington to speak on “Wall Street” while still in office. He included all the proposed bad jokes.

 

When President Trump spoke to the correspondents this week, he also told jokes that did not go over well. It seems as if Presidents speak about what they want and not about what their audiences want to hear. Like many investors, they don’t learn from history.

 

Those of us who pay attention to future liabilities for clients and ourselves should focus on the long term. What do you think?    

 

 

 

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Mike Lipper's Blog: Before Focusing on Shorter-Term Reactions - Weekly Blog # 950

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Mike Lipper's Blog: Searching for Future Long-Term Picks: Gathering Assets, Reasons to Search - Weekly Blog # 948

 

 

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Searching for Future Long-Term Picks: Gathering Assets, Reasons to Search - Weekly Blog # 948

 

 

 

Mike Lipper’s Monday Morning Musings

 

Searching for Future Long-Term Picks:

Gathering Assets, Reasons to Search

 

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

 

          

 

 

Inputs from This Week

1. The Consumer Confidence Index was 91.4 vs the 94.4 expected. The index was however up from last month’s 90.6.
2. The American Association of Individual Investors (AAII) sample survey projections for next six months are Bullish 31.4% vs the prior week’s 42.3%, Bearish 42.3% vs the prior week’s 36.3%.
3. Workforce participation of 61.4% is the lowest since the covid readings. (We have made working on payroll unattractive for some.)
4. In some European countries the number of air conditioners is small, and some are even being removed. (The founder of modern Singapore stated that the installation of “AC” led to the economic growth, enabling it to become the fifth richest economy in the world.)

 

Future Investment Problems

1. Americans misreading foreign data. The foreign performance of indices and positions is converted into US dollars from the local currency. As the US dollar is currently stronger than most other currencies, it makes foreign investments look more attractive. We tend to forget that most US investors temporarily rent foreign securities. When we sell in declining markets local buyers are often the only buyers and they are not generous.
2. When looking at the statics of a company, investors look at where the fiscal headquarters of the company is located, not where the product or service is sold. Consequently, many investors currently think they are investing in the UK, Taiwan, or South Korea. The Financial Times 100 largest companies, which dominate the local British stock market, makes almost none of its operating earnings are earned in the UK. It is my guess that a good many US investors think their rapidly expanding earnings are coming from South Korea and Taiwan, not by what is happening in the US.
3. Investors are often attracted to various securities indices due to a handful of the leading performing issues within the index. These companies, at least for a while, perform better than the indices. However, history tells us that it is only a matter of time before the leaders become laggards and detract from the performance of the index.
4. One recent concern of mine is that a senior American General in Europe is resigning. He is a four-star general with a very good battle record. I don’t believe it is an appropriate time to reduce our military leadership anywhere, particularly in Europe.
5. As a portfolio manager for long-term beneficiaries, I am very conscious of the variability of performance records. Looking at the recent five-year period, only six mutual fund sectors had average performance better than the S&P 500 Index Funds average. For the ten-year period, only Large-Cap Growth Funds and Domestic and Global Science and Technology Funds beat the S&P 500 Index Funds average. Considering the CEOs of many companies don’t last beyond five years, with even fewer lasting ten years, I am particularly nervous about those whose stock prices depend on “AI” products and services. (I wonder how many repeat orders there are for their present products and services.) Many of last year’s leaders are selling below last year’s performance ranks.

 

Possible Buys

The one major stock group selling below its 2000 price is Healthcare. I do not know these stocks well and tend to use specialty funds to invest in the sector. I will probably reach sell decisions without much help from the industry, but that may be a long time from now. Without a lot of knowledge, I am starting my learning efforts with Johnson & Johnson and CVS Health. I like their strategies but don’t know their tactics, managements, and their outlooks for their critical present and future drugs. Furthermore, I don’t know the outlook for government regulation. I need any help subscribers can provide.  

                                         

US Gifts to Others

Those in the US are incredibly lucky, or if you prefer God Given, considering the benefits/gifts we have received. However, it is wise to note that some of what we have given to the rest of the world is not always beneficial, as shown below:

1. A constitution that enshrines the rights of minorities.
2. An education process that attracts students from all over the world, who return to their homelands and contribute to them.
3. A military power that has critically helped defend other countries.
4. Innovation, which has produced great things for the world. 

 

Hope you had a good July 4th and life gets better.

