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

 

 

 

Mike Lipper’s Monday Morning Musings

 

Does One Market Day Matter?

OR

Does Market Unbalance Matter More?

 

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

 

 

 

The View of History Matters

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

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

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

 

 

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Turning Point? - Weekly Blog # 964

 

 

Mike Lipper’s Monday Morning Musings

 

Turning Point?

 

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

            

 

 

The Way We Think

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

Too Much Good and Bad

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

 

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

 

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

 

The Crux of the Debt Problem

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

 

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

 

Are There Other Problems?

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

 

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

 

Now is the Time to Think About Market Gains

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

 

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

 

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

 

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

 

 

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

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

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

 

 

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A. Michael Lipper, CFA

 

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Penalty for Using the Wrong Indicators - Weekly Blog # 963

 

 

Mike Lipper’s Monday Morning Musings

 

Penalty for Using the Wrong Indicators

 

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

            

 

 

Lessons from History

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

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

 

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

 

Which May Be the Wrong Indicators?

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

 

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

 

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

 

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

 

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

 

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

 

How do you see it?

 

 

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

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

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

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

 

 

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

 

 

 

Mike Lipper’s Monday Morning Musings

 

Are We Refighting the American Revolution?

 

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

            

 

 

People Unhappy with Both Major Parties

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

 

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

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

 

The American Experiment

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

 

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

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

 

What Are Signs of Unhappiness?

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

 

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

 

What are Your Thoughts?

 

 

 

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

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

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

 

 

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Survival First, Before Growth - Weekly Blog # 958

 

 

 

Mike Lipper’s Monday Morning Musings

 

Survival First, Before Growth

 

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

            

 

 

Historic Lessons

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

 

Where Are We Now?

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

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

 

Building a Buying Reserve

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

 

What To Do with the Reserve Cash?

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

 

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

 

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

 

 

 

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

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

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

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

 

 

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A. Michael Lipper, CFA

 

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

 

 

 

Mike Lipper’s Monday Morning Musings

 

Is the Volatility of Data in Hiding?

 

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

            

 

 

Looking at the Unhelpful Data?

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

 

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

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

 

Strategic Alliances

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

 

Over Half of US Stocks Declined

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

 

Iran’s Plans

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

 

Imbalance of US and Chinese Savings Plans

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

 

3 vs. 12 Months

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

 

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

 

 

 

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

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

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

 

 

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Dead Cat Bounce > Last Chance - Weekly Blog # 952

 

 

 

Mike Lipper’s Monday Morning Musings

 

 Dead Cat Bounce > Last Chance

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

 

          

 

We appear to be in a normal trendless summer, with relatively low volume on hints of fall upsurges and declines. This poses a big risk for

investors with large gains in their portfolios who could be subjected to major moves from stampeding investors selling for fear of a big decline or speculative surge.

 

I am therefore suggesting that this is the time to build cash reserves so that you are in a position to take advantage of large future declines. The trick is to have a reserve large enough to shelter the portfolio from meaningful losses, but small enough to protect against being out of the game following the next rise. The next decline could be major and last for a long time, which might encourage those who have too much cash to stay out of the game. That is the real risk facing careful investors.

 

My suggestion is to treat your account as a long-term pension or endowment account with annual flows of about 10%. This would require a two-year buildup of short-term cash reserves under normal investing conditions. This suggests a target equity commitment of 70%, with a short-term reserve of 20% and an emergency reserve of 10%. The key to this strategy is avoiding a down market that reduces the equity commitment below 50%. One way to accomplished this is to begin an orderly reinvestment program in the declining market.

 

Reasons for Concern this Week

• The Consumer Confidence survey fell to 50.8% vs the expected 52.4%.
• Estimated GDP for the second quarter came in at +1.5%, below the estimate of +1.8%.
• Chinese tech stocks fell -8.6% in July. On Friday, Apple (personally owned) fell -7.4% on rising earnings.
• Barron's 10-year high grade bond yields slipped -0.03% while yields on 10-year mid-quality bonds rose +0.04%. (The bond market is more concerned about the future of the US Government and the currency than commercial credits.)
• There were 286 new highs and 189 new lows on the NYSE, versus 468 new highs and 692 new lows on the NASDAQ*. Suggesting there is presently more opportunity in industrial and financial stocks on the "Big Board" than tech-driven stocks on the NASDAQ. (*NASDAQ stock owned in managed accounts and personal portfolios)
• Warren Buffett is quoted as thinking the market is gambling, not investing. (In the past his general warnings have proven accurate.)

 

What Do You Think?

