Not Much - Weekly Blog # 726

 

Mike Lipper’s Monday Morning Musings

Not Much

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

Anyone who has served guard duty instinctively senses some of their most dangerous moments being described as “not much happening”, just before dangerous things happen. This is my gut feeling looking at the US stock market activity last week. (Both the government bond and commodities markets moved under the strain of adjusting to supply shortages, including Russian Uranium.)

Calibrating “Not Much”

The main function of this blog is to assist investors in their thinking about long-term investments, typically extending from five years to multiple lifetimes. With that as a framework, the guiding math becomes clear. On the downside there is always the potential for a 100% loss, excluding any additional leverage losses or legal settlements. My long-term objective is multiples of the potential 100% loss, or to quote the great stock portfolio manager Peter Lynch, “ten baggers”. (Peter learned and worked for the late Ned Johnson, who died this week. Ned was the second CEO of Fidelity Management & Research. Ned was more than just a first-class money manager; he was a good selector of talent and found new ways to invest and market investments globally. Ned changed the investment business around the world. His daughter Abby, the third member of the Johnson family to be the CEO, is going even further.) 

If one gains multiples of loss positions it doesn’t take long to produce a satisfactory return, it just takes patience to ride out multiple-year periods. 

Every Journey Begins with The First Step

The first step begins with direction, chosen or not, and a small distance. With rare exception, first steps are consequential to the result, except when beginning a march to a meaningful end. It is this exception that drives me to focus on what happens each week. Most things don’t materially matter, but some do in the short and long-term. This is the reason I spend a lot of time and energy pouring over what happens. I will share my reactions to the surface elements of an inconclusive week.

Short to Long-Term Implications

• The NYSE up-volume dropped to 13.7 million shares from 20 million shares the week before, while the NASDAQ up-volume rose to 15.4 million shares from 10 million shares the prior week. Downside volume was essentially the same level each week. (I suspect some of the up-volume in the prior week was short-covering to curtail losses. In the second week the selection process favored tech stocks.)
• There has been some extreme performance year-to-date, with Commodities enjoying the best performance since 1915 (WWI) and bonds the worst since 1941 (WWII). 
• In the last 16 years, $2.6 Trillion went into bonds and only $ 1.85 Trillion went into stocks.

(Looking at the last two items raises the question as to whether the US dollar can retain its privileged position of being able to borrow globally in its own currency? It may be determined by where critical commodity resources are found.)

• The price of coal has risen to $330 per ton from $80.50 at the end of 2020. Little in the way of energy capacity is planned to come on stream before 2025. The call to end global trade and production is the opposite of what Adam Smith wrote about at the time of The American Revolution. There will likely be multiple sources of critical supply when sought, but at increased cost.
• East Coast US ports have been less busy recently. I suspect inventories have been restocked. Retail sales have also slowed or have been priced too high.
• Goldman Sachs and others have discussed an increased risk of a policy-induced recession 
• There is no doubt we have entered a global food shortage period, driven by the absence of supply from Russia/Ukraine, and others due to insufficient investment. Food prices will be going up partially due to a labor shortage.

Many of these noted problems are already impacting our markets, as others will in the future. Never-the-less, after this period of contraction it will eventually lead to a period of expansion and opportunity, if patient. The cyclical will turn to a favorable phase, allowing us to use our brains, capital, and patience to ride out the storm.

Help is on the way. 

  

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

https://mikelipper.blogspot.com/2022/03/relative-or-payout-returns-in-periods.html 

https://mikelipper.blogspot.com/2022/03/building-your-future-winning-portfolio.html

https://mikelipper.blogspot.com/2022/02/successful-investing-expects-unexpected.html

Did someone forward you this blog? 

To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

Copyright © 2008 - 2020

A. Michael Lipper, CFA

All rights reserved.

Contact author for limited redistribution permission.

Best Bet: More Sweaters and Parkas vs Overcoats - Weekly Blog # 708

 

Mike Lipper’s Monday Morning Musings

Best Bet: More Sweaters and Parkas vs Overcoats

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

I don’t like to lose bets, especially investments bets. That being said, I am highly confident those in the northern hemisphere will suffer a colder winter than expected. The streams of cold weather from Asia which flow over North America and Europe are moving south this year and will bring a colder winter to the US. (This contradicts “global warming” or climate change predictions.) The second and preventable driver is the need for politicians to be re-elected.