 

 

 

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Mike Lipper's Blog: What is Pending and When - Weekly Blog # 947

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New Era? - Weekly Blog # 944

 

Mike Lipper’s Monday Morning Musings

 

New Era?

 

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

 

          

Evidence

After an extended period of daily market movements below 1% per day, the most meaningful stock market index fell -2.64%, with the technology sector falling much more. The 30-company Philadelphia Semiconductor Index which produces the critical needs for “AIs” explosive growth fell -10.3%, while the NASDAQ Composite fell -4.18%. (This is not the first decline for a new technology driven bull market, which was led by railroads, canals, and undersea cables in 1873. These stocks traded on exchanges in America, London, and Vienna. In Vienna the market dropped 45% in one day.) Despite the happy talk from Washington and various pundits, we have seen continued notices of layoffs from large, seasoned companies, including by Macy and Saks. In New Jersey, April unemployment was 4.8% vs 4.3% nationally. (It was just announced that Exxon and Chevron have changed their state of incorporation from New Jersey to Texas.) What is more significant to me is the number of bank branches that are closing. Perhaps more significant is the observable factor that attractive, wealthy women, are not wearing expensive jewelry while shopping or at performances.

 

Midweek, the AAII sample survey showed the market outlook for the next six months being 36% bullish and 37% bearish. (I suspect that if the survey was done after Friday’s market, we would have seen a bigger total for the bears). Interestingly, some stocks that typically don’t attract tech buyers, like Coca Cola* (+3.46%), Moody’s* (0.49%), and even Apple*, fell less than the market (-1.25%).

*Owned in managed or personal accounts.

 

My View 

Most analysts and pundits compare stock price performance to past cycles to determine investment policies, much like telling time with a stopped clock. Seldom in an investment career does it pay to look for meaningful structural change. One way to do this is to recognize that old firmly held beliefs, like a flat earth, keep us from falling into the abyss. Like Columbus, we should seek to find new riches by going against the popular view, putting faith in a compass over an orderly world view. Similar to Columbus I may be wrong, but I will hopefully reward my backers with fabulous wealth by addressing society’s real problem, far too many unproductive people. Not only are the young unproductive, but there are also healthy seniors not working for money or the good of society.

 

Today’s government employment data shows that there are sufficient job openings for all the unemployed, although the hirers say they can’t find enough people to meet their needs. Only 61% of our population are employed. I translate that to mean they can’t find people with the correct attitudes and education to meet their needs. This is an indictment of both our schools and homelife. To solve this problem, they should automate wherever possible, which can mean using “AI”. 

 

 For many years I boarded a 6 AM train with papers to read, reaching the office at about 7 AM prepared for my first meeting with colleagues or committee members of the New York Society of Securities Analysts, the trade association of my profession. I was not alone, I would meet other analysts outside their offices for a bite of breakfast, where executive committee members were also having breakfast with their direct reports or others that were on the way up. (This was not the normal day that the executive committee officially met, but they were still doing business.) After a full day working numbers and writing reports, I caught the 6 PM train home. I arrived at close to 7 PM and then spent time with my children going over how they spent their day. Thus, my workday was 12 hours, with some additional time spent on the weekend. I probably spent some 70 hours a week fighting my way up the ladder.

 

The law calls for a 40-hour week, which does not include lunch. Today, according to the Department of Labor, the average American works a little more than 34 hours a week and that time probably includes lunch. If you listen to the young people of today, they believe in a work/life balance of at least 50/50. No wonder our productivity grows at around 3%, which appears to be higher than in China.

 

“Evidently, when Trump visited Xi Jinping last month, the Chinese president made a pointed reference to the concept of overstretch. A concept that was put forward over two millennia ago by the ancient historian and general, Thucydides. Can China and the US overcome this trap? There is also the risk of war expenditures becoming greater than the rest of the economy. The current administration, unlike China, is extremely focused on short-term-announcements impacting the mid-terms. Strategically however, both the President and Xi Jinping are aware of the seminal work by Rear Admiral Alfred Thayer Mahon, titled The Influence of Sea Power Upon History.

 

See what you can do to increase productivity and put more of us to work for society. Your help is needed.