 

 

 

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

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

Mike Lipper's Blog: Little Occurred During the Trading Week - Weekly Blog # 949

 

 

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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

Mike Lipper's Blog: Little Occurred During the Trading Week - Weekly Blog # 949

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

 

 

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Before Focusing on Shorter-Term Reactions - Weekly Blog # 950

 

 

 

Mike Lipper’s Monday Morning Musings

 

Before Focusing on Shorter-Term Reactions

 

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

 

          

 

 

We should recognize that several topics that arose this week will have longer-term implications and impact results for many years, if not future decades. None of these contributions to our thinking will influence things directly, but some or all may influence our future.

 

Smoke from the Canadian wildfires has blanketed much of the US. Sports activities were delayed in Philadelphia, and the World Cup game in Miami was also influenced. The important message is that the US is not an isolated country, activities in both Canada and Mexico have measurable impacts on us.

 

The World Cup competition introduced real America to many sports fans from all over the world. Prior to traveling to the games many people looked at the US as Manhattan below 60th street, a few government buildings in D.C., and some sound stages in California. Costco, Brooklyn, and our national parks have awakened them to the country’s beauty, its friendly people, and a large population of many talents. It also showed athletes playing their game better than those representing America. I suspect by the next World Cup we will produce better results too. The biggest change is likely to be in women’s soccer.

 

Our media and our President comment on “the stock market” as if it were singular. Furthermore, the direction of the market is aligned with the economy. Increasingly, “the market” is made up of several smaller markets moving differently from each other. For most of this year, important sections of the market have been pointing down compared to a limited number of tech companies going up. The stocks of some of the nation’s leading healthcare companies are selling at 1990 or 2000 prices. These companies are rarely mentioned by pundits or politicians. In future it would be wise for investors to participate in the growth of Asia, and later Africa and the Middle East.

 

The final US input may be a collection of groups in Congress having only titular relations with the two main parties. The main battle will be in the Senate, which takes 60 votes for most legislation to pass. However, neither party will be able to count on all its members due to some issue specific deserters. This could lead to the only functioning group being a conflicted White House ruling through executive orders in all agencies except the Fed.    

 

Clues To the Future

The Three Jobs

Security Analysts essentially have three jobs. The first job is to avoid being tagged with losing money, or worse, having a negative relationship with a paying client. The second, and most common function, is to be associated with winning positions or clusters of winners. The third job is to successfully support the sales effort of the organization.

 

What is our Role?

First and foremost, our first loyalty is to our investment management clients. If we are reasonably successful, we then earn the privilege of sharing our views with others through this blog.

 

We Use this Blog to Shape our Thinking

The price action of common stocks did not give us much help last week. In general, the daily moves were equally balanced between gains and losses. However, the latest sample survey of the American Association of Individual Investors (AAII) had their six-month expectations swinging a bit positive. (The AAII survey does not cover the end of the week, and many market analysts treat it as a contrary indicator at “turning points”.)

 

Our Biases

We think we do a good job over an extended period for long-term investors. In our longest multi-generational account of sixteen positions, five holdings represent over 50% of the gains. This demonstrates that most of the time we prefer both a small list of holdings and the ability to let winners exceed the SEC’s definition of diversified. Our accounts consist of both common stocks and mutual funds, or the manager’s portfolio. We also own securities that invest overseas, which are appropriate positions for this account, but may not be for others.

 

Some Hints for Long-Term Buyers

Two very popular stocks, IBM and Space X, which we do not own, declined this week. Both have lessons we believe are important for long-term investors. The fall in IBM was caused by the company’s disclosure that their software, consulting, infrastructure, and main frame computer customers are switching to buying “chips”. While pundits focused on what they were not buying from IBM, the item that struck me as even more important was the decline of items tied to main frame computers. IBM was responsible for selling some 60% or more of these expensive devices. In future there will be some consulting and infrastructure sales, plus an ever-decreasing number of mainframes. Furthermore, they no-longer have the advantage of being the first computer company with “sales engineers”. IBM is not the company that my grandfather loved. The lesson for all of us is that even one-time great companies can have economic difficulties. There is not a single company remaining from the original Dow Jones Industrial Average (DJIA), with the majority of them no longer in business.

 

At the other extreme, Space X is a business with exciting future products and services which also declined this week, selling below its original public issue price. In our role as portfolio manager we do not invest in highly sought after IPOs.

 

Despite the problems associated with these two leaders, the number of advancing prices on the NASDAQ exchange were higher than the number of decliners this week. However, on the older New York Stock Exchange (NYSE) the reverse was true 46% vs 59%.

 

Question: What if anything I have said do you agree with? 

 

 

 

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

Mike Lipper's Blog: Little Occurred During the Trading Week - Weekly Blog # 949

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

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

 

 

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What is Pending and When - Weekly Blog # 947

 

Mike Lipper’s Monday Morning Musings

 

What is Pending and When

 

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

 

          

 

Who is Foreseeing?