The only game that counts in Washington DC is getting elected, which importantly is based on money deployed from all sources. Despite food prices reflecting rising transportation costs, the central government is determined to hurt the states supplying energy for heating. Three states in particular are being targeted: Wyoming, West Virginia, and Texas. The first two are the leading exporters of coal to the rest of the nation, with Texas being the leading exporter of oil and gas. (Natural Gas is a major source of heating for much of the northern portions of the country.) These three states have significant Republican majorities, both in terms of votes and more importantly political contributions.) 

The game of war often relies on misleading the enemy regarding your intensions. In Washington this is done by a friendly media focusing on stimulus, even though it is a major contributor to inflation. While inflation is the cruelest tax on the poor, those in power believe the loss of some votes in the city districts won’t endanger the city progressives.

There are already a lot of predictions regarding the sharp rise in the cost of heating this winter. Landlords, already having difficulty collecting rents, may cut the amount of heat. Non-profits, including government bodies without actual or equivalent “rainy-day” funds, may face similar problems. Schools in low-income areas may similarly have shortages of students, teachers, and administrators.

Many of the aggrieved or their representatives will appeal to the media for help in sweaters (inside) or parkas (outside). Those appearing in overcoats will be considered tone-deaf, no matter how well intentioned.

Faulty Responses

Many of the shivering responders shown on television will emphasize the spike in heating costs causing an increase in “common colds”. The number of non-workers will be blamed on “acts of God”, due to shifts in northern wind blasts. They will not likely admit that part of the problem was self-administered, either out of The White House or Capitol Hill. By curtailing the capital generation of energy producing industries the government has caused the US to be an energy importer. It is no longer the net energy producer and exporter it was two years ago. They did this by causing pipelines to close, or not be built at all. Furthermore, in a stretched global market for oil, bureaucrats are increasing the industry’s burden by holding price investigations.

Multiple Year Transitory

As is often the case, economists look at the top-down government numbers of goods produced or shipped for problems, not the services or labor required. In their calculation of supply chain shortages, they fail to recognize the nature of the labor shortage. Not only are entry level workers missing, skilled workers and competent/trustworthy supervisory employees in service functions are also in short supply. (A good bit of these absences can be attributed to "educational" sector unions from pre-nursery through PhD programs.) These issues will not be addressed in the coming cold winter.

Long-Term, the Federal Reserve is Trapped

The favorite tactic of those in Washington is to change the rules if they are losing. Members of Congress are trying to make various economic/government financial agencies into social arbiters, including the Fed. Neither the Fed nor their supervised banks are equipped or authorized to perform these functions.

To the extent central governments want to spend a lot of others’ capital on controlling climate conditions, they will sponsor increased spending. This will result in both the Fed and the debt market increasing global debt massively. One wonders whether present low interest rates will become generational lows. Will higher rates drastically change the allocation of credit to the detriment of consumers at the low end?

Causes of Inflation

Inflation is caused by having too much money and borrowing power relative to the level of goods and services on offer. By itself it would be self-correcting through changes in price, including foreign exchange. However, when central banks create more money than their economies can immediately use, it leads to inflation. This is exactly what has been happening, so much of the current inflation has been caused by stimulus (bribes) payments. Thus, governments are a source of inflation.

Investing Choices

Perhaps the only wise reason to own securities today is the belief that the managers of some companies will be able to grow dividends above average inflation after taxes. 

If you have other reasons let us know. 

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

https://mikelipper.blogspot.com/2021/11/lessons-from-london-mistakes-repeated.html

https://mikelipper.blogspot.com/2021/11/do-you-believe-congratulations-are-in.html

https://mikelipper.blogspot.com/2021/10/mike-lippers-monday-morning-musings.html

Did someone forward you this blog? 

To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

Copyright © 2008 - 2020

A. Michael Lipper, CFA

All rights reserved.

Contact author for limited redistribution permission.