                                         

 

 

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Mike Lipper's Blog: Warnings Increasing - Weekly Blog # 943

Mike Lipper's Blog: Rhymes + Future Opportunities - Weekly Blog # 942

Mike Lipper's Blog: Many Trends Within the Same Market - Weekly Blog # 941

 

 

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Not Yet Ready for a long-term Solution - Weekly Blog # 936

 

 

 

Mike Lipper’s Monday Morning Musings

 

Not Yet Ready for a long-term Solution

  

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

 

 

 

Preface

I was hoping to start a series of blogs on the selection of smart securities investment strategies for multi-generational ownership. Unfortunately, the current data does not lead to a positive view. The breakdown of the twenty-hour cease fire negotiation with the Iranians confirms that this was a week of data confusion. The historical odds were against progress in the search for political and economic solutions.

 

Our Side

The investment mode for the week is captured by the changes in the American Association of Individual Investors (AAII) sample survey of the next six month’s market outlook. The bullish outlook improved slightly to 35.7% from 33.6% the prior week, a gain of 2.1% in a not highly disciplined survey. What is perhaps a little more insightful is a drop in the bearish measure to 43.0% from 51.4%, a decline of 8.4 %. During the survey week, many pundits were enthused about the forthcoming ceasefire meeting. (I expect Sunday morning’s announcement of a failure to get an agreement will materially impact this coming week’s results.)

 

The two largest stock market exchanges reflected different views, with only 31% of NYSE stocks falling vs 53% of NASDAQ stocks declining. (The NASDAQ market has younger, more speculative companies, with a larger number of companies reporting losses, including some private debt funds.)

 

Consumer sentiment was reported to be lowest in 70 years. Moody’s (*) raised the chance of a recession in the next 12 months to 48.6%. One of their executives is quoted as saying “we could already be in a recession”. 

(*) Owned in managed accounts.

 

Iranians’ View

The first thing to remember is that Iran is the modern name for Persia, which was the dominant political/military power in the Middle East for hundreds of years. Persia was briefly lost to Alexander the Great and later to the Ottomans but was never effectively occupied by foreign forces.

 

The current view of the Iranians is that Trump is losing this war. He is driven to achieve a quick victory to guarantee a positive mid-term election this year, at least in the House. The Iranians are believers in the German strategist Carl von Clausewitz’s statement that “war is an instrument of policy by other means”. Our President went to a military high school, but I believe he at best learned infantry tactics, not strategy. He did not participate in the ROTC at University of Pennsylvania. The current Secretary of War did not have any professional exposure at West Point or VMI and thus was not schooled in strategy. One of Clausewitz’s beliefs was getting the other side to give up the will to fight. Unfortunately, since WWII the US has won wars but lost the peace in getting their opponent to give up the willingness to fight. The last time we achieved it was through the Marshal Plan, named after General George Marshal a graduate of VMI who rebuilt the industrial strength of Germany.

 

While the potential for nuclear warfare was a concern, the far greater risk to the US, Britain, Europe, Mid East, Africa, Latin America, and Asia were already active sleeper cells. At this point we have not yet organized an effective counterforce.

 

It is no wonder the weekend discussions did not produce positive results. Consequently, it may be too early to invest new long-term money.

 

These are controversial views. Please exchange your thoughts. I am always a student and need to learn.

                                        

 

 

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Mike Lipper's Blog: We Have a Management Problem - Weekly Blog # 935

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This week’s Dichotomy/Bifocals Needed - Weekly Blog # 932

 

 

 

Mike Lipper’s Monday Morning Musings

 

This week’s Dichotomy/Bifocals Needed

 

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

 

 

 

1 week = 1 month, or 1 or more years

From this investor’s viewpoint, the previous five trading days could be seen as a great dichotomy. Seventy seven percent of NYSE stock prices declined and 66% of NASDAQ stocks. Additionally, the US dollar rose in price to 100.362 on Friday from 97.70 on Thursday!!

 

The stock price decline was supported by a sharply increased bearish reading in the American Association of Individual Investors (AAII) sample survey looking 6-months ahead, which rose to 46.4% from 35.5% the prior week. There was only a slight fall in the bullish six-month prediction which fell to 31.9% from 33.1% the prior week. Large publicly traded companies continued to report little to no hiring to offset those retiring.

 

One might have thought that worries about inflation would have had more impact, with the ECRI industrial price indicator rising to 130.99% from 126% the prior week. The index was up 9.59% for the last 12 months, but that didn’t seem to retard the jump in the dollar on Friday.