We are entering a new phase at the Federal Reserve Bank where the new chairman wants to look to the unknown future rather than recorded history. He is searching to find a different set of indicators than government collected survey data. I always thought that the lunch discussions presidents of the local reserve banks had with “captains” of local industry were an attempt to gather this data. I believe what he is looking for is the kind of inputs many companies gather daily or weekly. (I knew the number of subscribers for each of our fund data products plus the number of new subscribers each week. Additionally, I knew the number of special individual reports generated, and the amounts of commissions earned each week.) I hope he gets what he wants, it will probably improve the efficiency of what the Fed decides.

 

My big complaint to the members of my securities analysis profession is that most of their reports focus on relatively short-term investment performance: the quarter, the rest of the calendar year, or one year. While that has some value for the media or gatekeepers, it has very little analytical value.

 

In viewing the work produced under the rubric of Securities Analysis, it is important to remember that the original text on the subject was written by Ben Graham, an investment manager and adjunct professor who favored “cheap” stocks. He was assisted by David Dodd, a full professor at Columbia University who taught accounting courses. Their original text was written in the middle of the depression. The key to their writing and financial survival was to avoid losses. Little attention was paid to making money, which came later. This bearish bent was echoed in the SEC’s Investment Company Act of 1940, which was not written by members of the SEC or their staff, but by a bunch of trust lawyers with heavy input from lawyers in Boston, New York, and Philadelphia. For them, the key issue was avoiding large losses and being sued. I took Securities Analysis under Professor Dodd at Columbia.

 

The More Modern Era

One could selectively make money by venturing into the market with new listings trading at a discount. An approach highlighted after WWII when war industries recommitted to the commercial world with new high energy leaders. However, far too many of the new ventures of the late 1940s produced large losses for their investors. By the late 1950s more pragmatic leaders emerged, with the “bull market” of the 60s bringing new generations into the market. The fear of losses ebbed in the late 60s, resulting in  the idea of some leading stocks being held forever. This led to economic decline and a downturn in market enthusiasm which lasted into the mid-1980s. Since then and up to this calendar year the emphasis has been on making money, not avoiding losses.

 

We Have Possibly Entered a New Era

In last week’s blog I suggested that the critical market indicator has shifted from the Dow Jones Industrial Average (DJIA), from the late 1940s through the mid-1980s, to the institutional Standard & Poor’s 500 (S&P 500) from the mid-1980s to until very recently, and in the current period to the NASDAQ Composite. This week the DJIA was up 3 days and the S&P 500 was down 5 days. The NASDAQ was also down 5 days, but by a larger amount each day than the S&P 500 institutional measure. This seems appropriate as it rose more, driven by “AI” and the technology craze. I believe it is sensible to label this a technical correction.

 

More concerning is the market sensing a change in our future. Much of the current leadership comes from the retail side, whose increased numbers were driven by the conversion of retail brokers becoming wealth managers to earn a fee rather than a commission. The significance of this shift is that for the first time investment performance will be measured on the retail side. These new “managers” may panic and be quicker to sell than the institutionally oriented mutual fund portfolio managers. We may already be seeing this in redemption rates and attempts to redeem closed-end target date funds. Institutions have long experience with the cyclical results of below investment grade debt. Is it possible retail investors will lead the whole market in worries about declines?

 

Are There Reasons to be Worried?

I believe it is too early to be categorical about the next major decline, though I do believe it could happen. The following are potential signs of one or more major declines. (Going back to my course with Professor Dodd, I believe we should be prepared for the following pending triggers to generate meaningful declines.)

• The biggest potential trigger is that we have not experienced a depression since the election of FDR in 1933, which did not end until 1942 because of his mismanagement. Skipping several cyclical recessions, the prior depression globally was in 1873. Thus, it has been 93 years since the beginning of the last depression or 84 years since it ended. (Depressions are caused by mismanagement and too much debt in the financial system.) The present administration, by personality, not policies, is very similar to FDR’s.
• The surprise to the leaderships of attacks on Bahrain’s US Naval Base and Ukraine’s attack on Crimea. The nations hurt were thought by their people to be prepared for these attacks. Both nations have people worried about their country’s intelligence and governance.
• Changes in Federal Reserve governance may be destabilizing.
• ACA Insurance healthcare payments showed unexpected reductions.
• Lack of progress on addressing Social Security solvency
• Focus on innovation, but only on the mechanical side. In the US innovation typically has a bigger impact on sales size and structure.
• Quality of schooling and home life vs. education retards growth and military preparedness. Probably negatively impacting marriage and childbearing.
• Legal immigration

 

For the last 10 years only the average Large Cap Growth and domestic global Science and tech funds have beaten the S&P 500 Index fund average. For the current year-to-date period, 57 sector averages did better out of 104 equity sectors. The game has changed.  

  

What are Your Thoughts About?

• A possible Depression?
• What are we not prepared for?
• Will the 2026 election decide anything?
• What will the 2028 election decide?
• Any other thoughts or comments?