 

If one listened to the advocates of The President, the move in Friday’s dollar pointed to good times ahead. Other factors they mentioned were part of the reason the majority sold stocks this week, including on the last day of the week. We therefore have a dichotomy, which is a condition that can’t last or perhaps requires a different analysis?

 

The correct analysis is a condition that possibly occurs to seniors. That is the need to get corrective eyewear (glasses or implants). Perhaps we need to use one set of lenses for short distances and one for long or perhaps use bifocals.

 

We could be drawing close to the time when we will know whether the short-term optimistic view or the longer-term more pessimistic view followed by optimism is correct.

 

Watch the S&P 500

There are four major US stock market indices quoted in the press. The Dow Jones Industrial Average (DJIA) consists of just 30 stocks weighted by their stock prices, whereast he Standard & Poor’s 500 is weighted by market capitalization. The NASDAQ Composite is also capitalization weighted of about 500 stocks, although some stocks don’t have public records for five and ten years. The Russell 2000 Index is small-cap focused and suffers from a significant number of companies reporting losses. For analytical and investment purposes, most large financial institutions use the S&P 500 Index.

 

The S&P 500 Index closed at 6,632 on Friday, the lowest price in over four months. Market analysts believe a further decline of more than 3% will make a near-term market rise above its former high of 7,002 difficult for an extended period. The reason for this is, many of the investors who bought stocks before the decline will try to breakeven on the way up, making progress slow. 

 

Question: What do you think?

 

 

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Mike Lipper's Blog: Premature: Buying Program to Begin Soon? - Weekly Blog # 931

Mike Lipper's Blog: Expectations Changing? - Weekly Blog # 930

Mike Lipper's Blog: Diversification - Weekly Blog # 929

 

 

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Premature: Buying Program to Begin Soon? - Weekly Blog # 931

  

 

Mike Lipper’s Monday Morning Musings

 

Premature: Buying Program to Begin Soon?

 

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

 

 

 

Basic Investment Principle

Investment opportunities are cyclical in both timing and magnitude. Larger gains are achieved after periods of extended declines. Since one does not know the extent of a decline or magnitude, it is wise to use a buying program. For instance, invest no more than 10% of buying reserves at any time. (This assumes you establish a buying reserve in rising markets. Charlie Munger has taught us to buy good companies at fair prices rather than always look for “cheap” prices.

 

Recently, my sister-in-law sent me a copy of a letter from my grandfather to my late brother sometime after he left the Marine Corps to begin his life in the investment business in the mid-1950s. My grandfather, who built his own brokerage firm for more than thirty years, cautioned my brother to always expect periodic recessions and less frequent depressions. He also advised him to not invest against the US, as the country was rich in natural resources. (This is still good advice, but there are times when our government makes our currency risky for a period.)

 

Where are We?

Most investors in defining where we are, do so by looking at where we have come from. The pundits wax poetic about recent data extrapolations, expecting the past to be repeated. My analytical training at the New York racetracks and as a US Marines Corp Officer was to always examine the current situation and expect some change.

 

Today, many pundits and politicians see an improving picture. As a student of financial history, I am conscious that it has been some time since the last recession. Furthermore, it has been 97 years since the Wall Street crash and the 12-year depression. Few people recognize any similarity between that time and our current condition.

 

Trading Alerts-Correction, Recession, or Depression?

The following are a number of alerts from last week suggesting we are entering a period of more declines than increases:

1. Morgan Stanley is planning to cut 3% of its customer-facing workers.
2. 73% of stocks traded down on the NYSE and 67% on the NASDAQ. A pattern which has been going on for several weeks.
3. The ECRI industrial price index rose to 126%, a 4.73% gain year over year. Clearly, the war in the mid-east is inflationary. 85% of prices tracked by the Wall Street Journal each weekend declined, echoing the ECRI results
4. Individual investors and those serving retail investors are not confident in their outlook for the next 6 months. 33.1% are bullish and 35.5% bearish.
5. The S&P 500 index is the best indicator of the market for both institutional investors and wealthy investors. Along with most other indices, the S&P 500 index fell on Friday. If this was the beginning of a recession and the index were to decline to where its rise began, it would drop 28%. If this was the beginning of a relatively mild depression, the drop could be 49%.

 

Advice to Buy Program Buyers

I have found it extremely difficult to buy at the exact bottom, as most declines don’t appear convincing enough. The advantage of using a buy program strategy instead of a one-shot purchase is that you will likely have a collection of winners and losers before the overall market has reached back to its original starting point, assuming you buy 10% each month or quarter. However, that is not the point of the exercise. You should want to hold your position until it has reached the condition of a great company at too high a price, where some trimming makes sense.

 

Please share your thoughts with us.   

 

 

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Mike Lipper's Blog: Expectations Changing? - Weekly Blog # 930

Mike Lipper's Blog: Diversification - Weekly Blog # 929

Mike Lipper's Blog: To Win Long-Term, Learn From Great Presidents - Weekly Blog # 928

 

 

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Expectations Changing? - Weekly Blog # 930

 

 

 

Mike Lipper’s Monday Morning Musings

 

Expectations Changing?

  

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

 

 

 

The Main Motivator They Don’t Teach

Fear is the main motivator they don’t teach you about in pre-kindergarten through Ph. D studies. Primarily, this list is comprised of what can go wrong and what will hurt you, such as going broke, losing a job, or being defrauded. Discussions are informative but not particularly action oriented. What would be useful is a list of expectations, and of prime importance how to recognize them and what to do. These are life lessons which we all need but are not taught.

 

Each of us has our own level of awareness of critical expectations and we are aware of the changes in them. While all aspects of human life are open to change, I am going to focus on the expectations which impact our investment realities. These expectations are easier because they deal in large part with numbers. Numbers, like prices or earnings per share, are precise but mean different things to different people at different times.

 

The difficult part of dealing with expectations is identifying when they change and by how much. For example, a stock price expectation between $103 and $98, or an earnings per share expectation between $0.67 and $0.70. The critical issue is how early, or late investor expectations begin to evolve compared to others. Being early or late is often more impactful than being right or wrong?

 

Are We Changing Expectations?

A recent January survey of institutional investors had 50% expecting stock prices to rise, 39% expecting prices to be stable and 10% expecting prices to fall. An American Association of Individual Investors (AAII) six-month sample survey of investor expectations found 33.2% bullish and 32.9% bearish. Three weeks ago, both groups were about equally sure at 38%.

 

For the week ended Friday, more stocks fell on the NYSE and NASDAQ than rose (NYSE 56% and NASDAQ 53%, respectively). Normally slow-moving industrial commodity prices rose to123.06% from 121.92% the week before.

 

Most important of all, the US and Israel bombed Iran on Friday night. (The timing of the attack was a surprise to most, although the US has been building up its military and Naval forces in the Middle East recently.)

 

For some time, large companies in the US have not replaced retiring workers with new hires. We will see in the coming week if there is a large change in market expectations and whether that change in expectations is long-lasting.

 

 

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Mike Lipper's Blog: Diversification - Weekly Blog # 929

Mike Lipper's Blog: To Win Long-Term, Learn From Great Presidents - Weekly Blog # 928

Mike Lipper's Blog: Strategically, Time to Think Differently - Weekly Blog # 927

 

 

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Is This The Week That Ends Instability? - Weekly Blog # 924

 

 

 

Mike Lipper’s Monday Morning Musings

 

Is This The Week That Ends Instability?

 

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

 Preface

I believe it was Lenin who said there are decades when nothing happens; and there are weeks when decades happen. Possibly, the four-day trading week beginning this coming Tuesday is such a period. In both the Financial Times and her podcast, Liz Ann Sonders of Charles Schwab* introduced the concept of the period we are going through as an extended period of instability. I am suggesting it is possible the beginning of the end of this period may have begun.

*Shares held in in managed and personal accounts.

 

Fund Data Sets the Table

Whether one invests in mutual funds or not, one should recognize that not only do many people invest in them, but more importantly, many fund managers get their training at fund shops. Thus, one can get an understanding of the institutional mind set by looking at fund data. In the five years ended last Thursday, the London Stock Exchange Group published my old firm’s weekly study of 105 equity related mutual fund peer-groups average performances.

 

The average performance of S&P 500 Index funds was 14.05% compounded for the past five years.  There were only five peer group averages that were better: Precious Metals Equity Funds +21.50%, Energy MLP Funds +20.79%, Commodities Precious Metals Funds +18.75%, Natural Resources Funds +17.30%, and Global Natural Resources Funds +16.05%.  There were just two better performing thematic categories, precious metals and energy. The narrowness of performance leadership proves how difficult it was to pick winners for the past five years. The leadership crown was indeed unstable.