                                         

 

 

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

Mike Lipper's Blog: Too Many Short-Term Worries To Pick Long-Term Winners - Weekly Blog # 946

Mike Lipper's Blog: Is This the Last Hurrah? - Weekly Blog # 945

Mike Lipper's Blog: New Era? - Weekly Blog # 944

 

 

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Too Many Short-Term Worries To Pick Long-Term Winners - Weekly Blog # 946

 

  

 

Mike Lipper’s Monday Morning Musings

 

Too Many Short-Term Worries

To Pick Long-Term Winners

 

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

 

          

 

Current Concerns

Both the management of our international and domestic actions increasingly seem to be personality driven, and for the moment have at best a one-year focus. The level of smart intelligence applied is from a smaller and smaller number of people. The level of wisdom applied to Iran, Israel, and the greater middle east does not appear to be working. Observers believe it will take a considerable time to totally clear the Straits, while pictures of shopping areas in Iran show them to be well stocked.

 

On the domestic side, there does not appear to be recognition that large portions of the workforce are not working, at least regularly for taxable pay. Part of the problem is people in government believing in test scores and mandated promotions. Homes are stressed and less and less people have the education desired by companies and governments to find qualified people.

 

The new Chair of the Federal Reserve appears to recognize these problems and finds government-generated statistics to be moderately helpful at best. He believes the private economy can supply better numbers. One of the time series I look at each Saturday morning is the list of weekly prices in The Wall Street Journal (WSJ), covering 72 commodities, currencies, ETFs, and securities prices. For many weeks the two largest weekly changes at the top and bottom of the list may have been deceptive. In the current week the two top performers were the KOPSI (South Korean stock prices) +11.43% and the Nikkei (Japanese stock prices) +7.92%. The two biggest decliners were NYMEX Crude -9.75% and NYMEX Crude (US listed) -8.14%. The third numbers in array were +3.64% and -6.57%. Thus, four out of seventy-two were extreme and perhaps only of use to specific traders.

 

Turning to the securities markets which have also been shifting in terms of importance. When our Grandparents followed the market, they looked at the Dow Jones Industrial Average (DJIA), which was carried in most newspapers and on most radio stations. As financial intuitions became larger, they were followed too, as well as the brokers servicing them. Additionally, larger individuals that somewhat competed with them followed the Standard & Poor’s 500 (S&P 500), which was on most wire (electric) services.

 

I am suggesting that the growth of relatively new Technology companies, particularly those involved with “AI” captured in the NASDAQ Composite, is more of a speculative market as many of these companies have only been publicly traded for a few years. One way to see the difference between those stocks tracked by the S&P 500 and the NASDAQ is to look at the percent of new lows vs the percent of new highs. For this week new lows on the NASDAQ were 65% of new highs vs. 47% on the SWX. Another way to look at this picture is to use the percentage of stocks on the new low list, which was 46% for the NASDAQ and 53% for the NYSE. This would indicate that older and larger companies on the “Big Board” are portraying more problems on the NASDAQ. I suspect that a relatively higher portion of “AI” related companies trade on the NASDAQ. If this is true, it should help their outlook.

 

This weekend’s development changes everything. You don’t have to accept my views, but you should understand them and I will be happy to communicate with you.

 

Many of us are impacted by what our family passes on to us, long before we realize how the world really works. Fred Trump, a real estate operator sitting in Queens, New York passed on to his two sons the fears generated by President Hoover’s economic recession. The recession created encampments of unemployed workers, which were then labeled after the President. The current President grew up hearing these deep concerns without a fully understanding the 1929 Wall Street crash. The crash bottomed before the next President, FDR and his “Harvard Brain Trust”, took over in 1933. They turned the Hoover recession, caused by lose-money and the Smoot Hawley tariff, into a depression. FDR was the third of four structuralist presidents, after Andrew Jackson and FDR’s distant cousin Teddy Roosevelt. It was his various actions that took a serious recession into a much deeper and longer depression and was one of the causes of the rise in military governance in Italy. Germany and Japan were the alliance that created WW II. But the current restructures’ President Trump, who by personality and political skills, not policies, is much closer to FDR than he recognizes, panicked this weekend. He very likely saw a depression coming and looked at his battle with Iran as a costly distraction. He is now anxious to end his war with Iran to prevent the 1930s type depression he fears.

 

Longer-Term View

At times I feel that I am the only one focused on investing for my grandchildren and now great grandchildren. With them in mind I look at past “bull markets”, which indicate that it is rare for leading investments may repeat in the next “bull market” and increasingly that is where I choose to devote my time.

 

Any suggestions are most desired, as few people seem to think that way.

                                         

 

 

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

Mike Lipper's Blog: Is This the Last Hurrah? - Weekly Blog # 945

Mike Lipper's Blog: New Era? - Weekly Blog # 944

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

 

 

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