 

Another way to identify the instability in economic data is to examine the tails of the best and worst 2 items shown in Saturday’s WSJ weekly price chart. The best was Silver +11.67% and the second best was the KOPSI +5.55%. The second worst price performance was Financials -2.33%, which was half as bad as Corn -4.71%, the worst performer. The gaps between the top two leaders and laggards suggest concentration is at play.

 

Turning Points Possible Next Week

On Tuesday, probably in the late afternoon, SCOTUS (Supreme Court of the US) is expected to announce its decision on the IEEPA tariff. The President has said he is prepared for an unfavorable ruling and has substitute measures in mind. At best this will be disruptive, and possibly inflationary. The ECRI industrial price index, which is normally slow moving, rose to 120.49% from the prior week’s level of 117.42%.

 

Markets are anticipating problems, either from Tariffs or possibly Iran. Sixty-two percent of the stocks traded on the New York Stock Exchange (NYSE) rose last week, while only fifty-three percent rose on the NASDAQ. The NASDAQ trades more tech stocks and the shares of younger companies. Thus, the junior exchange is likely to react more than the “Big Board” to news events. Retail investors, when not gambling, are more active on the junior market. One possible measure of this is the American Association of Individual Investors (AAII) sample survey, which reported 49.5% bullish for the next six months, up from 42.5% the prior week. What may be more significant is the 28.2% that were bearish. Many professional traders believe “the public” is wrong at turning points.

 

The Davos meeting begins Tuesday, with many political and economic leaders present and chatting. One doesn’t know what will be discussed and how meaningful the meetings will be.

 

Keep us Informed as to any Changes in Your Views.   

 

 

 

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Mike Lipper's Blog: How Much Longer Can We Avoid Thinking About the Long-Term? - Weekly Blog # 923

Mike Lipper's Blog: Data May Be Signaling Change - Weekly Blog # 922

Mike Lipper's Blog: Investment Time Horizon Should Pick How You Measure the Results - Weekly Blog # 921

 

 

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Recession/Depression Risk Assumptions - Weekly Blog # 916

 

 

 

Mike Lipper’s Monday Morning Musings

 

Recession/Depression Risk Assumptions

 

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

 

 

 

 Future Probabilities

One intelligent betting task at the New York racetracks, where I learned basic analysis, was to guess the rough size of the gap between the betting pool odds and the probabilities. Only if the self-assessed probabilities were significantly larger than the crowd-determined payment odds, was it a sound wager. I try to apply the same approach to investing in stocks around the world. The easy part is determining the payment odds, which are based on two factors. The popularity shown in the market and guessing the quality of the current stock bulls, which is much more difficult. In general, more retail buying equals lower quality. This is not to equate brains with capital, but the amount of research done. There is an inverse correlation between the amount of media pundit space devoted to an investment and the probability of them being correct. That is not to say the pundits are dumb, they are limited by space and time and that limits their ability to handle complexity.

 

Determining probabilities often rests on the number of separate supporting elements. This is difficult because unpopular views normally have fewer supporting elements and are more complex. (If this happens then that will happen or at least improve the possibility of it happening.)

 

I have found that a search of history is useful in searching for probabilities. As there are no axiomatic rules, sometimes something will happen and sometimes it will not. The trick is to try to understand what caused the different outcomes. In dealing with history, we are lucky to have both written and geological records from around the world. From those records it is apparent there are similarities in what drives many critical trends, no matter the place or time-period.

 

Causes of Recessions

No one wishes for a recession, although we should expect one or at least the possibility of one. When a recession does occur, it is generally a surprise, and most are unprepared for it. In the beginning most don’t recognize they are experiencing a period of decreasing ability to make purchases and the ability to promptly pay debts. Hopefully, the economic community recognizes it soon after the nadir of the recession. The academic community only declares “official” notice of a recession after full recovery of lost resources.

 

In every recession I have studied, the critical realization of being in a recession occurs when the level of current earnings makes it difficult or temporarily impossible to repay what is owed on time. The squeeze on repayment is caused by an overly optimistic belief in current earnings and the absence of sufficient reserves. These conditions in turn are caused by imprudent personal, business, non-profit, and government decisions. Other causes are sloppy executions, which cause incomplete and wrong actions. Greed also drives actions without regard to consequences. There also appears to be an increase in fraud during a recession.

 

Causes of a Depression

Depressions are relatively few but longer lasting. For the most part they are caused by attempts to structurally pull the economy out of a recession. Typically, the leader of the government sees that the problems facing society are structural and immediately seeks to fix the problem.

 

In the US we have had four activist presidents who wanted to structurally change how we operate. These are Andrew Jackson, Thedore and Franklin Roosevelt, plus the current occupant of the White House. These leaders attempted to change many things but ran into opposition from the minority who used the Constitution and courts to block the changes. In addition, their actions created other problems for the country and globally after their terms.

 

Curren t Conditions

The following elements suggest there are problems ahead. My lens is primarily fixed on market analysis, not economic analysis. (This is due to belief that the market is primarily focused on the perception of future markets and not how past economic data impacts it.)

• For the past 2 weeks there have been more declining than rising stock prices on the NYSE and NASDAQ.
• For the last two weeks, the AAII sample survey shows only 32.6% and 31.6% bearish for the next 6 months.
• Tech stocks listed globally fell last week.
• Only 25% of weekly prices reported in the Saturday Wall Street Journal rose, the remaining 75% declined.
• Last week through Thursday, my old firm reported that only three mutual fund peer groups out of 104 competitive leagues showed average gains - Dedicated Short +7.80%, Health/Biotech +0.98%, and Indian Regional +0.55%.

 

My Working Wager

Between now and next Presidential election, the odds on a recession are 60%, with the odds of a depression before 2035 at 50%. (Remember the market rises about 80% of the time.)

 

Your thoughts, please.

 

 

 

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Mike Lipper's Blog: Risks Are Rising Thru the Clouds - Weekly Blog # 915

Mike Lipper's Blog: The Inevitable Recession - Weekly Blog # 914

Mike Lipper's Blog: Biggest Investment Hurdle: Complexity - Weekly Blog # 913

 

 

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Risks Are Rising Thru the Clouds - Weekly Blog # 915

 

 

 

Mike Lipper’s Monday Morning Musings

 

Risks Are Rising Thru the Clouds

 

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

 

 

 

Overview

There does not appear to be a clear unified picture of the near-term future for the next couple of years. In examining a number of separate and distinct elements, each with their own limited cloudy outlook, I see a growing level of disconnected risks. Hopefully our intelligent subscribers can sense a positive future and share it.

 

Topics of Concern (In no meaningful order)

• The price of gold and crypto elements are rising, with the exchange value of the dollar falling more than 10% earlier this year. For centuries the single greatest attraction of gold was at the coin level, with the ability to bribe one’s exit from one country into another. Today, I am unaware that this is a major demand contributor. The Central banks appear to be the largest buyer, replacing some of the depreciating value of their large dollar holdings. While that might serve a few countries well, there is not enough gold in the world to fill all needs at any reasonable multiplier of current gold prices. Crypto also seems to be potentially price limited. At the moment I do not see any move by major countries to be a substitute replacement for the dollar.
• While the Chinese currency is now the third most used currency for world trade, I do not see any willingness of that government to use its currency for anything beyond its own trading. They do not want their currency to trade freely and absorb the turmoil of other countries.
• I do not see crypto as an alternative in size, particularly if it is US dollar based. Both gold and crypto don’t have a large industrial use, unlike silver to some degree.
• One possible substitute for the dollar is copper, and possibly some other base metals. One new problem for Dr. Copper is the expected increase in use by “AI”. It is interesting to note that Base Materials (Metals) were the second best performing mutual fund category in the current week (+4.44% vs -2.70% for the worst fund category Global Science & Tech.)  It may be worth noting that the ECRI industrial price index went to 115.50 from 114.80 the prior week, even though it does not normally move much.
• A significant number of casualty insurance companies have invested in private debt vehicles with limited liquidity.
• The weekly 6-month forward looking AAII sample survey found only 31.6% bullish and 49.1% bearish compared to three weeks prior, where the readings were 44.05% bullish and 36.9% bearish.
• In the current week there were more decliners than gainers on the NYSE and NASDAQ.
• A number of economists have noted that the top 10% of the population, often over 75 years old, own 50% of US wealth. The bottom one third, those who are 35 years old or younger, own 10%. (This may well explain the results of the only two governor elections this year.) This formation is being called “K shaped”.

 

I appeal to our readers to contribute your good thinking regarding the importance of these elements and to let me know how it affects your view on the global stock and money markets. 

 

 

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

Mike Lipper's Blog: The Inevitable Recession - Weekly Blog # 914

Mike Lipper's Blog: Biggest Investment Hurdle: Complexity - Weekly Blog # 913

Mike Lipper's Blog: Signals of Change in Historic Patterns - Weekly Blog # 912

 

 

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A. Michael Lipper, CFA

 

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Where Are US Stock Prices Going? - Weekly Blog # 911

 

 

 

Mike Lipper’s Monday Morning Musings

 

Where Are US Stock Prices Going?

 

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

 

 

 

Time to Achieve

The old rule for publishers regarding future projections is to never state both a target number and a date certain. However, the result of that warning is a relatively useless projection for planning current actions. Unfortunately, I have views on both the target number and approximate timing, although neither are precise nor tied together. In this blog I share my thoughts with the hope that some are of value, and our trusted readers will share what they think are reasonable answers.

 

As a racetrack trained analyst, I believe the odds favor the US stock market reaching a multi-year peak in the foreseeable future. Consequently, my grandchildren and great-grandchildren will likely see nominal gains in their assets long-term. Careful readers will quickly surmise that I must have mixed views regarding my children’s market wealth prospects. Their results will be heavily influenced by their controlled spending and financial diligence, and what they want to leave to their heirs.

 

Current Market Dilemma

Most of the time a single investment attitude drives market prices. Today, there are two dominant thought patterns. The first is enthusiastic buyers who largely believe the President is in the process of restructuring the economy and therefore society. However, he is at a disadvantage of having only loyalists support him. (Loyalists generally do not pursue details of potential execution problems or even try to identify them to reduce political, functional, and court issues.) They think things are going well.

 

The second group is reluctant to make decisive decisions in the market. The $8 trillion in money market funds is one measure of their non-acceptance of things going well. Cash or similar investments are both a repository for normal operating reserves and future buying pools.

 

Incomplete Evidence

• Tariff impact: Consumers 55%, importers 22%, foreign producers 18%, and 5% evaded. (I suspect until tariffs are removed consumers will pay at least 90% of them, either in aggregate prices and/or in quality/quantitative shrinkage.)
• While the media and uninformed public focus on the Dow Jones Industrial Average (DJIA) and New York Stock Exchange (NYSE) volume and prices, they are missing a critical change in stock market structure. The year-over-year share volume has increased 40.88% for the NYSE and 80.55% for the NASDAQ, effectively double. (To some degree the NASDAQ volume includes inter-dealer trades to restore trading inventory positions.) Sometimes the two markets act differently. For example, on Friday the NYSE volume of advancing prices rose, as did total volume from Thursday. However, NASDAQ activity was the opposite, with lower volume and more decliners than gainers. A larger measure of the market is the Standard & Poor’s 500 (S&P 500), which is very near an all-time high.
• In the weekly survey sample of the American Association of Individual Investors (AAII), the percentage of respondents predicting a bullish market for the next six months dropped to 33.7%, while those predicting a bearish market rose to 46.1%. Just three weeks ago the ratios were 42.9% vs 39.2% in favor of the bulls.
• The current market and political situation resemble those of the late 1920s, which led to both the recession and depression. Both started with an overall increase in debt at the individual and business level. This was particularly true in the politically sensitive farm community, which was suffering from a change in foreign demand for its crops. (This time it’s a Chinese decline in demand for soybeans.) Small and medium-sized banks were having loan payment problems, which then led to imposing tariffs on foreign products and services. The current Federal Reserve Board is very conscious of this history.
• Another parallel is certain foreign governments recognizing the relative weakness of America and taking advantage of the situation by threatening further actions. This week Ruth and I spent time with the leaders of the US Marine Corps University who are preparing for a future different than the past. Similar efforts occurred before WWI and WWII, suggesting investors should think about structural changes to their investment policies.

 

Building a larger cash opportunity reserve may make sense. What do you think?

 

 

 

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

Mike Lipper's Blog: A Good Time to Sell? - Weekly Blog # 910

Mike Lipper's Blog: Risks: Recession/Cyclical, Depression/Structural - Weekly Blog # 909

Mike Lipper's Blog: Tactical Headlines Show Strategic Clues - Weekly Blog # 908

 

 

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Copyright © 2008 – 2024

A. Michael Lipper, CFA

 

All rights reserved.

 

Contact author for limited redistribution permission.